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WASHINGTON -- Cigarette manufacturers are spending more money than ever to advertise and promote their products, according to a government report released Thursday. The industry spent $11.2 billion on advertising and promotions in 2001, the last year for which such figures were available, according to the study by the Federal Trade Commission (FTC).
Responding to the FTC report Thursday, Philip Morris USA, the largest cigarette makers, said its spending on cigarette brand advertising decreased for the fourth consecutive year as the tobacco company reduced newspaper, magazine and retail point-of-sale advertising from 2000 to 2001. While Philip Morris USA's total reported expenditures increased, this is primarily due to an increase in the cost of price and product promotions offered to adult smokers and increased financial incentives paid to retailers to responsibly merchandise cigarettes, the company said.
Traditional brand image advertising represented only 8 percent of the company's total reported expenditures in 2001, continuing a four-year decline from 21 percent of spending in 1998.
"Philip Morris USA's reported expenditures reflect a decrease in traditional brand image advertising as a result of the Company's voluntary reduction of advertising in magazines, newspapers and in retail stores," said Tina Walls, senior vice president of corporate affairs for Philip Morris USA. "Philip Morris USA continues to take steps to reduce the overall visibility of its brand advertising and to ensure that it is marketing its products in a responsible way to adult smokers."
Philip Morris also reported an increase in promotional allowances paid to retailers. Through its Retail Leaders merchandising program, Philip Morris offers promotional allowances to retailers who agree to take significant steps to help reduce youth access to tobacco products and merchandise the cigarette category responsibly. Retailers are offered the highest level of incentives for placing all cigarettes behind the counter and implementing the "We Card program," which trains retail employees to maintain minimum age laws.
"Merchandising programs are one important way in which our Company competes and markets our products responsibly," Walls said. "Philip Morris USA uses merchandising programs to help retailers build their business and grow profits while meeting society's expectations of how tobacco products should be sold."
Overall, the study found a 17 percent increase over 2000, when the industry spent $9.6 billion. Despite the increase in advertising, cigarette sales dropped 3.8 percent from 2000 levels, the study said. Cigarette companies spent most of their money -- $4.8 billion -- on promotional activity such as "buy one pack, get one free." They also spent more than $4 billion for promotional allowances, such as paying retailers for prime shelf space in their stores.
Spending decreased on discount coupons and newspaper and magazine advertising. Cigarette ads have been banned from television and radio under federal law since 1971. The FTC has been collecting sales and marketing statistics from the tobacco companies since 1963.
Cigarette manufacturers reached a $206 billion settlement in 1998 with 46 states. The agreement banned cigarette advertising on billboards and public transportation. It also curtailed giveaways of branded merchandise, such as hats with logos, and cigarette samples, and it limited the number of public events such as auto races that companies could sponsor.