Description
CASE 4-6 Making Socially Responsible and Ethical
Marketing Decisions: Selling Tobacco
to Third World Countries
Strategic decisions move a company toward its stated goals and
perceived success. Strategic decisions also reflect the firm’s social
responsibility and the ethical values on which such decisions are
made. They reflect what is considered important and what a company wants to achieve.
Mark Pastin, writing on the function of ethics in business decisions, observes:
There are fundamental principles, or ground rules, by which
organizations act. Like the ground rules of individuals,
organizational ground rules determine which actions are
possible for the organization and what the actions mean.
Buried beneath the charts of organizational responsibility,
the arcane strategies, the crunched numbers, and the political intrigue of every firm are sound rules by which the game
unfolds.
The following situations reflect different decisions made by multinational firms and governments and also reflect the social responsibility and ethical values underpinning the decisions. Study the
following situations in the global cigarette marketplace carefully
and assess the ground rules that guided the decisions of firms and
governments.
EXPORTING U.S. CIGARETTE
CONSUMPTION
In the United States, 480,000 deaths, about one in five, are related to
smoking each year. About 250 billion cigarettes were sold in the U.S.
in 2017, but sales are shrinking rapidly. Unit sales have been dropping about 1 to 2 percent a year, and sales have been down by almost
5 percent in the last 10 years. The U.S. Surgeon General’s campaign
against smoking, higher cigarette taxes, nonsmoking rules in public
areas, and the concern Americans have about general health have
led to the decline in tobacco consumption. Faced with various classaction lawsuits, the success of states in winning lawsuits, and pending federal legislation, tobacco companies have stepped up their
international marketing activities to maintain profits.
Even though companies have agreed to sweeping restrictions in
the United States on cigarette marketing and secondhand smoke
and to bolder cancer-warning labels, they are fighting as hard as
ever in the Third World to convince the media, the public, and
policymakers that similar changes are not needed. In seminars at
luxury resorts worldwide, tobacco companies invite journalists, all
expenses paid, to participate in programs that play down the health
risks of smoking. It is hard to gauge the influence of such seminars, but in the Philippines, a government plan to reduce smoking
by children was “neutralized” by a public relations campaign from
cigarette companies to remove “cancer awareness and prevention”
as a “key concern.” A slant in favor of the tobacco industry’s point
of view seemed to prevail.
At a time when most industrialized countries are discouraging smoking, the tobacco industry is avidly courting consumers
throughout the developing world using catchy slogans, obvious
image campaigns, and single-cigarette sales that fit a hard-pressed
customer’s budget. The reason is clear: The Third World is an
expanding market. As an example, Indonesia’s per capita cigarette consumption quadrupled in less than 10 years. Increasingly,
cigarette advertising on radio and television is being restricted in
some countries, but other means of promotion, especially to young
people, are not controlled.
China, with more than 300 million smokers, produces and consumes about 1.4 trillion cigarettes per year, more than any other
country in the world. Estimates are that China has more smokers
than the United States has people. Just 1 percent of that 1.4 trillion cigarette market would increase a tobacco company’s overseas
sales by 15 percent and would be worth as much as $300 million
in added revenue.
American cigarette companies have received a warm welcome
in Russia, where at least 50 percent of the people smoke. Consumers are hungry for most things Western, and tobacco taxes are low.
Unlike in the United States and other countries that limit or ban
cigarette advertising, there are few effective controls on tobacco
products in Russia. Russia, the world’s fourth largest cigarette market, has proved to be an extremely profitable territory for British
American Tobacco (BAT). BAT Russia, established in 1949, sold
65 billion cigarettes in Russia in 2005, giving it almost one-fifth of
the market share.
ADVERTISING AND PROMOTION
In Gambia, smokers send in cigarette box tops to qualify for a
chance to win a new car. In Argentina, smoking commercials fill
20 percent of television advertising time. And in crowded African
cities, billboards that link smoking to the good life tower above the
sweltering shantytowns. Such things as baby clothes with cigarette
logos, health warnings printed in foreign languages, and tobaccosponsored contests for children often are featured in tobacco ads in
Third World countries. Latin American tobacco consumption rose
by more than 24 percent over a 10-year period.
Critics claim that sophisticated promotions in unsophisticated
societies entice people who cannot afford the necessities of life to
spend money on a luxury—and a dangerous one at that. The sophistication theme runs throughout the smoking ads. In Kinshasa, Zaire,
billboards depict a man in a business suit stepping out of a black
Mercedes as a chauffeur holds the door. In Nigeria, promotions for
Graduate brand cigarettes show a university student in his cap and
gown. Those for Gold Leaf cigarettes have a barrister in a white
wig and the slogan, “A very important cigarette for very important
people.” In Kenya, a magazine ad for Embassy cigarettes shows an
elegant executive officer with three young men and women equivalent to American yuppies. The most disturbing trend in developing countries is advertising that associates tobacco with American
affluence and culture. Some women in Africa, in their struggle for
women’s rights, defiantly smoke cigarettes as a symbol of freedom.
Billboards all over Russia feature pictures of skyscrapers and white
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Cases 4 Developing Global Marketing Strategies
sandy beaches and slogans like “Total Freedom” or “Rendezvous
with America.” They aren’t advertising foreign travel but American
cigarette brands.
Every cigarette manufacturer is in the image business, and
tobacco companies say their promotional slant is both reasonable
and common. They point out that in the Third World a lot of
people cannot understand what is written in the ads anyway, so
the ads zero in on the more understandable visual image. “In most
of the world, the Marlboro Man isn’t just a symbol of the Wild
West; he’s a symbol of the West.” “You can’t convince people
that all Americans don’t smoke.” In Africa, some of the most
effective advertising includes images of affluent white Americans
with recognizable landmarks, such as the New York City skyline,
in the background. In much of Africa, children as young as five
are used to sell single cigarettes, affordable to other children, to
support their own nicotine habits. Worldwide nearly one-fourth of
all teenage smokers smoked their first cigarette before they were
10 years old.
The scope of promotional activity is enormous. In Kenya, a
major tobacco company is the fourth-largest advertiser. Tobaccosponsored lotteries bolster sales in some countries by offering as
prizes expensive goods that are beyond most people’s budgets.
Gambia has a population of just 640,000, but a tobacco company
lottery attracted 1.5 million entries (each sent in on a cigarette box
top) when it raffled off a Renault car.
Evidence is strong that the strategy of tobacco companies is
to target young people as a means of expanding market demand.
Report after report reveals that adolescents receive cigarettes free
as a means of promoting the product. For example, in Buenos Aires,
a Jeep decorated with the yellow Camel logo pulls up in front of a
high school. The driver, a blond woman wearing khaki safari gear,
begins handing out free cigarettes to 15- and 16-year-olds on lunch
recess. Teens visiting MTV’s websites in China, Germany, India,
Poland, and Latin America were given the chance to click on a banner ad that led them to a questionnaire about their exposure to cigarette ads and other marketing tools in their countries. Some 10,000
teens responded to the banner ads. “In the past week, more than
62 percent of teenagers in these countries have been exposed to
tobacco advertising in some form,” the 17-year-old SWAT (Students
Working against Tobacco) chairman told Reuters. “The tobacco
companies learned that marketing to teens and kids worked in this
country, but since they can’t do it here anymore, they’ve taken what
they learned to other countries.” At a video arcade in Taipei, free
American cigarettes are strewn atop each game. “As long as they’re
here, I may as well try one,” says a high school girl.
In Malaysia, Gila-Gila, a comic book popular with elementary
school students, carries a Lucky Strike ad. Attractive women in
cowboy outfits regularly meet teenagers going to rock concerts or
discos in Budapest and hand them Marlboros. Those who accept a
light on the spot also receive Marlboro sunglasses.
According to the American Lung Association Tobacco Policy
Trend Alert, the tobacco industry is offering candy-flavored cigarettes in an attempt to continue to target teens.1 Advertising and
promotion of these products uses hip-hop imagery, attractive
women, and other imagery to appeal to youth in similar ways that
Joe Camel did a decade ago. Marketing efforts for candy-flavored
cigarettes came after the Master Settlement Agreement prohibited
tobacco companies from using cartoon characters to sell cigarettes.
See “From Joe Camel to Kauai Kolada—The Marketing of Candy-Flavored Cigarettes,”
1
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Researchers recently released the results of several surveys that
showed that 20 percent of smokers ages 17 to 19 smoked flavored
cigarettes.
In Russia, a U.S. cigarette company sponsors disco parties
where thousands of young people dance to booming music. Admission is the purchase of one pack of cigarettes. At other cigarettesponsored parties, attractive women give cigarettes away free.
In many countries, foreign cigarettes have a status image that
also encourages smoking. A 26-year-old Chinese man says he
switched from a domestic brand to Marlboro because “You feel a
higher social position” when you smoke foreign cigarettes. “Smoking is a sign of luxury in the Czech Republic as well as in Russia
and other Eastern countries,” says an executive of a Czech tobacco
firm that has a joint venture with a U.S. company. “If I can smoke
Marlboro, then I’m a well-to-do man.”
The global tobacco companies insist that they are not attempting to recruit new smokers. They say they are only trying to encourage smokers to switch to foreign brands. “The same number of
cigarettes are consumed whether American cigarettes or not,” was
the comment of one executive.
Although cigarette companies deny they sell higher tar and
nicotine cigarettes in the Third World, one British tobacco company does concede that some of its brands sold in developing countries contain more tar and nicotine than those sold in the United
States and Europe. A recent study found three major U.S. brands
with filters had 17 milligrams of tar in the United States, 22.3 in
Kenya, 29.7 in Malaysia, and 31.1 in South Africa. Another brand
with filters had 19.1 milligrams of tar in the United States, 28.8 in
South Africa, and 30.9 in the Philippines. The firm says that Third
World smokers are used to smoking their own locally made product, which might have several times more tar and nicotine. Thus,
the firm leaves the tar- and nicotine-level decisions to its foreign
subsidiaries, who tailor their products to local tastes.
C. Everett Koop, the retired U.S. Surgeon General, was quoted
in a recent news conference as saying, “Companies’ claims that science cannot say with certainty that tobacco causes cancer were
flat-footed lies” and that “sending cigarettes to the Third World was
the export of death, disease, and disability.” An Oxford University
epidemiologist has estimated that, because of increasing tobacco
consumption in Asia, the annual worldwide death toll from tobaccorelated illnesses will more than triple over the next two decades.
Perhaps 100 million people died prematurely during the 20th century as a result of tobacco, making it the leading preventable cause
of death and one of the top killers overall. According to the World
Health Organization, each year smoking causes 4 million deaths globally, and it expects the annual toll to rise to 10 million in 2030.
GOVERNMENT INVOLVEMENT
Third World governments often stand to profit from tobacco sales.
Brazil collects 75 percent of the retail price of cigarettes in taxes,
some $100 million a month. The Bulgarian state-owned tobacco
company Bulgartabac contributes almost $30 million in taxes to
the government annually. Bulgartabac is a major exporter of cigarettes to Russia, exporting 40,000 tons of cigarettes annually.
Tobacco is Zimbabwe’s largest cash crop. One news report
from a Zimbabwe newspaper reveals strong support for cigarette
companies. “Western anti-tobacco lobbies demonstrate unbelievable hypocrisy,” notes one editorial. “It is relatively easy to sit in
Washington or London and prattle on about the so-called evils of
smoking, but they are far removed from the day-to-day grind of
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earning a living in the Third World.” It goes on to comment that
it doesn’t dispute the fact that smoking is addictive or that it may
cause diseases, but “smoking does not necessarily lead to certain
death. Nor is it any more dangerous than other habits.” Unfortunately, tobacco smoking has attracted the attention of a particularly
“sanctimonious, meddling sector of society. They would do better
to keep their opinions to themselves.”
Generally, smoking is not a big concern of governments beset
by debt, internal conflict, drought, or famine. It is truly tragic,
but the worse famine becomes, the more people smoke—just as
with war, when people who are worried want to smoke. “In any
case,” says one representative of an international tobacco company, “people in developing countries don’t have a long enough
life expectancy to worry about smoking-related problems. You
can’t turn to a guy who is going to die at age 40 and tell him that
he might not live up to 2 years extra at age 70.” As for promoting
cigarettes in the Third World, “If there is no ban on TV advertising, then you aren’t going to be an idiot and impose restrictions
on yourself,” says the representative, “and likewise, if you get an
order and you know that they’ve got money, no one is going to turn
down the business.”
Cigarette companies figure China’s self-interest will preserve its
industry. Tobacco provides huge revenues for Beijing because all
tobacco must be sold through the China National Tobacco Company
monopoly. Duty on imported cigarettes is nearly 450 percent of their
value. Consequently, tobacco is among the central government’s
biggest source of funding, accounting for more than $30 billion in
income in 2005. China is also a major exporter of tobacco.
FOCUS ON DEVELOPING MARKETS
Lawsuits, stringent legislation against advertising, laws restricting
where people can smoke, and other antismoking efforts on the part
of governments have caused tobacco companies to intensify their
efforts in those markets where restrictions are fewer and governments more friendly. As part of a strategy to increase its sales in the
developing world, Philip Morris International (PMI) was spun off
from Philip Morris USA in 2008 to escape the threat of litigation
and government regulation in the United States. The move frees
the tobacco giant’s international operations of the legal and publicrelations headaches in the United States that have hindered its
growth. Its practices are no longer constrained by American public
opinion, paving the way for broad product experimentation.
A new product, Marlboro Intense, is likely to be part of an
aggressive blitz of new smoking products PMI will roll out around
the globe. The Marlboro Intense cigarette has been shrunk down
by about a half inch and offers smokers seven potent puffs apiece,
versus the average of eight or so milder draws. The idea behind
Intense is to appeal to customers who, due to indoor smoking bans,
want to dash outside for a quick nicotine hit but don’t always finish
a full-size cigarette. The CEO of PMI says there are “possibly 50
markets that are interested in deploying Marlboro Intense.”
Other product innovations include sweet-smelling cigarettes
that contain tobacco, cloves and flavoring—with twice the tar and
nicotine levels of a conventional U.S. cigarette. Marlboro Mix 9, a
high-nicotine, high-tar cigarette launched in Indonesia in 2007 and
a clove-infused Mix 9 will be exported to other southeast Asian
markets next. Another iteration of the Marlboro brand, the Marlboro Filter Plus, is being sold in South Korea, Russia, Kazakhstan,
and Ukraine. It touts a special filter made of carbon, cellulose
acetate, and a tobacco plug that the company claims lowers the tar
level while giving smokers a smoother taste.
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One of PMI’s immediate goals is to harness the huge potential
of China’s smoking population, as well as some of that country’s
own brands, which it has agreed to market worldwide. With some
350 million smokers, China has 50 million more cigarette buyers
than the U.S. has people, according to Euromonitor.
While smoking rates in developed countries have slowly declined,
they have shot up dramatically in some developing countries where
PMI is a major player. These include Pakistan (up 42 percent since
2001), Ukraine (up 36 percent), and Argentina (up 18 percent).
ANTISMOKING PROMOTIONS
Since the early 1990s, multinational tobacco companies have promoted “youth smoking prevention” programs as part of their “Corporate Social Responsibility” campaigns. The companies have partnered
with third-party allies in Latin America, most notably nonprofit educational organizations and education and health ministries, to promote
youth smoking prevention. Even though there is no evidence that these
programs reduce smoking among youths, they have met the industry’s
goal of portraying the companies as concerned corporate citizens.
In fact, a new study proves that youth smoking prevention ads
created by the tobacco industry and aimed at parents actually
increase the likelihood that teens will smoke. The study, “Impact
of Televised Tobacco Industry Smoking Prevention Advertising
on Youth Smoking-Related Beliefs, Intentions and Behavior,” published in the December 2006 issue of the American Journal of Public
Health, sought to understand how the tobacco industry uses “youth
smoking prevention” programs in Latin America. Tobacco industry
documents, so-called social reports, media reports, and material
provided by Latin American public health advocates were all analyzed. The study is the first to examine the specific effect of tobacco
company parent-focused advertising on youth. It found that ads
that the industry claims are aimed at preventing youth from smoking actually provide no benefit to youth. In fact, the ads that are
created for parental audiences also are seen by teens and are associated with stronger intentions by teens to smoke in the future.
Brazil has the world’s strictest governmental laws against smoking, consisting of highly visible antismoking campaigns, severe controls on advertising, and very high tax rates on smoking products. It
was the first Latin American country to outlaw flavored cigarettes in
2012. Despite these obstacles, the number of smokers in Brazil continues to grow, although the pace of increase is slowing. In 2017, there
were approximately 50 million smokers in the country (20 percent
of men, 12 percent of women), up from 44 million in 2006 and
38 million in 1997. Factors driving this trend include the low price of
cigarettes, which are among the lowest in the world; the easy access
to tobacco products; and the actions taken by the powerful tobacco
companies to slow down antismoking legislation in Brazil.
ASSESSING THE ETHICS
OF STRATEGIC DECISIONS
Ethical decision making is not a simplistic “right” or “wrong” determination. Ethical ground rules are complex, tough to sort out and
to prioritize, tough to articulate, and tough to use.
The complexity of ethical decisions is compounded in the international setting, which comprises different cultures, different perspectives of right and wrong, different legal requirements, and different
goals. Clearly, when U.S. companies conduct business in an international setting, the ground rules become further complicated by the values, customs, traditions, ethics, and goals of the host countries, each
of which has developed its own ground rules for conducting business.
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Cases 4 Developing Global Marketing Strategies
Prominent American ethicists have developed a framework to
view the ethical implications of strategic decisions by American
firms. They identify three ethical principles that can guide
American managers in assessing the ethical implications of their
decisions and the degree to which these decisions reflect these
ethical principles or ground rules. They suggest asking themselves
if their corporate strategy is acceptable according to the ethical
ground rules listed in the box on the right.
These questions can help uncover the ethical ground rules embedded in the tobacco consumption situation described in this case.
These questions lead to an ethical analysis of the degree to which this
strategy is beneficial or harmful to the parties and, ultimately, whether
it is a “right” or “wrong” strategy, or whether the consequences of this
strategy are ethical or socially responsible for the parties involved.
These ideas are incorporated in the decision tree in Exhibit 1.
Exhibit 1
A Decision Tree for
Incorporating Ethical and
Social Responsibility Issues
into Multinational Business
Decisions
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Principles
Question
Utilitarian ethics
(Bentham, Smith)
Does the corporate strategy
optimize the “common
good” or benefits of all
constituencies?
Rights of the parties
(Kant, Locke)
Does the corporate strategy
respect the rights of the
individuals involved?
Justice or fairness
(Aristotle, Rawls)
Does the corporate strategy
respect the canons of
justice or fairness to all
parties?
Does the decision efficiently optimize
the common good or benefits of:
THE BUSINESS FIRM?
Stockholders
Management
Profits
Growth
Other
SOCIETY?
Culture
Order
Justice
“The good life”
Other
THE ECONOMY?
THE INDIVIDUAL?
Economic growth
Freedom
Allocation of resources
Health and welfare
Production and distribution Self-realization
of goods and services
Human dignity
Other
Opportunity
Other
YES
NO
YES
Are there critical factors that
justify suboptimizing these
goals and satisfactions?
NO
NO
Does the decision respect the
rights of individuals involved?
Reject
Decision
YES
Are there critical factors
that justify the abrogation
of a right?
YES
NO
Does the corporate decision
respect the canons of justice or
fairness to all parties involved?
YES
YES
NO
Reject
Decision
Are there critical factors that
justify the violation of a
canon of justice?
NO
Accept
Decision
cat12354_case4_CS4-1-CS4-27.indd 19
Reject
Decision
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Part 6 Supplementary Material
Laczniak and Naor discuss the complexity of international ethics or, more precisely, the ethical assumptions that underlie strategic decisions for multinationals.2 They suggest that multinationals
can develop consistency in their policies by using federal law as a
baseline for appropriate behavior as well as respect for the host
country’s general value structure. They conclude with four recommendations for multinationals:
1. Expand codes of ethics to be worldwide in scope.
2. Expressly consider ethical issues when developing worldwide corporate strategies.
3. If the firm encounters major ethical dilemmas, consider
withdrawal from the problem market.
Gene R. Laczniak and Jacob Naor, “Global Ethics: Wrestling with the Corporate
Conscience,” Business, July–September 1985.
2
4. Develop periodic ethics-impact statements, including
impacts on host parties.
See www.who.int, the World Health Organization’s website, for
more details regarding the current tobacco controversy.
QUESTIONS
1. Use the model in Exhibit 1 as a guide and assess the ethical and
social responsibility implications of the situations described.
2. Can you recommend alternative strategies or solutions to the
dilemmas confronting the tobacco companies? To governments? What is the price of ethical behavior?
3. Should the U.S. government support U.S. tobacco company
interests abroad?
4. Should a company be forced to stop marketing a product that
is not illegal, such as cigarettes?
Sources: “Smoke Over the Horizon; U.S. Gains in Tobacco Control Are Being Offset Internationally,” The Washington Post, July 23, 2006; “Death and Taxes: England Has Become
the Latest in a Series of Countries to Vote for Restrictions on Smoking in Public Places,” Financial Management (UK), April 1, 2006; “Trick or Treat? Tobacco Industry Prevention Ads Don’t Help Curb Youth Smoking,” PR Newswire, October 31, 2006; “China Exclusive: China, With One Third of World’s Smokers, Promises a ‘Non-Smoking’ Olympics,”
Xinhua News Agency, May 29, 2006; “Tobacco Consumption and Motives for Use in Mexican University Students,” Adolescence, June 22, 2006; “A Change in the Air: Smoking Bans
Gain Momentum Worldwide,” Environmental Health Perspectives, August 1, 2007; “Adams Won’t Kick the BAT Habit: The Head of British American Tobacco Is Stoical About the
Looming Ban on Smoking in Public Spaces: BAT will Adapt,” The Sunday Telegraph London, June 10, 2007; “Heart Disease, Stroke Plague Third World,” Associated Press (Online),
April 4, 2006; “Get a Detailed Picture of the Tobacco Industry in Brazil,” M2 Press Wire, December 20, 2007; Vanessa O’Connell, “Philip Morris Readies Global Tobacco Blitz;
Division Spin-off Enables Aggressive Product Push; High-Tar Smokes in Asia,” The Wall Street Journal, January 29, 2008; “The Global Tobacco Threat,” The New York Times, February 19, 2008; “How to Save a Billion Lives; Smoking,” The Economist (London,) February 9, 2008; “Whether Here or There, Cigarettes Still Kill People,” The Wall Street Journal,
February 4, 2008; World Health Organization, 2018.
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INTERNET MARKETING & GLOBAL BUSINESS
Baruch College, Zicklin School of Business
Department of Marketing & International Business
Name:_____________________
Case Study Assignment – Making Socially Responsible and
Ethical Marketing Decisions: Selling Tobacco to Third World
Countries
•
•
•
Big tobacco targets the young in poor countries – with deadly consequences
PMI Targets Developing World with Marketing Tactics Prohibited or No Longer
Used in U.S., Other Developed Nations
How Big Tobacco uses Big Tech to hook new smokers
1
INTERNET MARKETING & GLOBAL BUSINESS
Baruch College, Zicklin School of Business
Department of Marketing & International Business
•
•
Tobacco Product Marketing On The Internet
How The Tobacco Industry Has Changed Its Marketing Strategy Across The Globe
Read the case study and review links above. Then do your best to provide answers to
the questions below:
1. What is are the ethical and social responsibility implications of U.S. tobacco companies?
2. Should the U.S. government support U.S. tobacco company interest abroad if they are
using harmful tactics?
3. Should a company be forced to stop marketing a product that is not illegal, such as
cigarettes?
Read the article below and summarize the marketing approach that Juul has taken to
promote itself as a health-conscious company, even as it develops potentially more addictive
vaping products.
2
INTERNET MARKETING & GLOBAL BUSINESS
Baruch College, Zicklin School of Business
Department of Marketing & International Business
How Big Tobacco Got a New Generation Hooked: It’s using the slick, high-tech disguise of
vaping.
3
INTERNET MARKETING & GLOBAL BUSINESS
Baruch College, Zicklin School of Business
Department of Marketing & International Business
4
INTERNET MARKETING & GLOBAL BUSINESS
Baruch College, Zicklin School of Business
Department of Marketing & International Business
5
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