Direct Mail Spending on Cigarettes Decreases

The Federal Trade Commission yesterday released its annual report to Congress on cigarette sales and advertising, which revealed that while cigarette sales fell from 1997 to 1998, advertising and promotional expenditures increased significantly.

At the same time, expenditures for distributing branded specialty items such as lighters through the mail, at promotional events — or by any means other than at the point of sale of cigarettes — declined to $355.8 million in 1998 from $512.6 million in 1997. In addition, the industry reported spending $125,000 on Internet advertising in 1998.

The 1998 annual report detailed the last year of spending before the implementation of the tobacco industry's master settlement agreement with the attorneys general of 46 states. According to the report, the five largest cigarette manufacturers spent $6.73 billion on advertising and promotional expenditures in 1998, a 19 percent increase from the $5.66 billion spent in 1997. The industry's total expenditures were the highest ever reported to the commission.

The report contained sales and marketing statistics for calendar year 1998 and historical data dating back to 1963, the year the FTC began collecting information from the cigarette industry.

In 1998, the manufacturers reported to the commission that they sold 458.5 billion cigarettes domestically, which is 20.1 billion fewer than they sold in 1997. These figures parallel the U.S. Department of Agriculture’s cigarette consumption estimates, which show a decline to 465 billion in 1998 from 480 billion cigarettes in 1997.

The largest category of advertising and promotion expenditures was promotional allowances, which include payments to retailers for shelf space. Cigarette companies spent $2.88 billion in 1998 on promotional allowances — 42.8 percent of total industry spending — up from $2.44 billion in 1997.

Spending on discount coupons increased to $624.2 million in 1998 from $552.6 million in 1997. Spending on retail value-added — which includes both multiple-pack promotions (buy one, get one free) and noncigarette items, such as hats or lighters, given away at the point of sale of cigarettes — rose to $1.56 billion in 1998 from $970.4 million in 1997, an increase of 60.3 percent.

The industry's expenditures on newspaper advertising rose 73.4 percent to $29.4 million in 1998, from $17 million in 1997. Even with that increase, however, newspaper spending accounted for less than 0.5 percent of all expenditures. Spending on magazine advertising increased to $281.3 million in 1998 from $237 million in 1997, according to the FTC report, while outdoor advertising expenditures decreased slightly to $294.7 from $295.3 million. Point-of-sale advertising declined to $290.7 million in 1998 from $305.4 million in 1997.

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