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Indonesia: Tobacco industry merges retailer incentives with brand promotions

28 July 2017:

When restrictions are put on tobacco advertising, promotions and sponsorship, the industry shifts its promotional budget to incentive programmes for retailers. A case study on the tobacco industry partnership program in four cities in Indonesia found the Sampoerna Retail Community (SRC) and Gudang Garam Strategic Partnership (GGSP) and PT Djarum use their programme as their branding strategy.

The study involved 513 small retailers from 149 hamlets in 4 cities surrounding Jakarta, namely Bogor, Depok, Tangsel and Bekasi. Some of the main findings from the study are:

  • About 37% of retail-partners are located less than 100 meters from schools.
  • Retailers in strategic locations, such as close to a busy street, were recruited for the incentive programme.
  • There were no set sales target to qualify for the incentives.
  • All retailers were selling cigarettes by single stick.

Tobacco industry maximized the characteristics of small retailers’ success factors of their businesses such as strategic location, reasonable pricing for target customers, and appealing interior and exterior appearance of the stores.

Photos: Display of cigarette packs, Depok

The choice of strategic locations of retail partners indicates the industry’s intention that this scheme is not just about assisting small enterprises to grow, but solely a business investment focused on promoting and increasing cigarette sales.

More than 80% retailers who had written agreements with the companies, said they did not read the contracts but signed after receiving a brief explanation and some cash. The contracts were kept by the sales representatives. The rest had oral agreements.

According to the retailers, the two main expectations from the tobacco industry were prominent placement of the cigarette display racks (60%) and installing banners (46%) at the entrance. Philip Morris’ PT Sampoerna had been most insistent on the importance of point-of-sale displays (73.8%), while Gudang Garam required the installation of banners with the cigarette brands (64.1%).

Aside from cash payment, banners, display racks, other incentives given to retailers include product display demonstration by sales representatives, new paint for the outlets, better display of other products in the stores, free sets of tables and chairs and free cigarette cartons. Other free gifts ranged from promotional merchandize in the forms of ashtrays, wall clocks, mugs, calendars, umbrellas and even TV sets and refrigerators granted by Sampoerna’s SRC. Some retailers also attended annual gatherings, luncheons or picnics. SRC also presented silver, gold and premium certificates with same incentives, and even health insurance to some retailers. 

The Indonesian case study concluded the tobacco industry retailer investment programme is not about developing small and micro enterprise, but rather to expand cigarette promotion to increase cigarette consumption among middle and low middle income groups in the long run; substantial incentives given without sales targets are meant to motivate retailers and obtain their loyalty; the proximity of retailers to schools combined with tobacco promotion will encourage school children to smoke.

The WHO FCTC and its guidelines recommend a comprehensive ban on all forms of advertising and promotions including a ban on pack display. For Indonesia, banning tobacco advertising and promotions in retail shops located a minimum of 100 meter from school would be necessary. Tobacco companies must be made to declare their expenditure on tobacco promotions and marketing to identify what they spend on retailer incentives programmes.