Abstract
This document, Social-Political Context of Cigarette Sales and Use in the U.S. - 1987, analyzes problems facing the tobacco industry, including: the decrease in social acceptability of smoking, the increase in attemtps to enact local public-smoking restrictions, product liability suits, the possibility of advertising restrictions, federal excise taxes, and legislation to require that cigarettes be fire-safe. The document reveals not only the industry's attitudes on these subjects, but also tells us what it fears most and what, in the industry's perception, really works to decrease smoking rates. (Note: this copy is very hard to read, but readability is greatly improved by using the magnification function on the site). --> This document was found using the search criteria: 'Political and Confidential'
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The copy is very hard to read, but readability is greatly improved by using the magnification function on the site. The document was found using the search criteria: 'Political and Confidential'
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1. Social Acceptability There is convincing evidence that the public perception of risk [from ETS] in general has heightened, due perhaps to major changes in the structure of society -- weakened religion, health crazes, ageing population, etc. Whatever the reason, smoking is now perceived as a health risk to nonsmokers.... ....Since the current decrease in social acceptability, and all the negatives it entails, in based on the powerful ETS weapon, we have also enclosed a one page summary on this subject as a second attachment to this memo. It is apparent that the effects of ETS on others is now the most powerful anti-smoking weapon being employed against the industry. 2. Product Liability ....Almost half of the 130 pending product liability suits involve PM and thus this issue is of substantial interest to us....In the unlikely (but possible) event of plaintiffs winning some of these cases, a deluge of suits would be spurred on by 'hungry' lawyers. It is possible that at some point in time a significant portion of the retail sales price of cigarettes would be required to fund these suits and related damage awards, i.e., a significant price increase would be necessary. 3. Cigarette Taxation This is a complicated but critical issue. Cigarettes are not only taxed at the federal level but at the state and possibly local level. To the extent that governmental bodies tend to regard this tax as "cash flow" there is a degree of reluctance to destroy the industry. Also, many realize this is a very regressive tax, which tends to restrain some legislators (except the zealots). The problem with tax increases is that it does decrease consumption, just as desired by the social engineers posing these increases want to see. 4. Advertising and Promotion The cigarette industry accepted a total ban on television and radio advertising in 1972. Opponents of cigarette use have convinced themselves (and some others) that a total ban on advertising would undermine the industry. It is by no means certain that the Supreme Court would not uphold such a law, despite the commercial speech interpretation of the First Amendment... 5. 'Self-Extinguishing' Cigarette Legislation Cigarettes continue to be association with a large number of fires, many of which cause loss of life and property... If legislation is passed [mandating fire-safe cigarettes] it would probably be necessary to modify several aspects of current cigarette construction. This could have a negative impact on per unit costs. Of more concern, it would be hard to maintain subjective acceptability of our major brands if design changes were legislated into these products. This is particularly unfortunate since there is really little reason to expect any decrease in fire safety without some nationwide effort to treat fabrics with fire retardant chemicals. Summary The increased success of anti-smoking forces at undermining the social acceptability of smoking is a real and present challenge for our industry. Rebuttal is crucial but reversal of the flow of events depicted here is unlikely. This gloomy picture of 1987 and beyond must be interpreted in terms of opportunity as well as challenge....A threat to the industry can be an opportunity for the company which can find consumer acceptable answers to the types of challenges discussed in this memo.
- Company
- Philip Morris
- Author
- Ferguson, R and Waugh, M
- Recipient
- Strategic Planning Committee (PM)
RegionUnited States
TypeMemorandum
SubjectLiability
marketing
Social Acceptability
Taxes
advertising
Fire Safe Cigarettes
Document Images
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i
PHILIP MORRIS U. S. A.
I N T E R- 0 F F I C E C 0 R R E S P 0 N D E N C E
Richmond, Virginia
<
To: Strategi,c Planning Committee ~0r1~ Date: May 27, 1987
From: R. N. Ferguson and M. Waugh ~~r i
Subject: Social-Political Context of Cigarette S'ales and Use in the U.S.-
1987
The major resource for our_input to you on the challenges facing our
industry was Mr. Jack Nelson, New York Office of P.M., who provided us with
much of the information on which the following sections are based.
.At this point in time there appear to be five major issue areas facing
the cigarette industry. These areas, listed below, will each be discussed
in following sections.
1. Social acceptability and the increased restrictions which
are accompanying decreased acceptability
2. Product liability
3. Cigarette taxation
4. Advertising and promotion issues
5. Self-extinguishing cigarette
1. Social Acceptability
Almost all cigarette useage occurs in a social context, so that the
degree of acceptability of smoking to others becomes the major issue from
which pressures on, the individual smoker ultimately originate. A product
used in a social context can become unacceptable if it violates social mores
or if it entails a level of risk untolerable to others.
There is convincing evidence that the public perception of risk in
general has heightened, due perhaps to major changes in the structure of
society - weakened religion, health crazes, ageing population, etc.
Whatever the root causes, smoking is now perceived as a health risk to non
smokers. The following Roper data undoubtedly underestimates the state of
affairs in 1987, but shows the trend.
1978 1982 1984
Segregate Smokers/Non-Smokers in Eating Places 73% 84% 90%
Segregate Smokers/Non-Smokers in Work Places 61% 65% 68%
Ambient Smoke Probably Hazardous to Non-Smokers 58% 65% 68%
Smokers freQuently uncomfortable smoking around others 13% 14% 18%
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From the social acceptability issue, which is founded largely on'the
purported harm of ETS to the non-smoker, have proceeded the restriction ~
measures. The following summary table indicates that these legislative
measures are meeting with increasing success.
Smoking Restriction Bills 1980 1981 1982 1983 1984 1985 1986
Debated 158 155 165 207 228 374 387
Enacted 32 45 44 67 66 80 149
These laws are focused on the state and local level - workplace or
restaurants in general. The full page TI table attached at the end of this
memo shows the diverse effects of such laws on a state by state basis. In
addition to this, -50% of employers surveyed had or were considering
workplace smoking restrictions. It -is of concern that large numerical
advances in workplace/restaurant bans are being made in nationwide
"trendsetter" states such as California.
Since the current decrease in social acceptability, and all the
negatives it entails, is based on the powerful ETS weapon, we have also
enclosed a one page summary on this subject as a second attachment to this
memo. It is apparent that the effects of ETS on others is now the most
powerful anti-smoking weapon being employed against the industry.
2. Product Liability
Almost half of the 130 pending product liability suits involve PM and
thus this issue is of substantial interest to us. Apparently most of the
suits fall in one or more of three categories of legal arguments.
A. Product dangers and failure to warn of the dangers.
B. Undermining the required warning - by various forms of promotion
and by challenging health data.
C. Causality of illness and addiction to the product such that
stopping became impossible.
In the unlikely (but possible) event of plantiffs winning some of these
cases, a deluge of suits would be spurred on by "hungry" lawyers. Lt is
possible that at some point in time a significant portion of the retail
sales price of cigarettes would be required to fund these suits and related
damage awards, i.e., a significant price increase would be necessary. ~
~
The only encouraging trend here is the general public revolt against Vr(
large damage awards and the movement to reform state laws on liability. C.
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3. Cigarette Taxation
This is a complicated but critical issue. Cigarettes are not only,'~
taxed at the federal level but at the state and possibly local_level.' To
the extent that governmental bodies tend to regard this tax as a "cash 1ow'*
there is a degree of reluctance to destroy the industry. Also, many realize,
this is a very regressve tax, which tends to restrain some legislators
(except the zealots). The problem with tax increases is that it does
decrease consumption, just as desired by the social engineers posing these
increases want to:see.
It is a fact of life that the State and Federal Excise taxes move in
only one direction - up. The average state tax rate table below suggests
that a large federal increase is more of a problem than the generally
smaller increases enacted at the state and local level in the last few
years. The federal budget deficit, and the lack of vigorous opposition from
the White House, makes a federal excise tax increase a real possibility in
the near future.
State
Average Tax Rate
Current. 18.25
June 30, 1986 17.32
June 30, 1985 15.77
June 30, 1984 15.44
June 30, 1983 14.54
A separate but related issue is the pressure from some quarters to
replace the current excise tax with an Ad Valorem tax - an incremental
percentage of the sale price. This is a serious issue for one competitive
reason - it would tend to increase the price advantage of the generic versus
full margin markets. Hawaii is the only state at present with such a tax.
4. Advertising and Promotion
The cigarette industry accepted a total ban on television and radio
advertising in 1972. Opponents of cigarette use have convinced themselves
(and some others)'that a total ban on advertising would undermine the
industry. It is by no means certain that the Supreme Court would not uphold
such a law, desspite the commercial speech interpretation of the First
Amendment.
.The anti-smoking effort rests on a number of assertions, such as:
a) Cigarettes are more heavily advertised than any other product.
b) This heavy advertising induces non-smokers, especially young
people,,to smoke.
c) Taxpayers subsidize tobacco ads.
d) Ads are deceptive since they lower awareness of health risks.
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Each of these arguments can be rebutted by facts, but it is of some concern
that there is a moderate level of support for such bans. A total ban~T~Zoizld
be particularly damaging since it would channel competitive forces into,'.
areas such as low price and could possibly destabilize current market~
shares. Such proposals at the state and local level are making very lfttle%~,
progress.
Another aspect of cigarette promotion is state and local sampling laws.
Since 1966, 14 states have considered sampling ban bills, but none has
banned sampling to adults. There have been some local level actions to ban
sampling even to consenting adults. The number of these restrictions at
present, in comparison to other industry challenges, does not present a
major issue. -
5. "Self-Extinguishing" Cigarette Legislation
Cigarettes continue to be associated with a large number of fires, many
of which cause loss of life and property. It is not known if the technology
exists to make cigarettes self extinguish, but this does not prevent a -
number of states from at least considering legislating such a product into
existence. The federal feasibility study, mandated by Congress in 1984, has
slowed down activity at the state level in the last three years.
On October 30, 1987, the study groups final report is due. Depending4
on this report there could be actions at either the federal level or worse,
numerous differing state level regulations.
If legislation is passed it would probably be necessary to modify
several aspects of current cigarette construction. This could have a
negative impact on per unit costs. Of more concern, it would be hard to
maintain the subjective acceptability of our major brands if design changes
were legislated into these products. This is particularly unfortunate since
there is really little reason to expect any increase in fire safety without
some nationwide effort to treat fabrics with fire retardant chemicals.
Summary
The increased success of anti-smoking forces at undermining the social
acceptability of smoking is a real and present challenge for our industry.
Rebuttal is crucial but reversal of the flow of events depicted here is
unlikely. This gloomy picture of 1987 and beyond must be interpreted in
terms of opportunity as well as challenge. The very importance of the above
issues suggest that products which can successfully address some or all of
these needs can still be very successful. A threat to the industry can be
an opportunity for the company which can find consumer acceptable answers to
the types of challenges discussed in this memo.
/ds
Enclosures - ~ hl
