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Background The tobacco industry (TI) can undermine the public health gains realised from tobacco taxation through its pricing strategies. This study aims to examine contemporary TI pricing strategies in the UK and the implications for tobacco tax policy. Methods Review of commercial and TI literature, and analysis of 2009 to 2015 Nielsen Scantrak electronic point of sale systems (EPOS) data on tobacco sales and price data. The study was set in a high income country with comprehensive tobacco control policies and high tobacco taxes (UK). The main outcome measures were: tobacco price segmentation; monthly prices, sales volumes of and net revenue from roll your own and factory made (RYO and FM) cigarettes by price segment; use of price-marking; and pack sizes. Results The literature review and sales data concurred that both RYO and FM cigarettes were segmented by price into premium, mid-price and value segments, with an additional sub-value FM segment introduced in 2012. Despite regular tax increases, average real prices for RYO value and FM sub-value segments remained steady from 2013 whilst their volumes grew. The TI maintains low prices through reducing the number of cigarettes per pack, price-marking (forcing retailers to sell cheaper products at low prices) and absorbing tax increases. Each year, at the point the budget is implemented, the TI drops its revenue by up to 18 pence per pack, absorbing the tax increases (undershifting). Later in the year it gradually passes the tax increase onto consumers, effectively smoothing the price change consumers face across the year. Undershifting of taxes is most marked for the cheapest products. Conclusions The TI employs a variety of strategies to keep tobacco cheap and minimise the impact of tobacco tax increases. The implementation of standardised packaging can prevent small pack sizes and price-marking but further changes in tax policy are needed to minimise undershifting.