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Tobacco cos use pricing tactics to retain smokers

Published : 25 Feb 2023 01:48 AM | Updated : 26 Feb 2023 08:25 PM
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Tobacco companies in Bangladesh and other countries apply pricing strategies to retain smokers and weaken the impact of tobacco tax. The increase in the tobacco tax is mostly absorbed by the tobacco companies. 

The availability of single cigarette stick complicates the market in Bangladesh and several African countries as well. Tobacco companies apply the pricing strategies especially using single stick of cigarette.

A new study found that tobacco companies are using a variety of pricing strategies in Bangladesh and many other countries to achieve their profit. The tobacco companies absorb tax increase rather than passing it on to consumers if price-hike may encourage smokers to cut down or quit, according to the new study report of STOP, a global tobacco industry watchdog.

The report titled “The Price We Pay: Six Industry Pricing Strategies That Undermine Life-Saving Tobacco Taxes” is the first to combine research on the industry’s tactics in the global south and compare them with tactics seen in wealthier countries. 

It cites examples from nearly 30 countries, including Bangladesh, Pakistan, Mexico, Turkey and the United Kingdom, which have raised tobacco taxes. The new report documents tactics that undermine tobacco tax increases designed to reduce smoking. 

Experts, anti-tobacco activists and researchers on tobacco control opine that the tobacco companies also benefit from faulty taxation system in Bangladesh. 

The tobacco companies in Bangladesh can absorb tax increase mainly for three reasons, said Syed Mahbubul Alam Tahin, technical adviser at The Union who is an expert on public health and researcher on tobacco control. 

Talking to Bangladesh Post on Friday (February 24), he mentioned the three reasons. According to him, the existing ad valorem tax system for tobacco products, particularly cigarette, in Bangladesh is a problem, while not selling cigarettes at MRP (maximum retail price) and the sale of cigarette by single stick are two other problems. 

Syed Mahbubul Alam Tahin said, “The tobacco companies are benefiting from tobacco products due to the ad valorem tax system, while the government is losing huge revenue. This mismanagement has been going on since long. It needs  to end.” 

Echoing  Mahbubul Alam, Hamidul Islam Hillol of Bangladesh Network for Tobacco Tax Policy (BNTTP), Fahmida Islam, STOP Bangladesh Focal Point; and Syed Saiful Alam Shovan, an anti-tobacco activist in Bangladesh; said that in consequence of the pricing strategies and the faulty taxation system tobacco companies are making huge profits despite the tobacco tax hike. However, the number of tobacco users in Bangladesh is not declining at the expected rate for these reasons, they added. 

Hamidul Islam Hillol, however, said, “Cigarette prices hike does not keep pace with inflation and income growth of people of Bangladesh. So, cigarettes became more affordable than before.”

Md. Shafiqul Islam, Head of Programs, Bangladesh at Vital Strategies which is an US-based international public health organization and also STOP partner, said that the government could introduce simplified tax rate in between similar products, put in place bigger tax increase including imposing specific tax and stop the sale of single- stick cigarette for preventing the tobacco industry from manipulation. 

These measures will ensure that consumers will not get option to switch over to cheaper brands. These will also ensure government benefits from fixing higher taxes and make cigarette inaccessible to youth, he opined. 

About the report of STOP on pricing strategies, Aminul Islam Sujon, Program Officer of the National Tobacco Control Cell (NTCC) of the Health Ministry, said what has been exposed in the STOP report is true for Bangladesh. While the best practice is to increase tax in a way that will increase the price. “However, for many years, we are practising tier-based tax structure which is ineffective. It is high time to address all those identified issues in the next budget,” he opined while talking to the Bangladesh Post on Friday. 

 According to the STOP report, introducing new brands, variants, segments or products, like cheaper brands is to keep prices low. Price smoothing – introducing the tax increase gradually over time make consumers less likely to notice and decide to cut down or quit. 

Tobacco taxes are critical to reducing the burden of tobacco use but only work if consumers feel the impact in the form of higher prices. Tobacco companies can frustrate the strategy by absorbing tax increases to keep prices low and maintain market share. It’s estimated that 80 percent of the world’s smokers are in the global south, in countries where the gap between the most expensive and cheapest cigarettes is generally larger than in richer countries. On average, cigarette prices in Africa – a continent with comparatively low levels of tobacco use the industry is now targeting for growth - are the cheapest in the world. 

“Cigarette corporations enjoy significant pricing power and profitability. This report highlights how they weaponize price to keep people using their addictive and deadly products,” said Dr. Rob Branston, co-author of the STOP report and Associate Professor in Business Economics at the University of Bath School of Management and part of the Tobacco Control Research Group. 

“A key takeaway is that the industry exploits any complexity in the tax system, so the biggest health benefit is most likely to be gained by implementing high tobacco taxes and prices, especially when they are applied consistently across different tobacco product categories and by removing single- stick from the market,” he said.  

In some countries like Bangladesh, Indonesia, Colombia, and several African countries mentioned in the report including Botswana, Zambia, Mozambique and Ethiopia, the availability of single cigarette stick complicates the market. Single stick sale offers the industry a chance to deploy a second wave of pricing tactics, which might be different to or the same as those for cigarette packs. 

Tax increases on single stick tend to be undershifted, possibly to offer cheaper cigarettes to consumers and maintain their smoking habits. Overshifting was identified in Colombia, possibly linked to increased demand from consumers switching to single stick instead of quitting when pack prices increased. Anecdotal evidence indicates that the tobacco industry uses such informal channels to obscure their pricing tactics and ensure their products are affordable to youth and cost-conscious consumers. 

The report recommends actions governments can take to stop tobacco companies weaponizing price. These include: Banning promotional discounts; Limiting the number of times the industry can change their prices to tackle price smoothing; Specifying tobacco pack size to prevent shrinkflation; Simplifying tax rates between similar products and limit the number of brands tobacco companies can introduce to prevent consumers switching to cheaper brands; Introducing bigger tax increases so the government, not the industry, gets the benefit of higher prices;  Ending the sale of single cigarettes, which make tobacco accessible to youths and other cost-conscious groups. 

Co-author Dr. Zaineb Sheikh of the Tobacco Control Research Group at the University of Bath commented: “A cigarette company’s objective is to balance enhancing their revenues with maintaining their market share. And most importantly – to keep young people hooked so they can keep earning profits. There is little consideration of the impact on public health and that’s what governments must put ahead of the industry’s narrow business interests.”