WASHINGTON – Tobacco companies are spending more than ever to market cigarettes but sales still are falling, according to a government study released Friday.
The six largest cigarette makers spent a record $12.5 billion on advertising and promotions in 2002, the last year for which data is available, according to the Federal Trade Commission (search) study.
That was an 11 percent increase from 2001, but U.S. sales fell about 5.5 percent to 376 billion cigarettes.
The largest chunk of the companies' marketing budgets were for discounts passed on to retailers and wholesalers, who then were expected to reduce cigarette prices for consumers. The companies spent nearly $8 billion on such discounts, or about 63 percent of their total advertising and marketing expenditures.
The second-largest category was for promotional allowances that included paying retailers for prime shelf space. That cost the companies about $1.3 billion, according to the report.
Matthew Myers, president of the Campaign for Tobacco-Free Kids (search), said efforts by the companies to lower their prices and secure prime shelf space are aimed at hooking young people.
"The tobacco industry knows that the most price-sensitive population is children," Myers said. And he said young people are more apt to be influenced by shelf placement.
"If you're a 40-year-old Camel smoker, you're going to smoke Camel whether it's under the shelf or at eye level," Myers said.
David Howard, a spokesman for No. 2 cigarette maker, Reynolds American Inc., said his company is trying to win over adults, not kids.
"Our efforts are to communicate with and gain the business of adults who choose to smoke," Howard said. "It's against the law in all 50 states to sell to people who are underage."
Myers contended the tobacco industry knows those laws are loosely enforced and uses marketing to try to entice kids to start smoking.
"The unfortunate fact is that every day 2,000 kids light up for the first time," he said.
Howard said adult smokers are sensitive to prices, too, especially in recent years as cigarettes have become more expensive due to huge tax increases that have pushed prices to above $6 per pack in many places. Howard said leading companies are having to lower prices to compete with deeply discounted brands that have been gaining market share.
Money spent for traditional advertising, such as in magazines and newspapers, declined again in 2002, the report found. The industry spent about $132 million on that kind of advertising in 2002, compared with about $254 million five years earlier in 1997.
The decline is the result of the tobacco companies' $246 billion settlement with states in 1998 against costs of smoking-related illnesses. The settlement further restricted cigarette advertising, which already was barred from TV and radio.
The six companies surveyed by the FTC are Brown & Williamson Tobacco Corp., Commonwealth Brands Inc., Liggett Group Inc., Lorillard Tobacco Co., Altria Group Inc. (MO), and R.J. Reynolds Tobacco Co. (RJR). Recently, Brown & Williamson (BTI) and R.J. Reynolds merged, forming Reynolds American Inc.
The FTC began issuing its annual reports on cigarette marketing in 1967.