These POS expenditures account for over 75% of the tobacco companies’ total marketing dollars spent on cigarettes and smokeless tobacco combined. These figures, released on March 28, 2018 in the Federal Trade Commission (FTC) Reports on Cigarettes and Smokeless Tobacco Sales and Marketing Expenditures in 2016, document a continued concentration of tobacco industry expenditures at the POS. The FTC has been preparing reports on sales, advertising, and promotions of cigarettes since 1967 and smokeless tobacco since 1987. Reports are issued periodically and give tobacco control advocates detailed advertising and promotion spending reports in more than two dozen categories. The spending reports show that tobacco companies spend the majority of their marketing dollars on two categories: price discounts and promotional allowances to keep products cheap and visible at the point of sale.
Tobacco Industry Marketing Expenditures at the Point of Sale, 2016
When factoring in price discounts and promotional allowances paid to wholesalers, which also ultimately reduce the price of products to consumers, the amount spent rises nearly 96% of the tobacco industry’s total marketing budget. These price discounts counteract the impact of tobacco control policies like excise taxes and target price sensitive smokers.
- What are price discounts? Price discounts are what tobacco companies pay to cigarette retailers or wholesalers in order to reduce the price of cigarettes to consumers, including off-invoice discounts, buy-downs, voluntary price reductions, and trade programs.
- What are promotional allowances? Promotional allowances are what tobacco companies pay to either cigarettes retailers or wholesalers in order to facilitate the sale or placement of tobacco products. For retailers, this can include payments for stocking, shelving, displaying and merchandising brands, volume rebates, incentive payments, and the cost of tobacco products given to retailers for free for subsequent sale to consumers. For wholesalers, this can include payments for volume rebates, incentive payments, value added services, promotional execution and satisfaction of reporting requirements.
Price discounts remain the single largest category for both cigarettes and smokeless tobacco, accounting for 83.2% of industry spending on these products overall. However, expenditures on coupons continue to grow for both products as well, with expenditures on coupons for cigarettes increasing by 13% and expenditures on coupons for smokeless tobacco increasing by 35% from 2015-2016.
Tobacco marketing at the POS matters. Research shows that tobacco marketing can cause youth to start smoking, keep current smokers hooked, and make it harder for current and former users to quit and stay quit. These FTC reports emphasize the critical need to monitor and address tobacco industry activity in the retail environment.
Note: In 2016, the FTC Cigarette and Smokeless Tobacco Reports began separating price discounts into amounts paid to retailers and amounts paid to wholesalers. In previous calculations, we had included this category as a whole. In an effort to track what is directly spent on tobacco retail locations like convenience stores that any person can access to purchase tobacco, we calculate the amount spent at the POS using the following categories: (a) point-of-sale advertisements, (b) price discounts to retailers, (c) promotional allowances to retailers, (d) retail-value added bonus tobacco products and bonus non-tobacco products, (e) coupons, and (f) consumer engagement. Other marketing dollars not considered to be aimed at POS include, for example, dollars spent on direct mail, magazines, internet, or sponsorships. However, we are also reporting totals including price discounts and promotional allowances paid to wholesalers for their role in reducing the price of tobacco products for consumers.