The Price We Pay: Six Industry Pricing Strategies That Undermine Life-Saving Tobacco Taxes

Article 6 of the WHO Framework
Convention on Tobacco Control (WHO
FCTC) commits Parties to the treaty to
using tax and price policies to reduce
tobacco consumption. Not only are such
measures effective at reducing tobacco
use, they are also an efficient way of
generating government revenues. However,
the success of any tobacco taxation policy
largely depends on the extent to which
the tax is passed onto the consumers
in the form of higher prices. Multiple
internal industry documents reviewed
over decades have shown that the tobacco
industry is fully aware of the massive
impact of tax increases in driving down
consumption. It is therefore not surprising
that the industry employs strategies to
circumvent and undermine tax policies,
effectively minimising the effects of
tobacco tax increases.

This report explores the tobacco industry’s
response to increases in tobacco excise
taxes by examining the pricing strategies
it employs to undermine the effects of
the higher taxation. Drawing on several
recent academic studies, it describes six
pricing strategies employed by tobacco
companies worldwide: differential tax
shifting; introducing new brands, segments
or products; price discrimination and
price-related promotions; price smoothing;
shrinkflation; and changing product
attributes or production processes. The
report is intended for non-governmental
organisations working on tobacco control
and/or taxation, as well as government
officials and policymakers charged with
developing and administering government
tax policies. It aims to alert readers to these
industry strategies and highlight the need
to monitor the industry’s pricing tactics.
In addition to making regular, consistent
and uniform adjustments to the tobacco
tax structures, these industry responses
should also be exposed in order to ensure
that stronger tobacco control policies can
be implemented.

The discussion on each industry
strategy describes the tactic in detail,
the consequences of the strategy and
provides real-world illustrations of its use
with one or more country examples. We
also provide country/region-specific case
studies to offer in-depth illustrations of the
issues. The report concludes with policy
recommendations and highlights the need
to gather more empirical evidence on the
tobacco industry’s actions in response to
planned tobacco tax increases in order to
formulate effective responses