Ryan Liptak, Ryan Merk, Mary Frances Meier Microeconomics

Summary  As cigarette sales slowly decrease, some tobacco companies, such as Reynolds, are looking to increase their marketing of smokeless tobacco products.  Such products include: Strips Lozenges Snuff or Snus

Ingredients of a Cigarette: In addition to tobacco and nicotene, some other ingredients that go into making cigarettes include…

Ingredients in Smokeless Tobacco Products:  Smokeless tobacco products usually contain more nicotene than cigarettes, and still contain the harmful carcinogens found in their smoking alternatives.  Polonium 210, Formaldehyde, and Cyanide are some examples of such ingredients.  Though less likely to cause lung cancer, smokeless tobacco products have a much increased risk of oral cancers, and are not a safe alternative to smoking.

Reynold’s Marketing Points:  CEO Susan Ivey believes that the smokeless alternatives offer a “mess-free” option for consumers that need to get their nicotene fix. Reynolds promotes them as options when lighting up is impractical or illegal. Ms. Ivey herself likes to use dissolvable smokeless-tobacco strips when in company meetings.  Reynolds wants to market the smokeless products as a safer alternative to smoking, but are not allowed to under FDA regulations.

FDA concerns:  Dr. Lawrence Dayton of the FDA voiced a concern that children may be drawn to the brightly colored packaging of the products, as well as their “easily concealable size.”  Reynolds has also been criticized by anti- smoking advocates who are concerned that the smokeless products will appear to be candy to children, especially the dissolvable strips and lozenges.

Common Statistics:  Currently, one in five American Adults are smokers 70% of the populations voiced a desire to quit smoking  Reynolds hopes that a greater number of scientists and health care professionals will find these new products to be less harmful than cigarettes.  Currently, only about seven million Americans use smokeless tobacco products Last year, sales for smokeless products rose about 7% Sales for cigarettes fell about 9% Smokeless products offer a bigger profit margin because they are not as heavily taxed as cigarettes.

New Products:  Some of the new products being introduced include: Spitless Snus Tobacco Lozenges Dissolvable Strips

Evolution of the Tobacco Industry  CEO Ivey has outsourced payroll- processing, and information technology, as well as decreasing the amount of employees by 32% since  more focused on new smokeless products, cutting 70% products Reynolds typically produced, which was over 600 items. These included “soft-pack” varieties of Kool, Winston, and Doral

 Goal is to reinvest this savings in smokeless tobacco  In 2006, Reynolds bought the makers of Grizzly, and in 2009, they acquired the makers of Skoal.

Cost Comparison of Cigarettes and Smokeless Products:  The average cost of a pack of cigarettes is about $4.50 to $5.00  The average cost of the smokeless alternatives is $5 or $6 a tin. While the cost difference isn’t especially large, it may be big enough to deter consumers from trying their alternative choices.

Over the Counter Products:  About a year ago, Reynolds began to look into getting into OTC Smoking cessation product market. $2.1 billion a year industry.  Reynolds purchased Niconuvum in December, a Swedish manufacturer of nicotene gum, pouches, and sprays.