Marketing Expenditures and Industry Transformation: Are Cigarette Companies Really Shifting Away from Cigarettes?

Abstract

Introduction:

Cigarette companies have stated their intent to transition from selling cigarettes to selling less harmful products, such as e-cigarettes. We examine trends in US cigarette marketing expenditures and their relationship to e-cigarette use.

Methods:

We obtained US cigarette marketing expenditures data for 2010–2022 from the 2022 Federal Trade Commission Cigarette Report. We compared these expenditures to adult e-cigarette prevalence data from the National Health Interview Survey (NHIS). We also considered types of marketing expenditures.

Results:

Cigarette marketing expenditures per pack have increased since 2010, most of which involve price-discounting. These increases co-occurred with increased e-cigarette use, especially among youth and young adults.

Conclusions:

Our analysis finds that, despite declining cigarette sales, cigarette companies have intensified their marketing efforts by allocating increasing expenditures per pack as e-cigarette use increased.

INTRODUCTION

US cigarette sales have steadily declined, with many consumers switching from cigarettes to e-cigarettes or initiating e-cigarette use instead of cigarettes.^1–6 In response, US cigarette companies have stated their intention to transition from selling cigarettes to selling less harmful, noncombustible products, such as e-cigarettes.^7–12 While cigarette companies have diversified their portfolio to include e-cigarettes, non-cigarette companies have continued to dominate e-cigarette sales.^{7 8 13–15}

The four major US cigarette companies have maintained a 95% share of the cigarette market,^16–19 thereby enabling them to better coordinate pricing and other marketing strategies in response to the competition from independent e-cigarette companies.^{7 20} This paper compares 2010–2022 cigarette marketing expenditures to concurrent e-cigarette use prevalence and considers the composition of marketing expenditures. We apply marketing expenditures from the Federal Trade Commission (FTC) Cigarette Report,²¹ an underutilized source on industry behavior. We also compare trends in per-pack marketing expenditures to trends in e-cigarette prevalence.

METHODS

The 2022 FTC Cigarette Report²¹ compiles data from compulsory reports submitted to the Commission by the major US cigarette manufacturers: Altria Group; ITG Holdings USA; Reynolds American; and Vector Group Ltd. Unlike previous studies, which examine total marketing expenditures,^22–24 we focus on marketing expenditures per pack as a measure more directly related to the unit of sales and the associated price. Nominal marketing expenditures are adjusted for price inflation by deflating by the consumer price index in 2022$ (Supplementary Appendix 1).²⁵ We apply a joinpoint analysis to gauge trends.²⁶

Additionally, we analyze the composition of marketing expenditures, including price-reducing payments to cigarette retailers or wholesalers and coupons, promotional expenditures (volume rebates, incentive payments, free cigarettes, and shelf-space payments), and direct media purchases.

We also consider the relationship of marketing expenditures to e-cigarette prevalence. Data on current e-cigarette prevalence (i.e., every day or someday use) among US adults aged 18 years and above, and by age groups, are from the 2014–2022 National Health Interview Survey (NHIS).^27–32

RESULTS

Figure 1 shows 2010–2022 inflation-adjusted marketing expenditures per pack. While total cigarette marketing expenditures have been relatively stable (Supplementary Appendix 1), marketing expenditures per pack generally increased from 2010 to 2022. These increases occurred as the volume of packs sold decreased from 14.2 billion in 2010 to 8.7 billion in 2022. Joinpoint analysis yielded an average annual percentage increase of 1.2% (p<0.05) from 2010 to 2022. While no changes in trend were detected (e.g., due to the small sample size), Figure 1 indicates that expenditures increased from $0.77 in 2010 to $0.91 in 2017, fell to $0.87 in 2019, and increased to $0.93 in 2022.

Figure 1.

Marketing Expenditures Spent Per Pack in $2022 and E-cigarette Prevalence

E-cigarette use increased slowly from 1.3% in 2010/2011 to 1.6% in 2012/2013.³⁰ Figure 1 shows a slight decline in adult e-cigarette prevalence from 3.7% in 2014 to 2.8% in 2017, an increase to 4.5% in 2019, and to 6.0% in 2022 (p< 0.05). Much of the growth was in young adult use (Supplementary Appendix 2), with current e-cigarette use prevalence among those aged 18–24 increasing from 5.1% in 2014 to 9.3% in 2019 and 15.3% in 2022.^31–33 E-cigarette use also increased from 6.4% in 2019 to 9.0% in 2022 among those aged 25–44, but remained relatively constant among those above age 44.³²

Supplementary Appendix 3 Table 1 and Figure 1 show the percentage of total marketing expenditures by type. From 2010 to 2022, coupons plus direct price discounts to retailers and wholesalers increased from 84% to 87%, while the rate of retailer and wholesaler promotional allowances remained at 10%, and direct media ad expenditures fell from 6% to 3%.

DISCUSSION

Data from the 2022 FTC Cigarette Report²¹ reveal that inflation-adjusted cigarette marketing expenditures per pack increased at an average rate of 1.2% per year from 2010 to 2022, although the number of cigarette packs sold declined. Concurrently, NHIS data shows an increase in US adult e-cigarette use, with more rapid growth since 2017 corresponding to the rapid increase in e-cigarettes among young adults.³³ Much of that growth was young adult use, suggesting that cigarette companies may have been particularly concerned about the loss of young cigarette customers, who are essential to future sales. A rapid growth in disposable e-cigarette sales^34–38 and nicotine pouch sales^{39 40} from 2019 to 2022 also coincides with increases in per-pack cigarette marketing expenditures.

The 2021 FTC E-cigarette Report³⁶ also shows growth in e-cigarette sales. E-cigarette sales³⁶ deflated by the CPI²⁵ increased from $345 million in 2015 to $2,763 billion in 2021, although total US marketing expenditures as a percent of sales decreased from 65% in 2015 to 38% in 2019 and 31% in 2022. While the FTC Report does not distinguish cigarette sales by US cigarette companies, other sources^{34–38 41 42} indicate increased investments in e-cigarettes by US cigarette companies, e.g., Reynolds’ Vuse and Juul (partially owned by Altria) accounted for a large share of e-cigarette sales by 2022. However, Chinese disposable brands at the same time also experienced rapidly growing sales.^{34–38 41 42} Although e-cigarette investments by cigarette companies were likely in response to competition from independent non-cigarette companies, those investments do not negate the overall growth in per-pack cigarette marketing expenditures.^7–9

Cigarette marketing expenditures that involve discounting cigarette prices to retailers and wholesalers and promotional allowances increased from 93% of total marketing expenditures in 2010 to 97% in 2022. During that same time period, average inflation-adjusted cigarette prices increased by 25% (Supplementary Appendix 4). However, a recent study⁴³ found that deep-discount cigarette sales were the only segment of the US cigarette market in which sales increased and prices decreased. Price-related strategies, such as coupons and geographically targeted price discounts, often target low-income customers,^23,44–46 who are also the most price-sensitive.⁴⁷ Promotional allowances may also be used to foreclose retail shelf space to independent firms selling harm-reducing products.^{13 17}

While FTC data does not distinguish the specific populations targeted by industry marketing expenditures, trends in smoking prevalence by age group provide important insights. Between 2011 and 2022, the smoking prevalence of youth^{48 49} and young adults^{6 50–52} dramatically declined as e-cigarette use increased.^53–56 At the same time, smoking prevalence among those ages 45+ remained relatively stable^{33 50 51} with relatively low levels of e-cigarette use.^52–56 While cigarette companies have incentives to encourage younger cigarette users, they also have incentives to retain older, more established adults who smoke. As those who tend to have low incomes,^{6 50 51 57} older people who smoke are particularly sensitive to prices. ⁴⁷ In addition, those of low income have experienced the slowest decline in smoking prevalence.⁶

Since older, particularly low-income populations had the slowest decline in smoking prevalence, price-discounting expenditures have the potential to increase near-term smoking-attributable deaths, and, thereby, widen smoking-related health disparities.^23,44 At the same time, recent tobacco control policies targeting cigarette use have had a relatively minor impact.⁵² Indeed, inflation-adjusted cigarette taxes declined by 14% from 2010 to 2022; the unadjusted federal tax rate has remained at $1.01 since 2009, implying an inflation-adjusted reduction of 36% (Supplementary Appendix 5). Stronger cigarette-oriented policies, such as increased cigarette taxes⁵² and stronger minimum price laws,^{58 59} are needed to discourage cigarette use.

In conclusion, while cigarette companies claim to be transitioning to less harmful products, market reality shows that cigarette marketing expenditures have not been reduced and are continuing to target older, low-income adults who smoke. At the same time, increased e-cigarette use combined with a decline in smoking prevalence among youth and young adults has pushed the cigarette industry to diversify its portfolio by investing in e-cigarettes to maintain profits. Cigarette marketing expenditures should be closely monitored, and stronger tobacco control policies are needed to reduce cigarette use, especially among older, low-income adults.

What is already known on this subject?

• Cigarette companies have stated their intent to transition from selling cigarettes to selling less harmful products, such as e-cigarettes.

• Price discounting has played an important role in maintaining low-income people who smoke.

What important gaps in knowledge exist on this topic.

• Little has been done to monitor industry claims regarding their state intent to transition to less harmful products.

What this study adds.

• Cigarette marketing expenditures per pack have increased between 2010 and 2022, coinciding with the rise in e-cigarette use.

• Most expenditures were directed towards discounting prices, an effective strategy for retaining older, low-income cigarette customers.

Data availability:

The data is publicly available in the referenced FTC report and online sources.