Fda Regulation of Cigarette Distribution and Promotion in the U.S.: a Review of the Issues and Cross-Country Comparison

Citation:

Mary C. Martin and Basil G. Englis (1998) ,"Fda Regulation of Cigarette Distribution and Promotion in the U.S.: a Review of the Issues and Cross-Country Comparison", in E - European Advances in Consumer Research Volume 3, eds. Basil G. Englis and Anna Olofsson, Provo, UT : Association for Consumer Research, Pages: 318-320.

European Advances in Consumer Research Volume 3, 1998      Pages 318-320

FDA REGULATION OF CIGARETTE DISTRIBUTION AND PROMOTION IN THE U.S.: A REVIEW OF THE ISSUES AND CROSS-COUNTRY COMPARISON

Mary C. Martin, University of North Carolina at Charlotte, U.S.A.

Basil G. Englis, Berry College, U.S.A.

In August 1995, President Clinton announced his support of a rule the Food and Drug Administration (FDA) was preparing giving them power to regulate nicotine as an addictive drug and, hence, the distribution and promotion of cigarettes to underage consumers. That announcement and Clinton’s recent endorsement of the regulations have fueled a huge debate between politicians, non-profit organizations, tobacco companies, advertisers, and retailers. As of January 1996, the major tobacco companies had submitted 2,000 pages of arguments and 45,000 pages of supporting research in opposition to the regulations (The Charlotte Observer 1996, p. D1). As of March 1996, the proposed rule had already drawn 800,00 comments, the most ever engendered by an FDA proposal (Noah and McGinley 1996). After the public comment period was over, more than 95,000 different comments in more than 700,000 pieces of mail were received by the government (Barr and Hamilton 1996).

This controversy is marked by complexity, however, as many issues surround the justification and support or nonsupport for this proposed legislation. A full understanding of this controversy includes consideration of the following issues:

1. EthicalBAre cigarette companies targeting youth?

2. LegalBIs it legal to restrict cigarette distribution and promotion?

3. PoliticalBIs (was) it politically correct to support the FDA regulations?

4. PracticalBWill the FDA regulations be effective in preventing and reducing smoking in youth? What are the costs associated with the FDA regulations?

After a brief summary of the FDA regulations that will go into effect later this year, this paper will review both sides of each issue listed above. After a review of the issues, comparisons between these regulatory efforts and those currently in place or being proposed in other countries will be made.

FDA REGULATIONS OF CIGARETTE DISTRIBUTION AND PROMOTION

The regulation of cigarette advertising in the United States dates as far back as the 1950s, when the Federal Trade Commission (FTC) issued guidelines concerning tobacco companies’ use of "fear advertising" and any references to "either the presence or absence of any physical effect of smoking" in this advertising (see Scheraga and Calfee 1996, p. 219). However, when the U.S. Government and the Clinton Administration proposed a new set of guidelines for regulating the distribution and promotion of cigarettes in 1995, this marked a more aggressive, controversial attack on the tobacco industry than in the past. Propelled by U.S. Department of Health and Human Services 1994 statistics and results of similar studies demonstrating high, consistent rates of smoking among underage consumers (see McKay, Dundas, and Yeargain 1996), the Clinton Administration proposed a set of guidelines whereby the FDA would be given the power to regulate tobacco as an addictive drug and, in turn, the power to regulate the distribution and promotion of cigarettes to underage consumers. In August 1996, President Clinton signed the executive order to put the FDA regulations into effect which will be phased in over the next year and a half. The final set of regulations include the following (Stancill 1997c):

1. Ads in magazines that have "significant" youth readership (those with more than 15 percent of their readership under the age of 18 or with 2 million or more underage readers) will be allowed to run black-and-white text ads only.

2. The distribution of jackets, t-shirts, caps, etc. that carry cigarette or smokeless tobacco brand names will be prohibited.

3. The brand-name sponsorship of sports events or concerts will be prohibited.

4. Campaigns showing the hazards of smoking will be financed by the six tobacco companies with significant sales to teens.

5. Outdoor advertising within 1,000 feet of schools and playgrounds will be prohibited.

6. All other billboards, signs on buses, and point-of-sale ads will only be allowed to be in black-and-white and in text.

7. All retail stores will be required to check the photo identification of anyone who is 26 years old and younger when purchasing cigarettes.

8. Vending machines will not be allowed in places where minors can access them and self-service displays of cigarettes will be prohibited.

9. The sale of single cigarettes and packages of fewer than 20 will be prohibited.

THE ETHICAL ISSUE: ARE CIGARETTE COPANIES TARGETING YOUTH?

The ethical issue relevant to this controversy concerns the question of whether tobacco companies are targeting youth. President Clinton apparently believes they do, as he said in his speech announcing the FDA regulations, "With this historic action we are taking today, Joe Camel and the Marlboro Man will be out of our children’s reach forever" (Barr and Hamilton 1996, p. A01).

No direct evidence exists to support or not support this assertion, however. Still, opponents of the tobacco industry cite several types of research as indirect evidence that tobacco companies target youth. For example, research shows that children recognize cigarette advertising symbols (e.g., Mizerski 1995), that relatively young-looking models are used in cigarette ads (Mazis et al. 1992), and that there have been substantial increases in the number of cigarette ads and a greater proportion of total cigarette ads accounted for in "youth" magazines after the 1971 ban on broadcast advertising (Albright et al. 1988). Pollay et al. (1996) point to the tobacco industry’s promotional budgets, imagery employed, media plans, street saturation of tobacco messages, intensive distribution, and product sampling as evidence for targeting youth. Further, these authors showed that teenage smoking behavior is related to previous and present tobacco advertising using market share analysis.

Perhaps the most "direct" evidence for the assertion that tobacco companies are targeting youth are company memos which have been circulated recently (e.g., see Pollay and Lavack 1993). The tobacco industry, on the other hand, claims they are not targeting youth but are attempting to get adult smokers to switch brands. The industry points to their sponsorship of educational efforts, support of promotional efforts, and voluntary codes regarding children as evidence. For example, in 1992, Philip Morris USA teamed up with the Family Course Consortium to place signs containing the message that underage consumers should not smoke cigarettes on subway cars (U.S. Distribution Journal 1992).

THE LEGAL ISSUE: IS IT LEGAL TO REGULATE CIGARETTE DISTRIBUTION AND PROMOTION?

The legal issue relevant to this controversy concerns whether cigarette advertisements, a form of commercial speech, are protected by the First Amendment. Previous Supreme Court cases have rejected government restrictions of ads in certain instances, but appellate courts tend to favor government regulations when the health and safety of children are involved.

McKay, Dundas, and Yeargain (1996) submitted the FDA regulations to an analysis to determine whether they meet constitutional scrutiny. Specifically, the restrictions were examined in light of a four-prong test established in 1980 by the Supreme Court in Central Hudson Gas and Electric Corporation v. Public Service Commission. This four-prong test determines whether specific commercial speech comes within the protection of the First Amendment. Specifically, the four-prong test involves: 1) whether the speech being regulated is lawful and not misleading; 2) whether the government has a substantial interest in protecting the public; 3) whether the regulation is directly advancing the government interest being asserted; and, 4) whether the regulation is more extensive than is necessary to serve the government interest (McKay, Dundas, and Yeargain 1996, pp. 297-298). Given their analysis, McKay, Dundas, and Yeargain (1996) determined that the restrictions "should withstand a constitutional challenge" (p. 301) as the four prongs were met.

Members of the tobacco industry and smokeless tobacco makers filed separate lawsuits in federal court against the FDA regulations. For example, the major U.S. tobacco companies filed suit immediately after President Clinton announced his support of the regulations in August 1995. Ther suit revolves around three arguments: 1) Congress did not give the FDA power to regulate tobacco; 2) the FDA has misinterpreted its own rule-making authority; and, 3) the proposed regulations on advertising are a violation of free speech rights (Stancill 1997c). Their first argument stems back to 1965 when Congrass passed the Federal Cigarette Labeling and Advertising Act. This Act gave Congress jurisdiction over cigarettes and specifically withheld it from the FDA (Lambert and Geyelin 1995).

In support of the third argument listed above, anti-regulation lawyers and advertising executives contend that the restrictions are too broadly worded; that is, they contend that the restrictions are not narrowly tailored to meet a substantial government interest of protecting children. For example, Daniel Jaffe, executive vice president of the Association of National Advertisers, said, "Not only does it make it hard to advertise to kids, it makes it difficult to advertise to anyone" (Lambert and Geyelin 1995, p. B6). The Association of National Advertisers is one of the plaintiffs in another suit filed against the FDA by major ad industry trade groups. Similarly, Washington lawyer John Fithian representing the Freedom to Advertise Coalition, said, "The way you communicate is by selling a theme or a feel for a product, by grabbing a customer’s attention. Ads which contain no colors and no pictures amount to no advertisements at all" (Chandrasekaran 1996, p. A09).

The lawsuits were put on hold until the rules were finalized. During this time, the FDA got a boost from tobacco industry insiders who disclosed damaging information about the industry. Specifically, former Philip Morris employees released statements alleging that the company knew that nicotine acts like a drug and that it carefully controlled nicotine levels in cigarettes. For example, Ian Uydess, a former Philip Morris scientist, said in a sworn affidavit, "Knowledge about the optimum range for nicotine in a cigarette was developed as a result of a great many years of investigation at Philip Morris" (Freedman 1996, p. A3). These statements were judged to be potentially helpful to the FDA when it becomes necessary to defend the restrictions against legal challenges given that the restrictions are based on grounds that the tobacco industry uses nicotine like a drug.

THE POLITICAL ISSUE: IS (WAS) IT POLITICALLY CORRECT TO SUPPORT THE FDA REGULATIONS?

President Clinton has been criticized for supporting the FDA regulations for political reasons. Specifically, his former political advisor, Dick Morris, pushed for the regulations because "it’s the right thing to do" (Frisby and Stout 1995) and because broad support of the regulations in non-tobacco states would have overshadowed tobacco states’ nonsupport of President Clinton in the 1996 Presidential election.

THE PRACTICAL ISSUE: WILL THE FDA REGULATIONS BE EFFECTIVE IN PREVENTING AND REDUCING SMOKING IN YOUTH? WHAT ARE THE COSTS OF THE FDA REGULATIONS?

The practical issue relevant to this controversy concerns whether the regulations will be effective in accomplishing the FDA’s goal: to "cut teenage tobacco use in half over the next seven years and to crush tobacco’s appeal as fun, sophisticated and sexy" (Barr and Hamilton 1996, p. A01).

As Donna E. Shalala, FORMER? secretary of Health and Human Services and David A. Kessler, former commissioner of the FDA, stated, "There’s no question, the president’s bold initiative is smart public-health policy. The health-care costs associated with tobacco use totaled a staggering $50 billion in 1993" (Shalala and Kessler 1995, p. 4D).

While the prevention and reduction of thenumber of children and adolescents smoking and the savings in health care costs associated with tobacco use offer benefits as a result of the FDA regulations, the costs should be considered as well. The major costs associated with the regulations include: 1) costs to our society from the lawsuits being filed by the major tobacco companies and advertising industry; 2) losses in jobs and revenues, particularly in the tobacco, farming, and advertising industries; and, 3) a loss of competition in the marketplace in the tobacco industry.

LAWSUIT COSTS:

Jobs and Revenues

As North Carolina Representative Richard Burr stated, "As a representative of a state whose tobacco industry provides over 200,000 jobs and generates over $5.5 billion to those workers, I am alarmed by the devastating effects additional regulations will have on the farmers and manufacturers of tobacco products in my district" (Burr 1995, p. 1D)

Ironically, the regulations could help the largest of the tobacco companies by driving the smaller ones out of the market. As an anonymous Philip Morris executive stated, "Whenever you put on competitive constraints, the bigger get bigger and the smaller players get knocked out. The more marketing restrictions, the less competition in the market" (Hwang 1995, p. B1). Citing evidence from Canada, the loss of competition in the marketplace results from weak brands having a more difficult time gaining market share when they are not able to promote their products to the same extent or in the same manner. Specifically, Canada banned virtually all cigarette advertising in 1989. The market share of Imperial Tobacco Limited, the largest tobacco company in Canada, however, increased to 65 percent from 58 percent before the ban. Similarly, after the 1971 ban on cigarette television commercials in the United States, no successful launches of full-flavor, full-price brands of cigarettes have occurred. As John Lister, a brand consultant, stated, "It would require such massive investments, and as the number of communication options becomes fewer and fewer, it would be very difficult" (Hwang 1995, p. B1).

The larger tobacco companies will also be able to rely on their sophisticated and enormous databases for alternative direct marketing efforts, such as mail and phone offers, coupons, special offers, and solicitations to lobby legislators. Philip Morris, for example, has a database with names and addresses of at least 26 million smokers and a "frequent smoker" program for the Marlboro brand.

One of the restrictions, a ban on self-service cigarette displays in stores, would, in particular, benefit the largest tobacco companies. When retailers have to instead keep all cigarettes behind the counter and, consequently, reduce the number of brands they carry, they are likely to keep stocking the big brand names rather than the less successful discount brands.

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