Editorial Price and tobacco marketing WHO Framework

Price and tobacco marketingstrategy: lessons from ‘dark’markets and implications for theWHO Framework Conventionon Tobacco ControlTimothy Dewhirst

A marketing strategy involves specifyingtarget markets and establishing a relatedmarketing mix, which is commonlybroken down into the 4Ps (ie, product,price, place and promotion).1 It is import-ant for those in tobacco control to recog-nise that marketing is much broader inscope than advertising or promotion.2

Price entails marketers determining themonetary cost of products, including anyapplicable taxes, as well as considerationabout the time and effort required byconsumers to acquire the product. Firmstypically determine their break-evenpoint and evaluate whether they will beable to cover all of their costs and gener-ate a profit with their product listed at aparticular price. Managers may estimatethe impact of alternative price levels onprofits. Each of the 4Ps should bedesigned and directed toward well-definedtarget markets and developed synergistic-ally to ensure a coherent and consistentbrand meaning.

British American Tobacco regardsAustralia and Canada as the ‘darkest’markets in the world due to their limitedoptions for brand communications.3 Insuch ‘dark’ markets, tobacco companieshave shifted much of their promotionaldollars towards the retail sector and pricinghas become an ever more important part oftobacco firms’ marketing strategies.4 InCanada, for example, price had not trad-itionally been an important differentiatingfactor in marketing cigarettes, but thischanged during the mid-2000s which coin-cided with federal and provincial legislationplacing stringent stipulations on promo-tion. According to Rothmans, Benson &Hedges Inc. (RBH), ‘the product mix has

continued to shift with many consumersleaving their traditional premium brandsfor contraband or cigarette price categoryproducts [those offering ‘value’ or relativelylower prices]. From a 33% share of thetotal tobacco market in fiscal 2005, pricecategory cigarettes increased to almost40% this past year [fiscal 2006].’5

Competitor, British American Tobacco—the parent company of Imperial TobaccoCanada Limited (ITL)—estimates that 91%of the total Canadian domestic marketconsisted of ‘premium’ brands during2003, whereas premium brands had areported 39% market share by 2010.6 Thepremium category appeared to diminishfurther in 2011, as Derek Guile, director ofsales and marketing for RBH, estimatedthat it represented 30% of the total cat-egory.7 Consequently, the popularity ofvarious brands has shifted over the pastdecade and the market leader, ITL, has lostmarket share due to consumers down-trading to price category cigarettes, largelyat the expense of competitor, RBH, as wellas from contraband cigarettes (figure 1).In this issue, Wakefield, Zacher, Scollo

and Durkin offer important insight byexploring how cigarette brands are stra-tegically listed on price boards—inMelbourne, Australia—subsequent totobacco displays and promotions beingbanned at the point of sale (POS).8 Theyfound that premium brands are more likelyto be listed on price boards, despite anoverall market share that is considerablylower than price category cigarettes. As theauthors acknowledge, this observationlikely reflects that premium brands offer abetter profit margin for tobacco firms. Inseeking to maximise profits, tobacco firmsand retailers face the dilemma regarding towhat extent they focus on premiumbrands that offer better profit margins oron price category brands that must be soldin higher volumes to meet desired profitobjectives. In Canada, ITL’s core strength is

the premium segment with their Player’sand du Maurier brands, and thus thecompany has emphasised to retailers thatthis segment generates disproportionaterevenue and such consumers are morelikely to purchase additional goods simul-taneously (ie, generate a larger basket).Although display payments to retailers areno longer likely with tobacco displays andpromotions being banned at the POS,Canadian tobacco firms have establishedtrade terms for their retailers that areperformance-based. In speaking to retailerstakeholders, Ron Funk, vice president ofcorporate affairs for RBH, stated, ‘You canexpect our company to not be payingfor retail display space. But that is notmeant to imply that we are taking tradespending off the table, not at all. In fact,we will migrate that trade spend intopay-for-performance kind of programs. Sowe will be focused on specific brands, oninformation that you can provide to yourconsumers, those kinds of things… don’tthink that money is being removed fromthe category; it is not.’9

Wakefield and colleagues also identifypremium, mainstream and budget/value asprice classifications of cigarettes, whichexemplifies a strategic marketing approachknown as ‘price lining.’ Price lining involvesestablishing a limited number of pricepoints for products, which serves to sim-plify the consumer ’s evaluation of alterna-tive products. Like Australia, retailersselling cigarettes in Canada have com-monly listed prices using up to three pricepoints, with the various price points beingdubbed, premium, value and ‘budget’(figures 2 and 3). Collectively, the valueand budget brands are commonly referredto as price category cigarettes.

Psychological pricing techniques may beused by marketers, including the use of‘prestige’ or ‘odd–even’ pricing. For prestigepricing, retail prices are purposely estab-lished high relative to competing brands,with the higher price and premiummoniker meant to convey superior productquality (ie, the aphorism, ‘you get whatyou pay for ’) and market leadership, sug-gesting status redemption for its user.In contrast, odd–even pricing may be usedto convey value and affordability bysetting prices just below even dollar values(eg, charging $9.99 for a product ratherthan $10.00) (figure 4).10 11 Research indi-cates that prices with 99 endings, ratherthan 00 endings, can considerably increasesales.12 13

Another pricing technique is leaderpricing, which occurs when a firm orretailer sets a promotional price, sellingselect products below their usual listed

Correspondence to Professor Timothy Dewhirst,Department of Marketing and Consumer Studies,College of Management and Economics, University ofGuelph, Guelph, ON, Canada, N1G 2W1;dewhirst@uoguelph.ca

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Figure 1 Canadian Classics and Number 7 are price category cigarette brands offered by Rothmans, Benson & Hedges Inc.—Canada’s secondlargest tobacco firm—and the company self-identifies as being the industry leader in Canada for price category offerings. The advertisementcirculated in the May/June 2005 issue of the retailer trade press magazine, Your Convenience Manager. According to December 2010 tracking data,Canadian Classics and Number 7 are among the top 10 selling brands overall in Canada.

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Figure 2 JTI-Macdonald, Canada’s third largest tobacco firm, introduce their XS brand, which they claim is ‘luxury and prestige defined.’ Theadvertisement circulated in the January/February, March/April and May/June 2008 issues of the retailer trade press magazine, Your ConvenienceManager.

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Figure 3 In the USA, Doral exemplifies a ‘value’ brand that is positioned to appeal to consumers who are looking for discount prices or attaining a‘bang for their buck.’ The advertisement circulated in 1998 and includes the following ad copy: ‘Doral combines the taste, quality, and extras ofhigher-priced brands with a price that’s always fair. We think that’s the kind of honest value you deserve. Discover The Doral Difference.’

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price, as a means of gaining attention ordrawing consumers to the retail setting.Discount prices (eg, a ‘good deal’ beingoffered such as buy two packs, get onefree) are likely to prompt impulse pur-chases and consequently encouragesmokers to consume more than they mightotherwise. According to youth survey datafrom the USA, POS tobacco advertising ispositively associated with smoking initi-ation, while promotional offers (eg, multipack discounts, special prices, gift withpurchase) are particularly influentialtowards more established smokers.14

Article 13 of WHO FrameworkConvention on Tobacco Control (FCTC)calls for a comprehensive ban on tobaccoadvertising and promotion; guidelines forthe implementation of Article 13 identifythat discounts, free gifts, redeemablecoupons and other retail merchandisingactivities, including incentive schemes, areforms of tobacco advertising and promo-tion covered by the stipulations of WHOFCTC. The guidelines only allow for the

‘textual listing of products and their prices,without any promotional elements,’ yetthe guidelines elsewhere identify that pro-motional effects may be evident from themere use of brand names, which has impli-cations for how the listing of ‘products’ isinterpreted for price board listings.15 In theelaboration of guidelines for implementa-tion of Article 6 of WHO FCTC, it isstrongly advised that the stipulations gobeyond tax measures and also recognise thepricing strategies that may be used bytobacco firms in their marketing initiatives.Much of the tobacco control literatureconcerning price has focused on taxationas an intervention, and while this bodyof literature has been very important,more research is needed regarding tobaccopricing from a marketing and consumerperspective, which further builds upon thevaluable contribution by Wakefield andcolleagues.

Acknowledgements The author gratefullyacknowledges Wonkyong Beth Lee and Ruth Malone forproviding comments on an earlier draft of this editorial

as well as Shawn O’Connor for providing access to backissues of Your Convenience Manager.

Competing interests TD is an Associate Editor ofTobacco Control with respect to Product Marketing andPromotion. He has also served as an expert witness intobacco litigation.

Provenance and peer review Commissioned;internally peer reviewed.

Tobacco Control 2012;21:519–523.doi:10.1136/tobaccocontrol-2012-050693

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Figure 4 A package of 20 cigarettes being offered for $4.99 exemplifies the strategic use ofodd–even pricing.

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