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'Premiumization' Strategy: Longitudinal Findings from the ITC China Project

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'Premiumization' Strategy: Longitudinal Findings from the ITC China Project Research paper Tob Control: first published as 10.1136/tobaccocontrol-2017-054193 on 29 August 2018. Downloaded from Impact of China National Tobacco Company’s ‘Premiumization’ Strategy: longitudinal findings from the ITC China Project (2006–2015) Steve Shaowei Xu,1 Shannon Gravely,1 Gang Meng,1 Tara Elton-Marshall,2,3,4,5,6 Richard J O’Connor,7 Anne C K Quah,1 Guoze Feng,8 Yuan Jiang,8 Grace J Hu,1 Geoffrey T Fong1,5,9 ► Additional material is ABStract 300 million people in China smoke (including about published online only. To view Background In 2009, the China National Tobacco half of all men), which represents one–third of please visit the journal online Company (CNTC) began their Premiumization Strategy, the world’s smokers, and approximately 1 million (http:// dx. doi. org/ 10. 1136/ 2 tobaccocontrol- 2017- 054193). designed to encourage smokers to trade up to more tobacco-attributable deaths occur every year. expensive brands, mainly by promoting the concept that China’s cigarette market is vast, with a total of 1Department of Psychology, higher class cigarettes are better quality and less harmful. 2.4 trillion cigarettes consumed each year. Chinese University of Waterloo, Waterloo, This study is the first evaluation of the strategy’s impact smokers consume more cigarettes than smokers in Ontario, Canada 3 2Institute for Mental Health on: (1) prevalence of premium brand cigarettes (PBC), all other low/middle-income countries combined. Policy Research, Centre for mid-priced brand cigarettes (MBC) and discount brand Without effective measures to reduce tobacco use, Addiction and Mental Health, cigarettes (DBC) over 9 years, from 3 years pre-strategy the number of annual tobacco-related deaths in London, Ontario, Canada 4 3 (2006) to 6 years post-strategy (2015); and (2) changes China is projected to reach 3 million by 2050. Dalla Lana School of Public The China National Tobacco Company (CNTC) Health, University of Toronto, in reasons for choosing PBCs, MBCs and DBCs. Toronto, Ontario, Canada Methods A representative cohort of adult Chinese is a state-owned enterprise, with a monopoly 4Department of Epidemiology smokers (n=9047) in seven cities who participated in five of the cigarette market, accounting for 98% of and Biostatistics, Schulich waves of the International Tobacco Control (ITC) China domestic sales.5–7 In 2015, CNTC’s gross profit School of Medicine and Survey: pre-implementation (Wave 1 (2006; n=3452), was ¥303 billion (Chinese yuan renminbi, RMB) Dentistry, Western University, 8 London, Ontario, Canada Wave 2 (2007–2008; n=3586)); mid-implementation (about US$48 billion), making it the most profit- 5School of Public Health and (Wave 3 (2009; n=4172)); and post-implementation able company in the country. The tobacco industry copyright. Health Systems, University of (Wave 4 (2011–2012; n=4070), Wave 5 (2013–2015; contributed ¥840.4 billion (equivalent to about Waterloo, Waterloo, Ontario, n=2775)). Generalised estimating equations were US$122 billion) in tobacco tax revenue in 2015, a Canada 6 9% increase from their contribution in 2014. In Ontario Tobacco Research Unit, conducted to examine changes in prevalence of PBCs, Toronto, Ontario, Canada MBCs and DBCs, and reasons for brand choice from pre- all, CNTC contributes 7%–10% of Chinese central 7Roswell Park Cancer Institute, implementation to post-implementation. government’s total annual revenue through tobacco Buffalo, New York, USA tax and profit-sharing,3 7 not including revenues 8 Results From pre-implementation to post- Chinese Center for Disease implementation, there was an increase in prevalence shared to local governments. Control and Prevention (China http://tobaccocontrol.bmj.com/ CDC), Beijing, China of PBCs (5.4% to 23.2%, p<0.001) and MBCs (40.0% 9Ontario Institute for Cancer to 50.4%, p<0.001), and a decrease in DBCs (54.6% Switching between cigarette brands in China in Research, Toronto, Ontario, to 26.5%, p<0.001). There was an increase in smokers response to price increases Canada who chose their current brand because they believed Relative to other countries where the variability of it to be less harmful, both for MBC smokers (+13.0%, cigarette prices is smaller, Chinese smokers offset Correspondence to p=0.001) and PBC smokers (+9.0%, p=0.06). There Dr Shannon Gravely, price increases by switching to cheaper cigarette Department of Psychology, was an increase for smokers in all brand classes for brands (and which are often still in the same price University of Waterloo, Waterloo, choosing their current brand because they were ’higher class).9 White et al9 found that although a substan- ON N2L 3G1, Canada; in quality’ and because of affordable price, but the tial number (38%) of smokers switched price tiers shannon. gravely@ uwaterloo. ca greatest increase was among PBC smokers (+18.6%, between waves of the International Tobacco Control p<0.001 and +34.9%, p<0.001, respectively). (ITC) China Survey, about 1–1.5 years apart, more Received 7 December 2017 on October 1, 2021 by guest. Protected Revised 18 July 2018 Conclusions Our findings demonstrate that the rising than half switched brands between waves but stayed Accepted 23 July 2018 trend in Chinese smokers’ choice of ’less harmful’, within the same price tier. Interestingly, trading up ’higher quality’ and ’affordable’ cigarettes, particularly was more common among smokers in mid-priced PBCs, is likely due to CNTC’s aggressive marketing classes, which likely reflected rising affordability strategies. Strong tobacco control policies that prohibit and only a nominal 1.5% price increase between © Author(s) (or their CNTC’s marketing activities are critical in order to dispel 2006 and 2009. This demonstrates that Chinese employer(s)) 2018. No erroneous beliefs that sustain continued smoking in smokers are relatively flexible in brand choices and commercial re-use. See rights China, where the global tobacco epidemic is exerting its do not generally display strong loyalty to one brand and permissions. Published by BMJ. greatest toll. variety. To cite: Xu SS, Gravely S, CNTC’s cigarette Premiumization Strategy Meng G, et al. Tob Control Epub ahead of print: [please Historically, the majority of cigarette sales in China include Day Month Year]. INTRODUCTION have been discount brand cigarettes (DBC) and doi:10.1136/ The tobacco epidemic in China is a public health mid-priced brand cigarettes (MBC). However, as tobaccocontrol-2017-054193 challenge of unmatched proportions.1 More than China experienced annual double-digit economic Xu SS, et al. Tob Control 2018;0:1–9. doi:10.1136/tobaccocontrol-2017-054193 1 Research paper Tob Control: first published as 10.1136/tobaccocontrol-2017-054193 on 29 August 2018. Downloaded from growth in the early 2000s,10 resulting in a surge in disposable Yinchuan, Kunming) and five cities in Wave 5 (Beijing, Guang- household income, Chinese smokers could afford to spend zhou, Shanghai, Shenyang, Kunming). more on cigarettes,7 11–13 which ultimately would have fuelled At Wave 1, a multistage cluster sampling design was used to an increase in cigarette consumption, and discouraged smoking randomly identify smokers through household enumeration cessation.14 in each of the respective cities. Informed written consent was The increasing affordability created a lucrative opportunity obtained, and the survey was conducted by face-to-face inter- for CNTC to increase revenue and profit. Beginning in the view (approximately 45–60 min). To maintain the sample size mid-2000s, CNTC began to adjust their cigarette brand port- over time, cohort members lost to follow-up at each wave folio, starting first with two important actions. First, CNTC were replenished by newly recruited individuals from the same reduced the 1000+ brand and brand variants through elimina- sampling frame as wave 1.24 Respondents were eligible for this tion and consolidation into a much smaller number of brands study if they had completed all survey questions regarding their to increase production efficiency and to increase product appeal cigarette brand. to consumers in both domestic and foreign markets.7 Second, For this evaluation study, the five waves were categorised they changed the price structure of its brand portfolio (‘Juan into three periods: pre-implementation, consisting of Wave 1 Yan Jie Gou Ti Sheng’) by decreasing sales of cheaper DBCs (April to August 2006) and Wave 2 (October 2007 to January and increasing sales of high-end cigarettes by encouraging DBC 2008); mid-implementation, consisting of Wave 3 (May to smokers to trade up to MBCs or premium brand cigarettes October 2009); and post-implementation, consisting of Wave 4 (PBC), and encouraging MBC smokers to trade up to PBCs. To (September 2011 to November 2012) and Wave 5 (November achieve their ‘trading up’ goal, in January 2009, CNTC intro- 2013 to July 2015). duced their 5-year Premiumization Strategy (2010–2015).7 8 15 16 This action plan resulted in a sharp increase in the number of Measures new cigarette brand variants that entered the domestic market CNTC’s cigarette price classification system (particularly in the post-Premiumization (post-implementation) The structure of CNTC’s internal classification system of PBCs, period, see online supplementary figure 1). Between 2012 and MBCs and DBCs arises from a clustering of five cigarette classes the first half of 2017, a total of 615 new cigarette brand vari- (or grades) based on before-tax allocation price: PBCs consist of ants entered China’s tobacco market, of which 510 (83%) were Class I (>¥10/pack) and Class II (¥7–¥10/pack); MBCs consist of 17 PBCs, 82 (13%) were MBCs and only 23 (4%) were DBCs Class III (¥3–¥7/pack); and DBCs consist of Class IV (¥1.65–¥3/ (online supplementary figure 2). pack) and Class V (<¥1.65/pack). While marketing PBCs by emphasising their superiority, quality, luxury and exclusivity, CNTC also linked PBCs to guanxi—a copyright.
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