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RJR has a similar Every Day Low Pricing program which pays retailers for complying with pricing restrictions. That drew an antitrust lawsuit from generic and discount cigarette maker Liggett claiming the Reynolds program prompted retailers to raise prices of Liggett and other competing brands rather than lowering the tags on RJR products.While the premium brands primarily are slugging out market share with each other PM launched Marlboro Milds to take on the menthols and Reynolds extended Camel into Camel Gold to snatch away some Marlboro smokers Big Tobacco''s savings brands are the ones most vulnerable to the influx of deep discount brands made by small manufacturers.

The low tier is where most brand switching in this category occurs, jeopardizing sales of RJR''s Doral, PM''S Basic and Brown & Williamson''s GPC cigarettes.RJR answered by packing Doral with more tobacco so it burns slower and lasts as long as a full-priced brand. The company also rolled out Wholesale Partners, a program that linked discounts paid to wholesalers with the market share of Doral and other RJR brands. Some middlemen ranted that meeting market share targets could mean cutting the deep discount brands from their distribution.

The discounts were credited at the end of the quarter, meaning wholesalers also had to wait until then for their money. Some distributors opted to raise prices they charged retail customers rather than wait for payments. However, RJR last year began testing with a few wholesalers a scheme that paid discounts immediately off invoice and is mulling a national rollout. While cigarette prices and demand steadily travel their disparate directions average retail price for a carton shot up to 28.89 last year, while consumption dropped to 427.8 billion sticks, per R.J. Reynolds Tobacco''s count 3 of smokers became ex-smokers, meaning they quit the habit and stopped buying those 3-and-climbing packs.

Amid the price hikes sparked by the industry''s 206 billion Medicaid settlement, the good news for tobacco manufacturers who have the business is that 89 of smokers stayed loyal to their brands. That leaves 8 who are up for grabs. But with the prospect of a shrinking market consumption is down 11 from 481 billion sticks consumed in 1994 and tighter bans on consumer advertising, big manufacturers are trying to hold on by grabbing more store shelves in their distribution channels.Philip Morris'' Retail Leaders sales incentive program offers cash rewards to retailers who give top shelf placement and prominent signage to its brands. The program does not exclude retailers from promoting competitors, but with lures like discounts that retailers can pass on to consumers, it can muscle out other brands. Since these plums are available only to program participants, many retailers are driven to join because their competitors are getting those discounts.

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