A New Leaf

Posted on June 1, 2002 by Chief Marketer Staff

Government officials and activists are fanning the fire under tobacco marketing again. The struggle will play out over the next few years in court, in stores, and on the street.

The U.S. Department of Justice is considering more marketing restrictions — including elimination of all trade promotion — as part of its three-year-old, multi-billion-dollar case against the top tobacco companies. At the same time, four bills before the House and Senate would give the FDA jurisdiction over tobacco manufacture and marketing.

Meanwhile, several cash-strapped states have cut or may cut anti-tobacco programs. Massachusetts eliminated its ad campaign, and Florida slashed its budget by 20 percent. At press time, Minnesota was still wrangling over the possibility of cutting its Target Market youth-prevention funds.

Only five states fund tobacco prevention as heavily as the Centers for Disease Control recommends. Most states are using their portion of the $246 billion in tobacco company payments (over 25 years, per the 1998 Master Settlement Agreement) to make ends meet.

Despite funding threats, anti-tobacco campaigns are gaining street credibility — and results. Programs have helped reduce teen smoking 25 percent in Minnesota and 50 percent in Florida.

National nonprofit American Legacy Foundation reprises Truth Tour this summer with plans to hit 41 markets, up from 21 in 2001. Washington, DC-based ALF recently drew fire from Lorillard, which sued the group in February for “vilifying” the Raleigh, NC-based company in ads — an infraction of the MSA (April PROMO). ALF’s preemptive countersuit argues that it is not governed by the MSA that founded and funds it.

The biggest threat is the DOJ suit, which perked up in December when officials said they may seek to eliminate all trade promos, product giveaways, and vending machines, while further restricting print ads and packaging. A trial has been set for July 2003 in U.S. District Court in Washington.

The suit originally sought to recoup healthcare costs; Judge Gladys Kessler threw out those counts but let two racketeering charges stand. The suit now charges conspiracy among tobacco companies (Philip Morris, R.J. Reynolds, Lorillard Tobacco Co., American Tobacco Co. and its Brown & Williamson division, Liggett Group, and British American Tobacco) for misleading consumers about the health risks of smoking, and seeks billions in damages.

Tobacco marketers spend nearly $6 billion annually on trade promos, according to Chip Hoyt, director of consulting for Kenosia Product Group, Danbury, CT. Slotting fees help keep market share at status quo, newcomers at bay, and retailers flush.

Trade funds account for 10 percent of a retailer’s income, Hoyt says. Tobacco is especially sensitive, since it’s the top-selling product by far, carries high margins, and requires little shelf space. “That’s one of the most productive items in the store that the government is mucking around with,” Hoyt says. “Any attempt to legislate that will make everyone uncomfortable.”

Store promos don’t target non-smokers, contends the National Association of Convenience Stores, Alexandria, VA. “The goal is to let smokers know you have the brand they want,” says NACS spokesperson Jeff Leonard. “Smokers are loyal on an SKU level. They’ll forgive one out-of-stock but after a second, they’ll go somewhere else. Promotion lets them know you have their brand.”

Convenience stores sold $37.3 billion in cigarettes in 2000, which is nearly 39 percent of total sales (excluding gas), says Leonard. It’s also the biggest expense, with per-store inventory averaging $34,000 (the next biggest, non-alcoholic beverages, is only $7,000).

At least one marketer, Philip Morris, ties trade funds to youth-smoking prevention. Retailers can get 15 cents more per carton if they put all cigarettes behind the counter; train all clerks on the national We Card program; don’t market tobacco brands in any way prohibited by the MSA (which doesn’t directly govern retailers); and display signs that discourage adults from buying for kids. PM began the “progressive merchandising option” in 2001, says spokesperson Brendan McCormick.

Why mess with trade promotion? Because in-store activity draws kids, activists say. “Tobacco promotions in-store influence kids because that’s where they are,” says Bill Corr, executive vp of nonprofit Tobacco Free Kids, Washington, DC.

Seventy five percent of teens shop in a c-store at least once a week, per CDC, which released a study in March claiming that 92 percent of stores had “some form” of tobacco marketing, including ads, multi-pack discounts, tobacco-branded functional items like shopping baskets or counter mats, and vending machines. Eighty percent had ads inside, 59 percent had them outside; 36 percent had self-serve displays. On the other hand, 66 percent of stores displayed “We Card” or other youth-prevention signage, but only four percent had health warnings. Researcher ImpacTeen Project collected data from 163 communities in 1999.

Firing Back

DOJ’s suit has smoke, but tobacco marketers say there’s no fire.

“A lot [of the proposed measures] on this list don’t pass the red-face test,” says Bill Ohlemeyer, Philip Morris vp-assistant general counsel. The restrictions are unlikely to happen because they’re either covered by the MSA or unconstitutional (see chart, pg. 25). “We have certain rights under the Constitution to market our products,” he says.

“That is the government’s wish list right now,” says R.J. Reynolds spokesperson Seth Moskowitz. “We don’t believe there’s a need for additional marketing restrictions beyond those detailed in the MSA, [which] severely restricted our ability to market.”

“The DOJ is asking for changes that would have to be done legislatively,” says Lorillard vp-external affairs Steven Watson. “The MSA is working for the most part.”

Activists counter that the MSA simply shifted marketing activity, and that overall spending is actually up. The Federal Trade Commission pegs tobacco marketing at $8.2 billion in 1999, up from $6.7 billion in 1998, when the MSA was signed.

Activities restricted by the MSA (including sponsorships and branded premiums) accounted for only 20 percent of 1998 spending, says Corr. “The industry continues to move money from one venue to another while increasing it in huge jumps every year.”

Tobacco Free Kids wants FDA regulation, but doesn’t expect it this year. The FDA did create marketing restrictions in 1996 (under the Food, Drug and Cosmetic Act) and contracted with states to enforce age laws, but withdrew them in March 2000 when the Supreme Court ruled that the Act didn’t include tobacco.

Two bills that would do that — H.R. 1097 and S. 247 — are unlikely to see action this year. H.R. 1097 would amend the Food, Drug and Cosmetic Act to include tobacco by redefining nicotine as a drug; it has been stuck in subcommittee since April 2001. (The similar S. 247 has been in committee since February 2001.)

Philip Morris supports a third bill, H.R. 2180 (in committee since June 2001, along with companion bill S. 190). But other tobacco companies call that one “The Marlboro Monopoly Act” because it would, in effect, lock in current market shares, explains Corr. The bill qualifies that restrictions “can’t render the product unacceptable for adult consumption,” making it “subject to endless litigation,” he says.

PM supports FDA oversight because “it would bring certainty and consistency to issues that need guidance and shouldn’t be left to the free market,” says Ohlemeyer. “It would also encourage people to put their energy in legislation, which is more efficient than litigation.”

Lorillard “doesn’t support unfettered FDA jurisdiction,” preferring “a federal regulatory scheme” that includes input from states and tobacco marketers, says Watson.

Truth Prevails

Teens seem responsive to anti-tobacco marketing even as some states dither or cut spending. The CDC recommends states spend $5 to $20 per capita — on average, that’s 20 percent to 25 percent of a state’s MSA payment. Only five (Arizona, Minnesota, Massachusetts, Mississippi, and Maine) spend that much.

Florida cut its youth-prevention budget 20 percent to $37.3 million for 2002 (it was $70 million in ’98), but may reinstate it for 2003. Tennessee used all its settlement money in one year to balance the budget.

Florida continues its Truth Tour and concert sponsorships, and has added “stealth” gear with Velcro logos that can be swapped for other messages. “We’re selling an idea, not a brand, so we use gear to make this ephemeral idea more tangible,” says Jeff Hicks, president at lead agency Crispin Porter Bogusky, Miami.

Minnesota’s summer plans await the state legislature’s budget decision. In the meantime, teaser ads and wild postings blanketed the state with the cryptic message “5,056” (the number of Minnesota teens needed each year to replace smokers who die). A February rally drove kids to make a like number of snow angels.

The campaign “got a lot of kids off their chairs,” says Target Market marketing director Michele Vig. TV spots may break this spring asking tobacco execs for an apology, accompanied by “Wanted” posters that kids will distribute. Clarity Coverdale Fury, Minneapolis, handles.

Teen summits may be discontinued because they’re an expensive way to recruit new activists. “As we progress and smoking rates fall, the next level we need to reach are more at-risk kids,” says Vig. “It almost gets to the point where you’re talking directly to smokers, and that takes a very different strategy.”

Minnesota held its second Kick Ash Bash in October 2001, with 400 teens, two bands, and Jeffrey Wigand (the Brown & Williamson whistleblower whose story prompted the film, The Insider). At-risk kids — not what Vig calls “preachy student council” types — attended sessions on media relations, the Internet, street marketing, branding, and underground film, then brainstormed marketing ideas. Intermittent drawings awarded a $3,000 laptop computer/MP3 player, concert tickets, and campaign gear.

“The legislature thinks the kids are crazy, out-of-control teens, but our brand audit shows that kids still think we’re pretty straight,” says Vig.

Ironically, state budget cuts could spur more grassroots and viral marketing tactics that ring truer for teens skeptical of ads.

American Legacy Foundation sets its itinerary by “how many teens we can reach,” says president Cheryl Healton. “We target edgy, high-risk, sensation-seeking teens.” Six cities are hubs: Chicago, New York, Los Angeles, Atlanta, Kansas City, MO, and Seattle.

The foundation plans to launch a Web site by September to let teen activists compare notes and download how-to kits. ALF also formed an 11-member youth panel to keep programs relevant, and will dole out another $35 million in grants to youth-led programs. Arnold Worldwide, Boston, is lead shop with an assist from Crispin Porter Bogusky.

Ads continue as the foundation awaits its court date. Lorillard’s is the first suit against an anti-tobacco campaign, but it’s unlikely to blunt raw, in-your-face ads. States have more leeway with their ads, since they’re not governed by MSA’s vilification clause.

Still, tobacco marketers may find other reasons to sue: Last summer, the Supreme Court ruled in favor of Lorillard, saying Massachusetts’ ban on outdoor boards within 1,000 feet of schools hurt the company’s ability to communicate with adults.

Homegrown

Tobacco companies continue their own youth prevention efforts. Philip Morris this year shifts its ad strategy to target parents, with TV and print ads encouraging them to talk with kids — and reminding smokers to keep cigarettes out of reach. Young & Rubicam, New York City, handles.

RJR’s 10-year-old Right Decisions, Right Now campaign emphasizes enforcement of age and ID laws to limit underage access to cigarettes.

Lorillard has spent about $50 million over three years on ads, sports and event sponsorships, and grants. The company wraps up sponsorship of the 98 Degrees concert tour this spring; this summer is its third year of sponsoring NBA’s Hoop it Up three-on-three tournaments. (Play areas at concerts and tourneys give fans souvenirs; kiosks let them enter contests online.)

Parent program Take 10 adds a Take 10 Challenge this year: Parents complete a program with their kids (downloads are at buttoutnow.com) to enter occasional drawings for merchandise and charity donations. Print ads support via Bozell, New York City; Weber Shandwick, Chicago, handles grassroots efforts.

Since 1997, Brown & Williamson has given $12 million in grants to 35 independent programs. B&W gets 15 to 20 grant requests per year; manager of youth smoking prevention Theresa Burch chooses which to fund.

One public-health worker says grants are useless. “When you put money into local public health you get adults preaching not to smoke. Then you might as well be giving away cigarettes. Tobacco companies know that if they give money to the community it will be piddled away.”

The war of words goes on.