Tobacco manufacturers give incentives to retailers to promote their products

A study published in the journal Tobacco Control[1] analyzed existing data on incentives granted to tobacco retailers by major tobacco manufacturers for the purpose of promoting their products at points of sale. The study sought to determine the components of the contracts and their impact on the tobacco retail environment.

The researchers included studies that collected and analyzed empirical data on contracts between tobacco manufacturers and retailers. In the end, 27 studies were retained, published between 1991 and 2000 (17 conducted in the United States, three in Australia, two in the United Kingdom, two in South Korea and one each in Canada, New Zealand and Indonesia).

The most common contractual incentives identified were free or discounted tobacco products, free advertising, and branded accessories offered to customers, such as lighters. Contracts also often included financial bonuses or vouchers for retailers, the amounts of which varied widely: from €18/month to over €22,000 per year according to studies conducted in the United States. Generous in-kind incentives were awarded to top-performing retailers in the United Kingdom, Australia and the United States. For example, these included tickets to sporting, musical and film events, invitations to lavish parties where tobacco products were promoted and offered to guests and staff, participation in sporting activities, driving Lamborghinis and Ferraris, all-expenses-paid trips to Fiji to see tobacco growing and manufacturing, and lotteries to win luxury cars.

Secret deals that allow manufacturers to promote their products

Tobacco product promotion often relies on secret contractual agreements between the international branches of major tobacco manufacturers and retailers. These contracts are legally binding agreements that are often incorporated into marketing programs, such as Philip Morris’ Retail Leaders Program, RJ Reynolds’ Retail Partner Marketing Plan Contract (RPMPC), or ITG Brands’ Retail Partnership Plan. These contracts ensure that tobacco products are strongly marketed at retail through the four “Ps” of marketing: placement, promotion, price, and product.

The most commonly reported requirements in contracts described how tobacco products and advertising were to be displayed in the store. Retailers received financial incentives in exchange for one or more spaces dedicated to brand promotion. In some cases, nearly half of the tobacco sales space was dedicated to a single manufacturer. Two studies in the United States reported contracts that deliberately promoted menthol tobacco products in predominantly African-American neighborhoods. The findings specified that retailers were required to have a market share of 50% or more for their menthol products and were required to place these products and advertisements in highly visible locations.

Requirements on sales quantities and product prices

The contracts also specify the prices at which tobacco products can be sold. A study in the United States found that 77 % retailers were required to price tobacco products according to the manufacturer’s specifications. The studies consistently found reductions in tobacco prices, and these reductions were particularly apparent for tobacco retailers located on the border of certain states that had higher tobacco taxes. “Niche” contracts were then offered to retailers located on these borders that imposed price reductions of $1 to $3 on a pack of cigarettes.

Studies have found that some retailers were required by contract to promote products and maintain certain sales volumes in order to retain payment from manufacturers. One contract from manufacturer RJ Reynolds in the US found that retailers were required to sell at least 17 cartons of RJ Reynolds brands per week to be eligible for incentives. To achieve this, manufacturer representatives encouraged retailers to become advocates for their brands to customers. For example, retailers in a UK study were expected to promote a particular product to customers for a set period of time. If a mystery shopper requested a different brand and the retailer suggested switching to the manufacturer-specified product, the retailer received a £100 bonus on top of their contractual incentives.

Incentives that weaken the fight against smoking

Article 13 of the WHO Framework Convention on Tobacco Control (FCTC) and its application guidelines provides guidance to countries to reduce tobacco advertising, promotion and sponsorship. Recommendations include a complete ban on tobacco manufacturer incentive programs that require the preferential placement, promotion, discounting or targeting of tobacco products in retail outlets. However, despite this ban, the industry continues to circumvent the ban, particularly through this means. A large number of studies[2]-[3]-[4] have demonstrated that tobacco promotion in points of sale encourages young people to start smoking, reduces attempts to quit by smokers and encourages relapse among ex-smokers.

In 2019, British American Tobacco, present in more than 180 markets worldwide, strengthened its relationships with retailers and distributors through loyalty and incentive programs[5], Japan Tobacco International has increased its retail presence in major markets[6] and major tobacco manufacturers in the United States spent €6.7 billion on marketing, with the majority of this spending (€5 billion) going to offering discounts on tobacco products at points of sale.[7].

The study concludes that these contracts change the retail environment in ways that influence consumer behavior. For example, because of the incentives provided to retailers by these contracts, the tobacco industry has been able to promote new low-price brands and implement discounts and coupons at retailers to mitigate the impact of tobacco price increases in some countries.

Keywords: Tobacco industry, marketing, promotion, retailers, advertising

Photo credit: ©PHOTOPQR/SOUTH WEST/MAXPPP ©Generation Without Tobacco

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[1] Reimold AE, Lee JGL, Ribisl KM Tobacco company agreements with tobacco retailers for price discounts and prime placement of products and advertising: a scoping review Tobacco Control Published Online First: 24 January 2022. doi: 10.1136/tobaccocontrol-2021-057026 [2] Lovato C, Linn G, Stead LF, Best A. Impact of tobacco advertising and promotion on increasing adolescent smoking behaviors. Cochrane Database Syst Rev. 2003;(4):CD003439. doi:10.1002/14651858.CD003439. Update in: Cochrane Database Syst Rev. 2011;(10):CD003439. PMID: 14583977. [3] Robertson L, McGee R, Marsh L, Hoek J. A systematic review on the impact of point-of-sale tobacco promotion on smoking. Nicotine Tob Res. 2015 Jan;17(1):2-17. doi:10.1093/ntr/ntu168. Epub 2014 Aug 30. PMID: 25173775; PMCID: PMC4832971. [4] Siahpush M, Shaikh RA, Smith D, Hyland A, Cummings KM, Kessler AS, Dodd MD, Carlson L, Meza J, Wakefield M. The Association of Exposure to Point-of-Sale Tobacco Marketing with Quit Attempt and Quit Success: Results from a Prospective Study of Smokers in the United States. Int J Environ Res Public Health. 2016 Feb 6;13(2):203. doi:10.3390/ijerph13020203. PMID: 26861379; PMCID: PMC4772223. [5] British American Tobacco. BAT annual report and form 20-F 2019, 2019. [6] Japan Tobacco International. Japan tobacco Inc. integrated report 2019, 2019. [7] Federal Trade Commission. Federal Trade Commission cigarette report for 2019, 2021 National Committee Against Smoking |