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Advertising Issues—Economic Perspective

October 26, 2000: Framework Convention on Tobacco Control

Frank Chaloupka, PhD, Professor of Economics, University of Illinois

Dr. Chaloupka began his presentation by indicating that cigarettes are one of the most heavily marketed products in the United States and around the world. Cigarette companies are among the leading advertisers in most of the developing world. In 1998, total advertising and promotional advertising for cigarettes in the United States was $6.7 billion. That is up 19% from 1997 and up nearly 32% from 1996. Much of the expenditures are on promotional allowances, the payments that retailers receive for the placement of tobacco products in their stores. This currently accounts for about 43% of total expenditures. The second largest category is retail value added and coupons. Both of these lead to lower cigarette prices. There is a great deal of evidence documenting the relationship between cigarette prices and demand, and these account for nearly one-third of overall advertising and promotional expenditures in the United States. Traditional print, outdoors, transit type of advertising, and traditional image advertising account for about 16% of total market activities. The remaining activities include things such as sponsorship of public events, special items distribution, and other sorts of advertising and promotions.

The nature of cigarette marketing has changed dramatically over time. Between 1978 and 1998, there has been a shift in cigarette companies' marketing strategies, away from the more traditional image-oriented advertising toward promotional efforts that are often concentrated at the point of sale. Since 1978 and after adjusting for inflation-adjusted spending, image-oriented advertising has been cut almost in half and point of sale advertising has more than doubled. More importantly, overall promotional spending has risen nearly tenfold, with large increases in promotional allowances, in coupons from retail added value, which were almost non existent in 1978, and in sponsorship of public events. Overall, image-oriented advertising has gone from about three-quarters of the total tobacco companies' marketing effort in 1978 to less than one-sixth by 1998.

Conceptually, tobacco advertising and promotion can have several direct effects on tobacco use. These include attracting new users to the market, especially teens; reducing cessation; stimulating use among current users; and inducing former smokers to resume use. All of these increase the prevalence of tobacco use; the overall demand for tobacco products; and the health, economic and social consequences associated with tobacco use.

There are also several indirect channels by which advertising and promotion can raise tobacco use. These include the discouragement of a full discussion of the health consequences of tobacco use in the print and other media receiving tobacco advertising dollars. There have been several studies that have documented this over the last 10 years. Advertising and promotion can lead to the normalization of tobacco use by contributing to an environment where use is perceived as socially acceptable and less hazardous than it actually is. Advertising and promotion can also have the potential to create political opposition to strong tobacco control policies among the advertisers, retailers and other institutions that are receiving tobacco industry marketing dollars. Finally, the increased brand proliferation and market segmentation that results from advertising can also attract new users to the market and discourage users from leaving the market. All of these will raise smoking prevalence consumption and the consequences of tobacco use.

Numerous studies have looked at the links between advertising and tobacco use. Several have used logical arguments that are based on the size of tobacco company marketing expenditures and the industry's opposition to advertising restrictions to conclude that there must be a strong link between advertising and demand. Other studies that are largely based on cross-sectional surveys and other data conclude that cigarette ads capture attention and are recalled particularly among young people. The strength of interest in these ads is correlated with current smoking behavior, with intentions to smoke in the future, and with youth smoking initiation.

There have been several longitudinal studies that look at youth ownership of tobacco company promotional items and later smoking initiation. These studies conclude that youth ownership of these promotional items does predict smoking initiation in later years. Similarly, consistent with the observation that 86% of teen smokers use the three most heavily advertised cigarette brands compared with only 30% of adults, there is additional research that finds that youth are three times more receptive to cigarette advertising than are adults.

Econometric literature that tries to relate overall cigarette advertising expenditures to overall cigarette sales shows mixed findings. This literature tends to produce either small or negligible effects of cigarette advertising on cigarette sales, but several recent critical reviews point out the limitations of the econometric methods in trying to look at the relationship between cigarette advertising and demand. Nonetheless, most of these studies do conclude that there is some small positive effect of advertising on consumption. One area where econometric methods are much better at detecting the impact of advertising on demand is in looking at the effects of advertising restrictions on demand. Recent studies conclude that the most comprehensive restrictions on advertising and promotion can significantly reduce overall cigarette consumption. Estimates from Dr. Chaloupka's recent study that uses data from Organization for Economic Cooperation and Development (OECD) member nations over the last three decades concludes that comprehensive advertising and promotion bans can reduce cigarette consumption by more than 6%. In general, however, these studies find that partial advertising bans have little or no effect on overall cigarette consumption. This happens because partial bans and bans on advertising in one or two media leads to substitution of resources away from the media that are banned into other types of advertising and promotional activities that are not restricted.

Recent work by Dr. Chaloupka, for example, concludes that the elimination of tobacco company billboard advertising led to moving resources from billboard advertising into more advertising and promotional activity at the point of sale. Similarly, other recent evidence from the Massachusetts tobacco control program found that cigarette advertising in magazines also increased after the MSA, particularly in magazines with high youth readership.

Dr. Chaloupka showed a slide that illustrates the point that comprehensive advertising bans are needed to successfully reduce consumption. Countries that have had comprehensive bans in advertising and promotion have significantly reduced cigarette smoking, whereas countries that have relatively limited bans or no bans on consumption have seen much slower reductions in overall cigarette consumption.

Clearly, tobacco counter marketing efforts lead to significant reductions in overall cigarette smoking as well as in youth smoking. The magnitude of the effects of these reductions depends on the reach of the campaigns, the frequency with which those messages are being broadcast and the duration of the counter marketing campaign. If they are sustained over time at high levels, these do lead to significant reductions in smoking. These campaigns appear to be most effective when they are one element of a broad overall comprehensive tobacco control program that also includes a variety of other approaches to reducing tobacco use, such as tax increases, strong tobacco control policies, and increased access to cessation services.

To summarize, Dr. Chaloupka stressed that tobacco advertising and promotion in the United States and around the world is substantial and is increasing, and it is an issue that transcends national boundaries. This issue requires international action, given the growing evidence that tobacco advertising increases tobacco consumption, particularly among the most vulnerable populations like youth, and among the least educated people in developing countries. Comprehensive bans on tobacco advertising and promotion will lead to significant reductions in overall tobacco use. Limited restrictions, on the other hand, are not likely to have much of an impact given the potential for substitution. Finally, counter marketing is effective in reducing tobacco use and should be considered one component of a comprehensive tobacco control program.

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