Tobacco Industry: Its Significance in US Economy

The United States is the world"s second largest tobacco grower. Thus, tobacco is an important cash crop and the cigarette manufacturers play a very important role in the U. S economy.(7:2)

Approximately 500,000 Americans die every year as a direct result of smoking (1:66). As the U. S. population becomes more health conscious, the number of smokers is decreasing every year. However, the tobacco industry has remained prosperous due to the continuing demand of millions of smokers still present in the U.S.A and other places like Asia, Russia and Eastern Europe.(7:2)

The tobacco industry has never before publicly admitted to a direct connection between smoking and lung or heart diseases (7:2). Since 1954, 825 cases have been filed against cigarette companies demanding compensatim. Out of this only 22 have gone for trial, three of which resulted in partial victory.(1:66)

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Marketing can be defined as the process by which goods and services are sold and purchased. It also includes functions like, advertising, mail-order business, public relations and the like. The main goal of marketing is to acquire, retain and satisfy customers.(2:1)

Cigarette companies seem to understand the above mentioned definition perfectly. They carefully follow management's wishes about promotion of cigarettes. Like any other firm, cigarette manufacturers try to supply, design and produce products that will satisfy consumer needs.(4:4)

However, critics complain of the effects of marketing tobacco on society. Advertisement of brand names like Marlboro, Lucky Strike etc. are harmful for children since they generally glorifies smoking. Cigarette firms have been criticized for designing and promoting brands that target the special tastes of working persons, African -Americans etc. (4:4). Thus, critics feel that for tobacco no marketing tool that increases profit or marketing share should be used.(4:11)

No matter how unhealthy cigarettes are, they still are legal. Therefore, tobacco companies have a right to market their products. After all, we could categorize tobacco marketing as "Misplaced Marketing".(4:4)

The major tobacco companies of U.S.A were headed for trouble this year. In early 1997, the smallest tobacco company. Liggett Group agreed to a wide-ranging settlement of health-related lawsuit and admitted publicly that tobacco causes cancer, is addictive and is "marketed" to teens. This admission ended up being a big problem for other's tobacco companies.(6:3)

On 27 June 1997, the companies: Philip Morris RJR Nabisco Holdings, B.A.T Industries, Brown & Williamson and Loews Corp. reached an agreement with the attorneys -general of nearly 40 American states. This settlement resulted in the tobacco industry changing its own marketing rules.(5:23)

1.Financial implications of the settlement

The above mentioned settlement calls for the tobacco industry to start an annual payment of $10 billion (eventually rising to $15 billion) to compensate states for smoking-related health costs and to pay people who successfully file for damages. The five tobacco companies must also finance anti-smoking medical and educational research, in order to prevent youths from smoking.(5:23)

The cigarette companies also have to pay $60 billion in damages as a form of punishment. Besides all this, the industry will face additional penalties if the number of teenage smokers does not decrease by 50% in seven years.(5:25)

This settlement, is set to drastically change the marketing program of the tobacco companies.

From now on, human or cartoon figures will not appear in cigarette advertisements. That is, the advertisements will have to consist of words only (5:23). Tobacco advertisements are also banned from billboards, stadiums and the Internet. They are also prohibited from advertising in films or in theaters. The settlement also ends the use of all cigarette vending machines (5:24). Tobacco companies cannot use their brand marks on T-shirts, caps and other promotional free gifts (5:25). The agreement would give the Food and Drug Administration (FDA) authority to regulate tobacco products. In addition, cigarettes would come with tough new warnings such as 'smoking causes cancer" and 'smoking can kill you".(5:24)

The above mentioned changes will alter the marketing techniques of tobacco as never before and thus, the tobacco companies have to adapt to a new way of doing business.

The tobacco industry has been hit hard by the settlement it signed. But it does not mean the end of this multi-billion dollar business. Let us have a look at some new and upcoming ways in which tobacco is sold.

Even if the tobacco industry faces a gloomy business future in U.S.A it can earn a lot by selling more cigarettes in developing countries from the Middle East to South East Asia INTERFERENCE With practically no government interference and millions of smokers, tobacco companies could even earn profits from brands that are dead in USA. They can also expect bigger profits by trying to change local customs. For example: In Japan, the number of women's smokers is on the rise, after tobacco promotions persuaded society not to prohibit women smoking.(3:34)

As the numbers of public outlets for cigarettes decrease in the future a mail-order tobacco business could be created and this could be even more profitable. Being good database marketers, the databases of the tobacco industry will act as a communication and distribution channel. RJ Reynolds has already taken a lead in this type of marketing.(3:34)

From now on, tobacco companies will have to do most of their advertising in adult magazines. They might even end up opening cigarette only retail stores, as another way to supply smokers. As marketing of tobacco has become more challenging than ever before, it will remain a powerful part of management for the tobacco companies.(5:27)

Tobacco firms have always shown enthusiasm in marketing their products. However, they have to face constant criticism of their marketing techniques. Critics feel that tobacco marketing is an example of misplaced marketing. The recently signed agreement between leading cigarette companies and nearly forty American states, will lead to radical change in the marketing field.

Besides financial penalties, cigarette companies have also agreed to restrict and reshape their promotional strategies. In the future, tobacco firms will have to come up with new ideas to market cigarettes and probably will have to increase their foreign sales. Basically, cigarette manufacturers have to right to promote and advertise their products so long as they are legal. Thus, clearly tobacco will be marketed, in some form or the other, for years to come.

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