The U.S. Centers for Disease Control and Prevention (CDC) reported that the prevalence of smoking in the country went down from 20.9 percent to 16.8 percent during 2005 to 2014. Despite the apparent decline in smoking rates, however, tobacco is still regarded as a valuable investment for financial institutions.
The CDC said the reduction in cigarette smoking rates may be associated with the rising number in consumption of e-cigarettes. Manufacturers say that the current transition to e-cigs may pay off someday, but the profit margins from e-cigs are still noticeably low.
Proposed regulations on e-cigs may also significantly affect the market's potential growth, they said. This is why, in the near future, tobacco companies might still rely on the strength of conventional cigarettes in gaining revenues.
Price Increases
Prices for a pack of cigarettes are consistent, experts said, and this is one major contributor as to why, despite falling sales, profit margins for cigarettes are still stable.
In high income countries, the price increase for cigarettes is only about 1 percent, while the demand for the product is reduced by 0.4 percent.
Researchers from the International Agency on Cancer believe that an increased price on cigarette products will reduce the consumption of these products.
Still, previous studies say the policy only permits price increases that contribute to the stability of sales.
Expansion In Countries With Low Prevalence Of Smoking
According to a report released by the World Health Organization (WHO), most tobacco companies now focus on expanding their operations internationally.
The WHO said that American companies often use economic muscle to open up their operations in countries such as Japan and Taiwan.
Experts said tobacco companies take advantage of weak laws and policies in other countries. These companies also exploit low smoking rates by women and low prevalence of cigarette smoking in several developing countries, the WHO said.
Additionally, companies are also targeting the tobacco industry in China, especially because there are 300 million smokers in the country, the WHO explained.
Advertising And Mixed Signals
Tobacco companies greatly rely on advertising to reach consumers, the WHO said, and a meta-analysis of the relationship between advertising and cigarette consumption revealed that as advertising expenditure increases to 10 percent, cigarette consumption would increase to 0.6 percent.
The WHO also said that advertisements encourage young adults and children to experiment with cigarette smoking. These advertisements also encourage smokers to increase smoking, reduce their motivation to quit and encourage former smokers to resume the act.
"It's clear what each side wants," said John Oliver, host of Last Week Tonight on HBO.
He said that countries want to warn their residents about the dangers of smoking tobacco, but tobacco companies want to convey different images that they spent money and time to promote through advertising.
Photo: Ed Schipul | Flickr
