October 11, 2015

Health Policy Implications of New Tobacco Delivery Systems

In the Friday, March 26, 2010, issue of The Wall Street Journal , there was a very thought provoking article entitled “Reynolds Faces Very Tough Test with Smokeless Tobacco Lineup.” The article specifically details the strategic intent of the tobacco companies to address the public’s concern with the harm created by smoking by moving their customers toward forms of tobacco ingredient ingestion that do not require the inhalation or the creation of smoke. The article identified lozenges and other forms of orally ingested nicotine products. In effect, the product becomes nicotine and the other addictive ingredients of tobacco, not the cigarette, cigar, or other delivery system for that nicotine.

The theory behind this strategy is that smoking, not ingestion of harmful ingredients, is the health risk both to the user and to bystanders. Clearly, when someone orally ingests nicotine, there is no second-hand smoke problem for others, and, for the user, there is no problem with small particulate matter in the lungs. The remaining hazard is the chemical alteration of the body from the ingestion of nicotine and other substances. Smokeless ingestion systems are less harmful than traditional cigarettes, but some degree of harm remains.

Even more interesting, Altria recently acquired a company that markets smoking cessation products, which positions it to offset the decline of sales of cigarettes.

This article poses two big strategic questions in the battle to improve health:

  • Can we enlist those who have produced unhealthy products and services to transition to healthy or, at a minimum, less unhealthy offerings?
  • Should we support the marketing of transitional products that retain addictive behaviors which are still harmful, but are less harmful than what they replace?

Do We Enlist the Offending Companies and Industries in Developing Healthier Alternatives?

My answer to the first question is that I am convinced that food, beverage, tobacco, alcohol, and drug companies have to be enlisted in finding solutions. They create jobs, economic return to a wide range of shareholders, including public and private pension funds, and community value, and we should attempt to redirect, rather than destroy, them. The challenge is how to break through the inertia they undoubtedly experience when their own industries and probably their own organizations have deeply-imbedded cultures that would prefer that nothing change. It is not easy, and, in any industry, only a handful of players will be bold enough to move beyond a successful business model when it is still producing big profits.

Some companies are making the transition already. Pepsico is making a strong commitment to reducing the marketing of its most sugary beverages and to reducing the sugar and sodium content in all of its products. Campbell’s Soup recently reduced sodium content in its soups. Wegman’s, a retail grocer in Rochester, New York, took the bold step of discontinuing the sale of cigarettes in its stores, a decision that must have cost it short-term profits.

However, many companies do not know how to make this transition, or fail when attempting to do so. How does a pharmacy or retail grocer which makes a lot of money slotting and selling cigarettes replace the profits from those cigarettes? Almost certainly, there is no comparably profitable retail item in the near term. As someone who attempted to wean Pitney Bowes from being too dependent on postage meter revenues and profits, I can state categorically that the first step in moving toward change is to accept the fact that the future requires a higher volume of sales to replace what’s lost and a diversification into adjacent market spaces. Companies that try for too long to hold on to an unsustainable business model or product line decline very rapidly when change comes.

I also believe that government can play a constructive role in setting standards and timetables for change. Even in the most change-resistant organizations and industries, there are those who want to change and who know how to make it happen. Government standards and timetables give them air cover to win the debate against change-resistant leaders in their organization or marketplace. To some degree, governments have to recognize that there is a delicate balance between forcing change too fast and accommodating the most reluctant industry players. Governments should find the center of gravity for an industry and peg their change decisions at that center or at an even more aggressive point, not at the slowest and most change-resistant point in a marketplace.

Governments also have to come down hard on industry players that want to take the easy way out by marketing that they have healthy alternatives when they really do not. Those kinds of players hurt everyone else. Governments also have to recognize that any mandated change will produce winners and losers. They cannot worry about insulating losers from the consequences of their bad decisions.

Supporting transitional products and services that are harmless, but less so.

My moral position is that tobacco is different from foods, beverages and alcohol. There is no demonstrable affirmative benefit from tobacco products, whereas there are positive benefits from food, beverages, and alcohol as long as they are consumed in moderation. Moreover, tobacco is an addictive product and I am opposed to marketing even less harmful versions of addictive products, for two reasons:

  • When there are reduced quantities of the harmful, addictive substance in a product, there is a great temptation to cause people to consume more of it and end up with the same quantity of harmful substance ingested. Thus, for example, if a cigarette company reduced the nicotine content in a cigarette by 50%, it might be tempted to get people to consume twice as many cigarettes. The tobacco company would love this result because it can make more money, but this is bad for the customer.
  • It is too tempting for a marketer of a less harmful, but nevertheless harmful, product to be satisfied with reducing harm rather than eliminating it. Inertia is a powerful force when companies make a high profit margin on even less harmful products.

Relative to food, beverages, and alcohol, the challenge is to get people to consume in moderation. To the marketer, the goal should be to maximize profits and reduce consumption at the same time. The best example of how to do this is in the coffee category. Starbucks found a formula to get people pay well over $2 for a cup of coffee that used to cost about $1.50 in most diners. The ingredients cost more, but not that much more, and, clearly, the barista added more labor value than the retail clerk at a traditional diner. Thus, there is always a strategy of selling a premium product, and redefining the category.

The candy companies have used a somewhat different strategy. They either keep the price flat or slightly increase it, but they reduce the size of the candy bar to increase profits. The smaller portion size leads to reduced consumption, but increased profits. The soft drink companies have done the same with the 8 ounce cans in place of the 12 ounce cans.

When I was a student in Madison, Wisconsin, in the late 1960’s, the state came up a clever way to address heavy drinking by students. Instead of trying to ban alcohol from campus or to force bar owners to enforce a 21-year-old drinking age, they authorized the selling of on-tap 3.2% beer. This watered-down beer tasted sufficiently like regular beer that it was very popular. People got bloated with beer long before they could get drunk. Air and water are great ways of reducing consumption without appearing to be operating in a “nanny” state.

Therefore, I take the view that there are a sufficient number of ways to transition to healthy offerings that we should never need to support partially harmful products and services.