Understanding the vector in order to plan effective tobacco control policies: an analysis of contemporary tobacco industry materials

Abstract

This paper builds on tobacco document research by analysing contemporary materials to explore how the global tobacco market has changed, how transnational tobacco companies (TTCs) are responding and the implications for tobacco control. The methods involved analysis of a variety of materials, including tobacco company annual reports, investor relations materials, financial analyst reports, market research reports and data. Once China, where TTCs have little market share, is excluded, global cigarette volumes are already declining. Nevertheless, industry profits continue to increase. This pattern is explained by the pricing power of TTCs-their ability to increase prices faster than volumes fall, a consequence of market failure. Pricing power is now fundamental to the long term future of TTCs. Consequently, and in light of growing regulations, the business model of the TTCs is changing. Product innovation is now a key marketing technique used to drive consumers to buy more expensive (ie, profitable) premium cigarettes. Contrary to established wisdom, high tobacco excise rates, particularly where increases in excise are gradual, can benefit TTCs by enabling price (profit) increases to be disguised. Large intermittent tax increases likely have a greater public health benefit. TTC investments in smokeless tobacco appear designed to eliminate competition between smokeless tobacco and cigarettes, thereby increasing the pricing power of TTCs while enabling them to harness the rhetoric of harm reduction. Monitoring TTCs can inform effective policy development. The value maximising approach of TTCs suggests that a ban on product innovation and more informed tobacco excise policies are needed.

Figure 1. Global cigarette consumption trends and predictions (millions of sticks): 1880 to 2016

Sources: Tobacco Atlas data: 2010 data from 3rd Edition (2009)[5], other data from 2nd Edition[6]. Euromonitor International data downloaded 16 March 2011. BAT data: [7-11] Please note the varying scale in the x-axis.

Figure 2. Global cigarette market: percent change in value and volume overall and by region, 2001 to 2010

Source: Euromonitor data