| INTEGRATED REPORT 2020 |
At PMI, we support regulation that supports tobacco harm reduction, as well as measures to discourage initiation, encourage cessation, and encourage smokers who do not intend to quit to switch to less harmful non-combusted alternatives to cigarettes.
Topic description
For PMI, responsible marketing and sales means commercializing our products in a way that limits access and use by unintended users, including minors and nonsmokers—those who have never smoked as well as those who have quit smoking. It also entails communications to raise awareness among adult smokers (or users of nicotine-containing products) of better alternatives to cigarette smoking. We do this while providing clear information on the products’ health risks through appropriate labeling and communication.
Responsible marketing and sales practices is a tier 1 topic within our strategic pillar Operating with excellence.
Our progress in 2020
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The right thing to do
The responsible commercialization of tobacco and nicotine-containing products is of profound interest to society. Cigarette smoking is one of the leading causes of preventable mortality and morbidity in the world. While smoking rates, including among youth, have declined in most countries, smoking continues to be a public health issue. There are also legitimate concerns on youth uptake of nicotine-containing smoke-free products, notably exacerbated by youth use of e-vapor products in the U.S. We take this risk extremely seriously, and while our smoke-free portfolio has no evidence of any significant use by youth, we must place a strong focus on continuing to minimize use by unintended audiences as we expand to more categories and geographies.
There are still an estimated one billion-plus people in the world, and hundreds of millions of people who would otherwise continue to smoke are looking for better alternatives to cigarettes. The availability of innovative smoke-free products offers a significant opportunity for adult smokers to move away from cigarettes, as well as benefit public health.
The business case
Consumer-centric product design, development, marketing, sales, and engagement drive our commercial success and can propel our mission. Responsible marketing and sales practices are fundamental to minimizing unintended use of our products and reputational damage to our brand equity. Driving sustainable organic growth in net revenues and earnings per share relies on a continued license to operate with regulations which allow us to communicate with and market to adult smokers. Maintaining and growing strong brand equity for our smoke-free products is also critical to growing our market share and delivering attractive financial performance. Concerns that our products, marketing, and sales could discourage cessation, encourage initiation, or particularly appeal to minors can undermine our credibility, harm our reputation, and even trigger adverse regulation, threatening our ability to engage or jeopardizing product categories. How we market and sell our products can either enhance or undermine our credibility and trust; especially for smoke-free products, where meaningful dialogue is indispensable for achieving our purpose of accelerating the end of smoking. Enforcing the most responsible marketing practices allows us to lead by example.
Our aims:
>90%
Youth access prevention (YAP) programs in place in markets representing more than 90 percent of PMI’s total shipment volume by 2020
100%
Percentage of PMI smoke-free electronic devices introduced on the market as of 2023 equipped with age-verification technology
Achieving our aims
We aim to market and sell our products responsibly to adult consumers of tobacco and nicotine-containing products. Fundamental to achieving this objective is providing clear and meaningful information about our products, including about the risks of consumption, through our marketing and sales activities.
All our commercialization activities across the world are guided by a set of core principles:
- PMI products are only for adults who smoke or use other nicotine-containing consumer products
- We warn consumers about the health effects of our products
- We communicate about our products to enable adult consumers to make choices
- We market truthfully and transparently. We design, develop, and commercialize our products in ways that are consistent with our smoke-free mission.
Our marketing and sales principles and practices are codified in separate Marketing Codes for combusted tobacco products and non-combusted alternatives (smoke-free products). Until 2021, PMI’s (only) Marketing Code focused exclusively on combusted tobacco products—which, together with national laws, set the standards for the marketing and sale of our combusted tobacco products. In parallel, our Good Conversion Practices (GCP) articulated the rules governing the marketing and sale of our smoke-free products.
In order to maximize the potential of smoke-free products while simultaneously minimizing unintended consequences, we are aiming for digital age-verification processes that are both effective in preventing youth access and seamless for legal-age consumers, to facilitate their switching away from cigarettes.
In early 2021, PMI released internally an updated Marketing Code for combusted tobacco products and a new, separate Marketing Code for non-combusted alternatives that codifies and elaborates on the principles contained in the GCP. The new Marketing Codes establish a robust governance process to ensure that all commercial programs, campaigns, and initiatives comply with all relevant laws and the principles in the Codes.
Everyone involved in PMI’s commercialization activities—including employees and third parties acting on our behalf—must be trained on the Codes and follow them.
We also have policies that set standards and requirements for conducting market research regarding combusted tobacco products and non-combusted alternatives. Research is restricted to adults who smoke or use other nicotine-containing products, and all employees and third parties involved in market research activities must be formally trained and are contractually bound to comply with the policies.
Three functions—Ethics and Compliance, Risks and Controls, and Corporate Audit—support and monitor compliance with the Guidebook for Success (our code of conduct) and our Principles and Practices through training, communication, controls, investigations, and audits.
Most of our marketing expenditure is geared towards our smoke-free products. In 2020, 76 percent of our total commercial expenditure related to the marketing and sale of smoke-free products, while only 24 percent pertained to our combusted tobacco products.
In addition, we seek to leverage technology and closely monitor emerging solutions with potential to increase the accuracy of age verification and minimize the scope for human error. Preventing unintended use of smoke-free products is fundamental to building a sustainable business. Cooperation with external stakeholders, especially technology companies, is key in that regard to accelerate the pace of progress and help us meet our goals.
Our progress in 2020
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