Trends in Cigarette Marketing Expenditures, 1975–2019: An Analysis of Federal Trade Commission Cigarette Reports

Abstract

Introduction

With tightened regulations on cigarette marketing and decreased smoking, the major tobacco companies quickly shifted their marketing expenditures in recent decades to maintain profits. We investigated cigarette marketing expenditures in the United States from 1975 through 2019 to examine the trends in cigarette marketing expenditures over the past 45 years.

Aims and Methods

Cigarette marketing expenditure data were obtained from the Federal Trade Commission (FTC) cigarette reports, 1975–2019. Based on individual expenditure categories included in the FTC reports, we created seven aggregate categories for marketing expenditures: Retail; Print; Out of home; Free tobacco products and gifts; Sports, public entertainment, and sponsorships; Telephone and digital; and Other. Dollar amounts and percentages by category were examined to assess trends in marketing expenditures.

Results

Cigarette marketing expenditures increased since 1975 and peaked in 2003 at $21.1 billion (adjusted dollars); afterward, they declined dramatically until 2010 and remained stable at around $9 billion through 2019. While all other expenditures decreased, retail expenditures increased, comprising more than 50% of expenditures in 1988 and reaching about 98% in 2019. In the retail category, tobacco companies spent the most on promotional allowances, coupons, and retail-value-added bonuses between 1988 and 2003, after which price discounts dominated retail spending.

Conclusions

Overall, cigarette marketing expenditures peaked in 2003 and retail first became the leading category in 1988. Tobacco companies adapted their marketing strategies in retail and allocated most of their retail spending on price discounts since 2003 to lower cigarette prices.

Implications

The major US tobacco companies directed the bulk of their vast spending on the retail environment since 1988. Moreover, they have dramatically shifted their marketing strategies within the retail category from cigarette advertising before 2003 to customer-directed price discounts since then. This shift may imply a change in focus from recruiting new smokers to retaining current smokers, in response to tax increases and government regulations. Accordingly, restrictions on price-related promotions in retail and nontax strategies should be implemented to counter tobacco companies’ marketing efforts in retail.

Introduction

The prevalence of current cigarette smoking among US adults decreased from 42% in 1965 to 14% in 2019.^1,2 Such an achievement is partially attributable to increased cigarette taxes and smoke-free air laws, but also by restricting cigarette marketing, which is related to increased tobacco use initiation.^3,4 In 1971, the Public Health Cigarette Smoking Act banned cigarette advertising on broadcast media, such as television and radio. In response, the major US tobacco companies rapidly shifted cigarette advertising to print media and other unrestricted channels.

Since then, several other federal policies and regulations on cigarette marketing were implemented. For instance, in 1998, 46 states and the four largest US tobacco companies signed the Master Settlement Agreement (MSA), an accord that prohibited cigarette advertising and promotional activities on billboards and public transit locations, as well as banned cartoon advertising such as Joe Camel. In 2009, Congress passed the Family Smoking and Prevention and Tobacco Control Act (FSPTCA) that gave the Food and Drug Administration (FDA) authority to regulate the sales and marketing practices of tobacco companies.^5,6 In the same year, the federal excise tax on cigarettes was increased from 39¢ to $1.01 per pack.⁷

Accordingly, such regulations may substantially change and shape how tobacco companies market and promote their products. For instance, cigarette advertising and promotion expenditures increased dramatically between 1997 and 2001, despite the provisions of the MSA.⁸ Moreover, tobacco company expenditures increased substantially at retail (eg, price discounts), whereas expenditures decreased in direct advertising (eg, print media).

Given the evolving regulatory environment, research to examine tobacco companies’ marketing expenditures in recent decades deserves attention. Previous research either examined cigarette marketing expenditures over a short period or focused on a specific type of spending.^8,9 Moreover, the trends of marketing expenditures in recent years have not been updated. How tobacco companies respond to these policies and regulations over a long period to maintain or even increase consumer cigarette demand is less known. Consequently, the lack of reporting on tobacco companies’ marketing directions may potentially prevent regulatory programs from accurately targeting and countering their marketing activities.

To track the trends of tobacco companies’ cigarette marketing spending and to inform future tobacco regulations, the current study sought to examine cigarette marketing expenditures in the United States over 45 years (1975–2019) using the Federal Trade Commission (FTC) Cigarette Reports. This work addresses how the major categories of cigarette marketing expenditures, and their dollar value, changed over the past 45 years.

Methods

Data for this study were obtained from the FTC Cigarette Reports, 1975–2019. The FTC reports cigarette sales, promotion, and advertising, based on data reported from the major US tobacco companies: Altria Group (Philip Morris products including Marlboro); Commonwealth Brands (USA Gold, Phillies); ITG Holdings USA Inc. (Winston); Lorillard (Newport); Reynolds America (Camel, American Spirit); and Vector Group (Pyramid, Liggett). The number and identity of the companies reporting cigarette data have varied over the many years that the Commission has issued these reports. Though the earliest cigarette marketing report can be traced back to 1970, there were no data reported between 1971 and 1974. Therefore, we analyzed cigarette marketing expenditures from 1975 through 2019.

The FTC reports provided detailed information about cigarette promotion and advertising expenditures in 34 unique categories. However, how marketing expenditures were categorized and reported varied across years. For instance, there were only 10 categories of expenditures in 1975. With some categories dropped, combined, or split, and many more added to the reports over years, there were 28 categories of expenditures in 2019. To avoid potential exposure of individual company information, the FTC did not report the exact expenditures for various categories in select annual reports if only one company reported relevant data.

Therefore, we created seven aggregate categories of expenditures by combining similar individual expenditure categories reported by the FTC. Aggregate categories include: Retail; Print; Out of home; Free tobacco products and gifts; Sports, public entertainment, and sponsorships; Telephone and digital; and Other. Retail expenditures include spending on advertising and promotion at retailers and wholesalers (eg, coupons); Print expenditure refers to costs to reach consumers via print media (eg, newspapers); Out of home expenditures include spending on outdoor and transit advertising (eg, public transportation); Free tobacco products and gifts expenditures include spending associated with distributing free items or cigarettes (eg, sampling); Expenditures associated with sporting and public entertainment events (eg, sporting events, endorsement) are classified under Sports, public entertainment, and sponsorships; Advertising on digital platforms (eg, Internet) are included under Telephone and digital expenditures; and Other expenditures are expenditures not specified in the FTC reports to avoid disclosure of individual company data (see Table 1). The dollar amount was adjusted for inflation based on the 2019 annual consumer purchase index (CPI). The real dollar amount and the adjusted one were reported in Supplementary Tables 1 and 2 (also see Supplementary Figures 1 and 2).

Table 1.

Aggregate Cigarette Marketing Categories, 1975–2019

	Definition	1975–1985	1986–1995	1996–2001	2002–2005	2006–2010	2011–2015	2016–2019
Retail	Expenditures on advertising, promotion, and products at retailers and wholesalers	Point of sale, promotional allowances	Point of sale, promotional allowances, coupons and retail-value-added	Point of sale, promotional allowances, coupons, retail-value-added	Point of sale, price discounts, promotional allowances-retailers and wholesalers and other, coupon, retail-value-added cig and non-cig bonus	Point of sale, price discounts, promotional allowances-retailers and wholesalers and other, coupon, retail-value-added cig and non-cig bonus	Point of sale, price discounts-retailers and wholesalers, promotional allowances-retailers and wholesalers and other, coupon, retail-value-added cig and non-cig bonus	Point of sale, price discounts-retailers and wholesalers, promotional allowances-retailers and wholesalers and other, coupon, retail-value-added cig and non-cig bonus, consumer engagement-retail and adult only
Print	Advertising expenditures that reached consumers through print media	Newspaper, magazines,	Newspaper, magazines, direct mail	Newspaper, magazines, direct mail	Newspaper, magazines, direct mail	Newspaper, magazines, direct mail	Newspaper, magazines, direct mail	Newspaper, magazines, direct mail
Out of home	Spending on outdoor and transit advertising including, such as billboards, shopping malls, and public transportation	Outdoor, transit	Outdoor, transit	Outdoor, transit	Outdoor, transit	Outdoor, transit	Outdoor, transit	Outdoor
Free tobacco products and gifts	Spending associated with distributing free items or cigarettes, including those intended for consumer testing	Specialty item distribution, sampling	Specialty item distribution, sampling	Specialty item distribution, sampling	Specialty item distribution-non-branded, sampling	Specialty item distribution-non-branded, sampling	Specialty item distribution-non-branded, sampling	Specialty item distribution-non-branded, sampling
Sports, public entertainment, and sponsorships	Advertising and promotional costs associated with sporting and public entertainment events including name or logo displays, supporting an event or competitor, cigarette sampling at the event, and promotional items (eg, hats)	Public entertainment	Public entertainment, sports and sporting events, endorsement and testimonies	Public entertainment, sports and sporting events, endorsement and testimonies	Public entertainment- adult-only and general audience, sports and sporting events, endorsement and testimonies	Public entertainment- adult-only and general audience, sports and sporting events, endorsement and testimonies, sponsorships	Public entertainment- adult-only and general audience, sports and sporting events, endorsement and testimonies, sponsorships	Public entertainment-adult-only and general audience, sports and sporting events, endorsement and testimonies, sponsorships
Telephone and digital	Expenses associated with advertising on digital platforms including the Internet, the company website, and social media	Audiovisual	Audiovisual	Audiovisual, Internet	Audiovisual, Internet, company website, telephone	Audiovisual, Internet, company website, social media, telephone	Audiovisual, Internet, company website, social media, telephone	Audiovisual, Internet, company website, social media, telephone
Other	Expenditures not specified in the dataset, to avoid potential disclosure of individual company data

Results

Inflation-adjusted cigarette marketing expenditures increased from 1975 through 2003 and peaked at $21.1 billion, representing an 802% increase. Afterward, they decreased by 55% to $9.4 billion in 2010. Expenditures maintained a relatively stable level at around $9 billion between 2011 and 2019. We also observed that marketing expenditures decreased in 1994. The decline made 1994 the only time that marketing expenditures decreased (−22%) between 1975 and 2003. Interestingly, the trends over the years in marketing expenditures were predominately driven by Retail expenditures, as shown below (Supplementary Figure 3).

Print and Out of home channels were the two largest sources of spending between 1975 and 1985, after which they gradually decreased. Meanwhile, all other expenditures except for Retail slowly decreased from 1975. Retail expenditures steadily gained momentum before 1987 and have increased remarkably since then. They began to dominate marketing expenditures in 1988 when they became the largest expenditure category, comprising more than 50% of all marketing spending that year. Since 1988, Retail has continued to be the number one category for cigarette marketing expenditures. By 2010, Retail captured about 95% of expenditures and reached about 98% ($7.6 billion) by 2019.

Distributions of different types of expenditures in Retail varied significantly. Specifically, promotional allowances along with coupons and retail-value-added promotions were the main sources of marketing spending between 1988 and 2003 (coupons and retail-value-added promotions were classified as one category because the FTC reports put these expenditures together into one category for some years, but not for all years. However, coupons only comprised a small amount of the overall expenditures in this category). Price discounts were introduced in 2002 and became the major expenditure in 2003 and maintained the trend since then, whereas all other expenditures decreased to a very low level (Figure 1).

Figure 1.

Share of real US cigarette marketing expenditures in retail, 1975–2019.

Discussion

This study examined the trends of major US tobacco companies’ cigarette marketing expenditures from 1975 through 2019. Overall, marketing expenditures first increased between 1975 and 2003, then decreased between 2003 and 2010, plateauing through 2019. Among all spending, retail expenditure increased the most and became the largest spending category after 1988 while all other spending shrank. Moreover, in retail, price discounts were the primary spending after the early 2000s. These findings suggest that major US tobacco companies focused on the retail environment after 1988, and that they now primarily rely on price discounts, which keep prices low for price-conscious smokers and undermine cigarette price increases imposed by excise tax increases.

Cigarette companies significantly increased their expenditures between the late 1990s and 2003. These expenditures were likely used to cushion cigarette price increases as a result of the MSA financial penalties and increases in federal and state excise taxes.^10,11 Note that expenditure increases aligned with increases in federal and state excise taxes that have been in an upward trend since the late 1990s.⁷ Expenditures declined dramatically after 2003, for which the reason is unknown and deserves investigation. The leveling off of the overall expenditures and the retail expenditure since 2010 did not come as a surprise, as retail expenditures comprising more than 95% of the overall marketing expenditures, seem to have reached a ceiling. The increased retail expenditure and its dominance among all marketing expenses reflect that tobacco companies shifted their focus to a less restricted territory—the retail environment—as early as the 1980s in response to the 1971 ban, and the MSA acted as a catalyst in accentuating the momentum since then. Though retail expenditures dropped dramatically in 2003, it still dominates tobacco companies’ marketing expenses.

The change in retail expenditure distributions deserves attention. Though tobacco companies largely relied on promotional allowances and retail-value-added bonuses between 1988 and 2003, they turned to price discounts as the primary strategy since 2003. The use of different strategies may reflect changes in tobacco companies’ marketing directions and foci. As per the FTC’s expenditure definitions,¹² promotional allowances and retail-value-added bonuses widely aim for cigarette advertising and attracting new customers through channels such as payment for shelf display, advertisement, and promotions involving free cigarettes or non-cigarette products, whereas price discounts apply more directly to consumer-directed cigarette price through buy-downs, off-invoice discounts, and price reductions. Cigarette advertising and promotions encourage smoking initiation, experimentation, and progression to regular smoking,^13,14 and they are especially appealing to youth.¹⁵ In contrast, cigarette price more directly affects daily smoking and established smokers, especially for price-sensitive populations, for instance, low-income heavy smokers.^16,17

Thereby, the transition from using various advertising strategies to primarily relying on price discounts seems to suggest that, compared to recruiting new smokers, tobacco companies appear to focus more on retaining current smokers (especially price-sensitive populations) and encouraging daily smoking. Nevertheless, price discounts may also be used to recruit new customers, especially youth and young adults, as noted in prior research.¹⁸ Future studies are warranted to explore whether and how price discounts differentially impact people at various stages of smoking on the continuum ranging from nonsmokers to established heavy smokers.

This study is subject to several limitations. The current findings regarding marketing expenditures depend on the FTC categorization of expenditures based on which expenditures were reported in a given year. Therefore, changing categorization rules across years may impact expenditure reports which ultimately influence our findings. Furthermore, expenditure breakdowns may also be impacted by individual companies’ accounting practices, a limitation also noted in prior research.¹⁹ Tobacco companies may also misreport their spending in categories restricted by the MSA and the FSPTCA, because of the mandated and self-reported nature of expenditures. Finally, the FTC reports only included marketing expenditures from major US tobacco companies. Therefore, the report may be missing the different marketing expenses from small businesses compared to the included tobacco giants. The findings of the study should be interpreted with these limitations in mind.

The findings of this study show that major US tobacco company spending peaked in 2003 and has decreased since, with more than 95% of their spending dedicated to the retail environment, especially price discounts. Considering that the industry focuses on the retail setting and often uses price-related strategies to reduce tax pass-through to offset price increases,^11,20 regulations in the retail environment (eg, restricting price minimizing behaviors, such as using discounts and coupons) and nontax approaches to raising prices (eg, implementing minimum price laws), should be considered to effectively counteract tobacco companies’ price-related promotions in the retail setting.

Supplementary Material

A Contributorship Form detailing each author’s specific involvement with this content, as well as any supplementary data, are available online at https://academic.oup.com/ntr.

Acknowledgments

K.M.R. has served as an expert witness in litigation against tobacco companies.

Funding

Research reported in this publication was supported by the National Cancer Institute of the National Institutes of Health under award number P01 CA225597. The funders had no involvement in the study design, collection, analysis, writing, or interpretation.

Declaration of Interests

None of the authors has any conflicts of interest.

Data Availability

The datasets underlying this article were derived from sources in the public domain: Federal Trade Commission Cigarette Reports, https://www.ftc.gov/industry/tobacco.