The lopsided cigarette tax situation has worked out to be a direct marketer's dream for a number of American-Indian reservations and their business partners. This success has come despite Super Coups forbidding these companies from advertising in their co-op mailers.
By dropping large amounts of direct mail through companies such as Val-Pak, Money Mailer and as many as 20 others, companies such as S&S Enterprises are seeing above-average conversion rates as well as some serious profits for their discount brand-name cigarettes.
The company, which is one of hundreds on Indian reservations nationwide that offer cigarettes on the Internet, sends out approximately 500,000 pieces of mail a month. It has seen conversion rates as high as 3.5 percent.
“The response rate is phenomenal because people are just fed up with tobacco taxes,” said Jim Michael, consultant for S&S Enterprises, Basom, NY. “A great mailer is a conversion rate of one-half of 1 percent. If you can structure a mailer that's cost-effective at one-half of 1 percent, you're doing a good business. We're doing 2 [percent] to 3.5 percent, which is phenomenal in mass marketing.”
The main draw is simple: cheap cigarettes. For smokers, the offer and creative don't matter, Michael said. “Cigarettes cost about 40 cents to produce. To pay $4.50 for a pack is just obscene. We've tried a bunch of different styles, but all you really need is an 800 number and the fact that you offer all major brands. It's simple stuff.”
S&S is due to launch a Web site this week. Michael's brother also has a similar arrangement with reservations near Buffalo, NY.
At least one direct marketing company tried to make the process less simple, as Super Coups, a leading co-op direct mail coupon company, banned cigarette ads from its mailers. The first offers ran in a mailer late last year. Following the mailing, the company banned future mailings, citing “moral objections,” in November.
“Because of our family focus, we made a statement that we didn't want to do it in the future,” said Phil Mettra, vice president of marketing at Super Coups, Avon, MA. Super Coups is a subsidiary of ADVO Inc., Windsor, CT. “It has been our policy. Basically from that mailing we revised our policy to be more succinct and not have cigarette advertisements in Super Coups mailings based on a moral issue rather than a legal issue.”
From Michael's standpoint this is foolishness. What's more, a Super Coups agent has been arranging the distribution of his ads in competing mailers, although she cannot place them in Super Coups.
“I don't see what the drawback is. I just see it as them throwing away the money,” Michael said.
S&S Enterprises is a business run on the Tonawanda Band of the Seneca Nation reservation. The reservations do not have to pay taxes on cigarettes as long as the sale is made within the reservation. Basically, as long as the credit card is processed there, the cigarettes can be sold to customers anywhere. The reservation technically owns and operates the business, but S&S receives a commission on sales.
This business may be short-lived as, according to Michael, New York Gov. George Pataki is looking to tax the reservations as well as prevent carriers from delivering the packages.
“It should be unenforceable. He will not succeed,” Michael said.