Shaping Retail: The Role of Incentives

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Following bans on tobacco advertising, promotion, and sponsorship (TAPS) in many countries, transnational tobacco company (TTCs) have redirected their promotional expenditure toward business-to-business marketing activities with retailers, in order to mitigate the impact of these restrictions.12

For TTCs, retail outlets serve as a critical marketing channel, representing one of their last direct communication routes to consumers. According to one Philip Morris executive “retail marketing is therefore no longer the support mechanism, [but] the primary communication vehicle”.34

TTCs offer incentives to retailers for advertising and promoting their products in stores in exchange for financial benefits or perks. This practice contradicts WHO Framework Convention on Tobacco Control (FCTC) Article 13 and its implementation guidelines.56

Industry Incentive Programmes

Incentive programmes, as part of broader tobacco marketing strategies, help shape the retail environment and have the potential to influence consumer behaviour.7 These incentives often take the form of free or discounted tobacco products, and gifts that retailers can use, distribute, or sell to customers.78910

Tobacco representatives encourage retailers to join loyalty or reward programmes that incentivise them to stock products, give them prime position and increase sales.711 Studies suggest they also urge retailers to verbally promote certain products for a set period in exchange for bonuses and cash rewards, linked to boosting bulk sales.7111213

Incentives include cash payments and expenses-paid excursions.21415 Financial agreements are privately negotiated, customized to each retailer, and finalized through electronically signed contracts. However, retailers are not allowed to retain copies of these contracts, and in some cases, they sign without reading the terms, after receiving a brief oral explanation and cash payment.16171819 A U.S. study revealed that around two-thirds of retailers engaged in one or more cigarette company incentive programs, with the majority participating in multiple schemes.20

To further enhance the relationship and build excitement around their products, TTCs also employ experiential incentives, such as parties, events, and exclusive experiences.21 In Australia, for example, the Australian Retail Tobacconist magazine discovered in a BAT report, that these activities are designed to engage retailers in partnerships and help with “gaining a great deal of intel” .21 A former tobacco company employee disclosed that AUS$200 million was allocated for such marketing to retailers in Australia, stating: “When you think about the margins that tobacco have and the fact that they can’t advertise, all that money goes into incentivising the retailer.”2

In Indonesia, Sampoerna, a subsidiary of Philip Morris International (PMI), framed these contracts as “partnerships” rather than straightforward business contracts.17 These “retail-partners,” often located near schools and busy streets, are incentivized by PMI to secure their loyalty, even without needing to meet specific targets to qualify for these contracts.17

The industry incentive programmes have the ability to build alliances with retailers, which, in some cases, may result in collaboration with tobacco industry to oppose tobacco control legislation. The industry has aggressively sought support from retailers, and provided them with the encouragement, information, financial support, and tools to advocate for policies that favour tobacco manufacturers.132022 For more information, see Shaping Retail: Undermining National Regulations

Below are examples of incentives programmes were offered by TTCs to retailers.

Philip Morris

In 1998, PMI introduced the “Philip Morris Retail Leaders Program”, offering discounts equipment and payments of up to US$20,000 per store annually for full cooperation. This included prime display and promotional space for PMI brands, particularly Marlboro, while limiting competitors at POS.23 In response, RJ Reynolds and others competitor filed a lawsuit to halt the programme. Although PMI adjusted the programme over time, it remained an important component of PMI’s strategy, ensuring Marlboro’s competitive edge through increased promotional payments and in-store visibility.23

In 2016, after Scotland banned POS (point-of-sale) displays, PMI responded with a “Sell More, Earn More” incentive promotion as part of its “Drive Plus” loyalty scheme. This promotion rewarded retailers and their staff in the form of payments to their “Drive Mastercard” or vouchers for every Chesterfield cigarette pack sold above an agreed base sales rate. 24 In Thailand, an internal document also revealed that PMI offered similar incentives contracts to promote its Marlboro brand, providing financial rewards for meeting sales goals, with funds strategically allocated to increase consumer awareness through retail merchandising.25

PMI’s 2022 integrated report noted its collaboration with non-governmental organization (NGOs) and directly with retailers by marketing and branding their portable ashtrays.26 In 2019, the Southeast Asia Tobacco Control Alliance (SEATCA) reported that in six Southeast Asian countries PMI also offered retailer incentives like free cigarettes and other promotional materials to secure product placement.25

In April 2024, aligning with the release of IQOS ILUMA and TEREA heated tobacco products (HTPs), PMI enhanced its “Heatwave Open” Digital Trade Engagement programme for UK retailers by introducing instant rewards. The programme was originally launched in May 2020. It offers support services, educational tools, and reward schemes, aimed at encouraging retailers to maximize their stock of PMI’s HTPs, with financial incentives directly linked to their stock levels.2728

PMI’s approach to retailer incentives extended beyond financial rewards. A former employee in Australia reported providing retailers with tickets to major sporting events which featured exclusive corporate functions. PMI has reportedly used such occasions to promote IQOS to attendees.3 Retailers were also given materials on IQOS to hand out to customers.29

The impact of these programmes on retailers was significant in a study conducted in Scotland, one retailer shared the pressure he felt under, describing how not meeting a specific points threshold could result in losing a regular bonus:24

“Marlboro seem to be coming in and pushing their brands and making sure you’ve got the [Philip] Morris stock. If I don’t have [it] I’ll lose points and I won’t get my – it gets paid every two months.”

British American Tobacco

In the UK British American Tobacco (BAT) set up an online portal called “My BAT Reward”, tailored specifically for retailers with business contracts. It provides various perks including rewards, product training, and a centralized system for ordering products. 30 Retailers can also participate in monthly prize draws where they can win luxury items and earn educational rewards. As an extra incentive, BAT UK gave free gantries for newer nicotine products to those who signed up for a five-year contract.31

In May 2024, at a special event for portal members, which included prizes and hospitality packages, BAT’s regional manager emphasized its commitment to keeping its retailer partners informed on upcoming legislation, including the proposed generational smoking ban and the UK Tobacco and Vapes Bill. BAT also assured that they would continue engaging to ensure that the effects of legislative changes on retailers were minimized. 32 For more information, see Tobacco Industry Interference with Endgame Policies

In an article published on the Better Retailing magazine in March 2024, BAT invited retailers to participate in a competition relating to Vuse Go e-cigarettes, rewarding them for their purchase commitments with ‘tangible benefits’ and encouraging to stay engaged for upcoming promotions and incentives on different social media platforms. 33 In Cambodia, BAT and other local tobacco manufacturers broadened their engagement strategy by awarding retailers with free cigarettes ranging from packs to cartons.17

Japan Tobacco International

Like its competitors, Japan Tobacco International (JTI) launched the UK “JTI 360 trade” platform that replaced the older JTI Advance. This new platform provides retailers with access to product information and training modules, while introducing a points-based rewards system where retailers can earn and redeem points for prizes like vouchers and products.213435

In October 2023 JTI UK introduced ‘Go for Gold’, a promotional programme to support the launch of their new budget cigarette brand, Mayfair Gold. As part of the promotion, JTI offered five retailers a chance of winning a GB£50,000 cash prizes for purchases. Retailers were required to purchase a Mayfair Gold carton from one of 50 designated UK wholesaler.3637

Between July and December 2022 JTI promoted sales of its nicotine pouches, launching a nationwide search for “perfect’ Nordic Spirit” stores among Scottish independent retailers who adhered to a specific “Perfect Store Guide” competition. Top performers, assessed through a points system on the JTI 360 trade platform, had the chance to win paid trips, tech gifts, event tickets, and wholesaler credit for Nordic Spirit. JTI leveraged this opportunity to push Nordic sales in stores, enhance brand visibility, and bring new pouch users, while reinforcing the value of the JTI 360 platform to retailers.38

JTI also announced its sponsorship of the annual 2024 ‘Neighbourhood Retailer Awards’ to celebrate ‘Store of the Year Category 1’ in Northern Ireland. 39 The Director of JTI sales, Gemma Bateson, stated “At JTI, we remain committed to providing tailored advice to retailers, enabling them to make the most of the tobacco and alternative nicotine product categories to enhance their customer experiences.” 39 JTI extended its efforts to engage with key retailers by establishing roundtable meetings to discuss issues illicit trade.40

Imperial Brands

In the UK, Imperial Tobacco (part of Imperial Brands) introduced the ‘Ignite’ app, a loyalty and reward scheme for retailers (see Image 1). Through the app, registered retailers can earn points which can be exchanged for cash or gifts by maintaining products in stock and adhering to specified product layouts. Imperial also provided free support to help retailers convert tobacco storage units to comply with new regulations. 24

ignite by Imperial application on Google Play

Image 1: Screenshot of Ignite app by Imperial Brands on Google Play, September 202441

Imperial Tobacco’s consumer marketing director for the UK & Ireland, urged retailers to stock budget brands amid consumer spending cutbacks, to help maintain consumer interest in the cigarette market.42

Retailer Education Programmes

TTCs incentivize and reward retailers for attending training sessions aimed at increasing market share, driving sales, and increase retailer engagement in “brand education.”3 These programmes are often delivered through ‘lunch and learn’ events, face-to-face meetings with sales representatives in store, or via videos on online platforms. Rewards include vouchers, prizes, trips, event tickets, and exclusive party as part of retailer reward and education programmes.3 For instance, in Australia, retailers reported that both Philip Morris (PM) and BAT covered expenses for trips that included both education and leisure. However, these rewards create a sense of preferential treatment, leading to high impact of retailer gratitude and loyalty.43

TTCs also train their tobacco sales representatives to educate retailers and negotiate contracts that maximize product visibility. A Philip Morris US (part of Altria) sales manual underlined the importance of these interactions, guiding sales representatives on product promotion and how to secure prime retail positions:20

“One of the more important parts of your job is merchandising PM’s brands effectively to gain optimal product exposure and effective in-store advertising visibility. The more visible our products are to consumers, the more sales we make. Effective merchandising helps the retailers, attracts new customers to our brands and makes you successful in performing your sales mission.”

Imperial Brands also emphasized to retailers the benefits of using the ‘Ignite’ app, which provides educational tools, product information on tobacco and vapes, and downloadable POS materials, designed to help drive sales.42

Corporate Social Responsibility (CSR): Retailer Training Campaigns

TTCs establish partnership programmes with retailers, hosting training campaigns as part of its CSR activity to assist retailers with legal compliance while serving their own agenda and enhancing their public image. Examples include:

  • in 2017, in the UK, Imperial Brands launched a campaign called “Suspect it? Report it!” in collaboration with Federation of Independent Retailers (NFRN) (formerly known as National Federation of Retail Newsagents), stating that it aimed to raise awareness among independent retailers of the illicit tobacco trade. 4445 However, while Imperial Brands portrayed itself as the victim of illicit trade, there is historical evidence of its complicity in smuggling its own cigarettes. For more information, see Imperial Brands.
  • in February 2016, in the UK, JTI launched the “Your Guide Through Change” campaign to support retailers ahead of the EU Tobacco Products Directive 2 (EUTPD2) and plain packaging legislation. This initiative offered online training, instructional videos, and information packs, designed to guide retailers through each stage of compliance, and a team of advisors. 46
  • in 1990, The Tobacco Institute launched the “It’s the Law” retailer training programme, which PMI financed and controlled from 1994 onwards. The programme encouraged retailers to display signs and stickers and wear lapel buttons to show that they do not sell tobacco products to minors. Previously, PMI also used its “Youth Access Prevention Program” to create a network of retailers that act as an “early warning system” against local ordinance efforts.47
  • first developed in 1995, the “We Card” training and education program remains widely implemented in the U.S., replacing the earlier “Youth Access Prevention Program.” The programme is primarily controlled and supported by PMI, JTI, JUUL labs and R.J Reynolds (BAT). It educates retailers on complying with local laws on preventing age-restricted product sales to minors.484950 The cost of the “We Card” program was shifted to retailers, who must purchase and display multiple “We Card” items in their stores to participate in the programme. 48

POS Advertising and Displays

As countries take action to reduce tobacco advertising, promotion, and sponsorship, the tobacco industry has shifted its focus to POS advertising, especially in LMICs where WHO FCTC treaty implementation is slower.15152 POS display strategies aim to increase the visibility and promotion of tobacco products at retail outlets through strategic placement, lighting, and colour schemes – known as a ‘tobacco power wall’- which are designed specifically to capture consumer attention.153545556

TTCs opposed the UK ban on POS displays, among others, arguing that they are only intended to inform adult smokers about new brands. Yet, evidence shows that smoking prevalence increases in direct correlation with the amount of advertising, including POS advertising.5557TTCs carefully manage product placement by leveraging what they term “gain by association” with businesses such as convenience store chains.25 They offer financial incentive contracts that often grant representatives authority over store displays, mandating specific layouts and requiring retailers to follow detailed instructions for cigarette pack arrangements (known as ‘plano-grams’).18111775658 Representatives also visit retailers weekly to check pack displays, promote brands, monitor sales, and restock.17

By using incentive contracts, the industry typically pays retailers ‘slotting allowances’ to secure prime shelf space and provides branded displays to maximize sales.255960 A 1992 Philip Morris Asia Inc. (PMAI) internal document focused on the significance POS marketing, as it is a way to make consumers aware of their brands, stating:25

“During our plan our main focus will be on building Marlboro brand awareness through POS [point-of-sale] and merchandizing materials… we will focus only on developing programs to gain effective and prominent product displays at retail.”

In Thailand, PM used cash incentives to secure prime placement for Marlboro cigarettes, ensuring visibility and consumer awareness of the product at POS. This tactic secured a significant growth for PM brand from just 29% in 2015 to 50% by 2019 compared to other TTCs.25

Industry Incentives Post-POS Ban

In countries with effective laws banning tobacco product displays at POS such as Australia and the UK, TTCs have come to rely more on retailers to promote tobacco products.1261

TTCs often provide financial support to retailers to help them comply with tobacco control policies, for instance, in adapting to new tobacco display legal standards or by maintaining inventory and sales levels.61 In the U.S., about 70% of retailers receive information on POS tobacco control policies from tobacco companies, whereas only 24% of retailers get the information from government.61

Even though products are not fully visible, TTCs incentivize retailers to follow specific display layouts. This strategy ensures products retain prime shelf placement and limit customer exposure to competing brands when accessing tobacco cabinets.1861

Across three states in Australia, 40% of tobacco retailers reported having company-supplied tobacco cabinets and 38% received price lists from tobacco companies (figures rounded). 8These benefits were provided in exchange for increased product purchases and for placing the brand at the top of the price list or verbally promoting it.2362 Additionally, certain forms of promotion are still permitted such “We Sell Tobacco Here” signs. These displays can tigger cravings and influence consumers to make unplanned tobacco purchases.63

Similarly, in the UK, a survey found 79% of retailers with a tobacco industry-funded shelf cabinet or ‘gantry’ had to comply with certain conditions, and 58% of the shops were regularly visited by tobacco representatives.57 Retailers also reported receiving cash bonuses for keeping a gantry in their store. In Scotland, retailers were told that mystery shoppers would ask for a rival brand, and those who recommended the contracted product instead would earn a cash reward.12

Promotional Allowances

The tobacco industry attracts retailers through promotional allowances, which are part of incentive contracts. These allowances typically include price discounts, volume rebates and other allowances, paid in exchange for prominent product placement and specific display layouts at POS. TTCs find these price discounts are influential in not only driving tobacco use but also maintaining customer loyalty.5964

These allowances often include free cigarettes via ‘buy-one-get-one-free’ promotions, as well as the distribution of non-tobacco items like free samples with cigarette purchases. Such efforts could attract consumers sensitive to price changes, including youth and individuals with lower incomes. 56566 For more information, see Shaping Retail: Targeting Specific Communities

TTCs have also relied on these strategies to counter the impact of taxes and regulations designed to reduce the number of tobacco users. 676869 According to one report in Latin America, the tobacco industry spends more on price discounts and promotions for retailers than any food industry spends on marketing.70 For more information, see Tobacco Industry Pricing Strategies

Contract agreements often stipulate the prices at which tobacco products must be sold. These agreements can range from consumer coupons to multi-pack discounts. 71 A U.S. study found that over three-quarters of retailers were contractually obligated to adhere to pricing guidelines set by TTCs representatives.771 These agreements often include buy-down programmes, which are temporary promotional price reductions for certain brands. 72 Other research conducted between 1999 and 2020 has consistently shown that contracted retailers in the U.S, Canada, and Australia sold tobacco products at lower prices compared to non-contracted retailers.72372

In the UK and Australia, the recommended retail price (RRP) constitutes a further pricing strategy used by TTC representatives and wholesalers to maintain consistent pricing for tobacco products across retailers. This strategy is designed to reinforce the perceived quality of the brand portfolios, thereby helping to drive sales and profitability.73 For instance, in 2017, after the removal of the price list under EUTPD 2 in the UK, tobacco representatives from both Imperial Brands and JTI offered retailers hundreds of pounds in incentives to adhere to the RRP through joining their online portals, such as the ‘Ignite’ app. An Imperial spokesperson said, “the incentives are given when retailers have a selected range of Imperial products priced at or below RRP and display an approved price list.”74

Tobacco industry using litigation in attempt to block new law, delay or undermine tobacco control measures to protect its interests.75 For instance, in the US., litigation has often been a tool for TTCs and the National Association of Tobacco Outlets (NATO) to defend their pricing strategies, such as redeemable coupons and price discounts. In February 2012, these entities challenged regulations, arguing that limiting these promotions violated tobacco retailers’ free speech rights by restricting their ability to communicate offers to customers. However, courts have generally upheld the government’s authority to regulate these practices in the interest of health.71 For more information, see Shaping Retail: Undermining National Regulations

 

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References

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