Daily Archives: 30/06/2016

Consumption theory, the four P’s & the Pareto Principle

the four p'sIn April Professor’s Nick Sheron and Sir Ian Gilmore wrote an analysis piece for the British Medical Journal entitled ‘Effect of policy, economics, and the changing alcohol marketplace on alcohol related deaths in England and Wales’.  What stood out for me was their analysis of consumption theory, the alcohol industries use of the 4 P’s of marketing and the Pareto Principle.  I’ve chosen to cherry pick and focus on these elements of their analysis as this information and the way it was presented was new to me.  Over to the experts:

Consumption theory:

The population consumption theory1 2 3 links population level alcohol consumption to alcohol related harm, forming a theoretical basis for modern alcohol control policy. As the late Professor Griffith Edwards stated, other things being equal, “the overall level of a population’s drinking is significantly related to the level of alcohol related problems which that population will experience.”2 The factors that drive alcohol consumption apply to harmful drinkers as well as low risk drinkers, and alcohol related harm is dose related, at both individual and population levels.

Patterns of consumption are known to be related to price. Mathematical coefficients, termed “elasticities,” linking the consumption of alcohol to price and taxation are used by the Treasury to model fiscal policy11 and by the drinks industry to lobby the Treasury.12 Further coefficients link alcohol related mortality and morbidity to consumption and price, and are central to the modelling of alcohol policy by the Organisation for Economic Cooperation and Development (OECD), World Health Organization, and the UK government.13 14 15 16 17

The population consumption theory suggests that alcohol related deaths have increased as a direct result of an increase in alcohol consumption.

The 4 P’s:

wkd marketing strategyIn marketing terminology sales of any product are driven by the four Ps—place, product, promotion, and price—and all these factors have changed considerably. Numbers of on-sales (pubs, etc) licences increased from 131 000 in 1980, to 148 000 in 2012; off licences increased from 42 000 to 56 000 and consumption shifted from pubs to alcohol bought to be consumed at home.4 The nature of the product changed as sales of weaker draught beers decreased and sales of strong lager and cider increased. Furthermore, as a wartime generation of whisky drinkers passed away, the spirits industry shifted its target demographic to a younger audience, introducing “alcopops.”24 25 26 Consumption of spirits and alcopops by children aged 10-15 increased fourfold, followed a few years later by a huge increase in sales of vodka and related spirits (fig 3).29 Wine consumption also rose as a result of cultural globalisation and the increased marketing and availability as supermarkets became the major alcohol retailers.30 31 Overall, the trends in alcohol related deaths coincide with trends in consumption of cider, wine, and to some extent white spirits and strong lager, and are consistent with the population consumption theory (fig 4).

The Pareto Principle:

pareto principleThe corporate global drinks industry likes to frame alcohol related harm as a minority problem affecting a small group of “alcoholics” who are unable to control their drinking. The population consumption theory represents an inconvenient truth and on the whole the industry refuses to accept the evidence that links price to consumption and harm.34 35 But another economic fundamental is relevant to the alcohol marketplace—the Pareto principle or 80:20 rule,36 which states that 20% of highest consumers consume around 80% of any product. Combined data from the 2011-13 Health Surveys for England show how the principle applies to the alcohol market (table 1).

Harmful and extreme drinkers comprise a tiny minority, 4.4% of the population, but consume one third of all alcohol sold; the combination of hazardous, harmful, and extreme drinkers provides almost 70% of drinks industry sales by volume. The drinks industry uses its influence on government to protect this market.12 34 This has brought about remarkable changes in affordability—as the ’90s economy boomed and wages increased, taxation of alcohol was reduced in real terms. By 2008 it was possible to buy almost four bottles of vodka for the price of one bottle in 1980—and four bottles represents the weekly alcohol consumption of an average patient presenting with alcohol related liver cirrhosis.38 As the affordability of stronger alcohol increased, so did liver and related mortality (fig 5).  From 2007-08 onwards the affordability of wine fell by 54%, spirits 50%, cider 27%, and beer 22%.

It may be surprising that changes in alcohol affordability could have a rapid effect on alcohol related deaths; it can take 10 years or more of very heavy drinking to develop liver cirrhosis. But this is exactly what would be predicted from experience in other countries. When the minimum price of alcohol increased by 10% in a Canadian province, a 32% decrease in directly attributable alcohol related mortality occurred within 12 months, and most deaths were from liver disease.45 Similarly, when Mikhail Gorbachev introduced alcohol reform in Russia in the 1980s, the maximum impact on mortality occurred within 18 months, including for liver disease.46 Alcohol related liver deaths occur from acute-on-chronic liver failure related to the severity of recent drinking.

Though the causative link between this changing trajectory of alcohol related deaths and economic factors remains unproved, the deaths are clearly alcohol related (fig 2) and occur in people drinking very large quantities of the cheapest alcohol available; the median alcohol consumption of patients with alcohol related cirrhosis is around 120 units/week, and in other dependent drinkers it is even higher.38 49

And here’s the kicker:

Incomes are starting to rise, and following a fierce campaign of lobbying by the Wine and Spirits Trade Association (WSTA) the duty escalator was dropped in 2014. In the budget of March 2015 alcohol duty was cut by a further 2% for spirits and cheap cider.38 An influential Ernst and Young impact analysis commissioned by WSTA omitted to mention any of the economic costs of alcohol related harm outlined by the OECD12 but appeared to persuade the Treasury that the health of the drinks industry was more important than that of alcohol consumers. Support for the “drop the duty” campaign came from unlikely sources; Jane Ellison, undersecretary of state for public health, was featured on the front page of drinks industry website Harpers.co.uk stating that she had forwarded a “drop the duty” email in support of the duty reduction to the chancellor of the exchequer.50

The whole analysis is worth a read and you can do so here.  How the Govt can continue to deny the impact and link between alcohol, pricing and health when Prof Sheron & Gilmore lay out the evidence so clearly is beyond me.

And this is what Alcohol Policy UK had to say about it:

Price & taxation: new analysis published as Scottish MUP decision expected

And the Institute of Alcohol Studies provided a report to look at the socio-economic costs that the Treasury thought were less important than the health of the drinks industry …..

The economic impacts of alcohol (PDF)

Edited to add: 10/10/16

4 Ps influence on children’s drinking behaviour “mixed”