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..° ~ THE AMERICAN "K)BACCO COMPANY Memo~ndum AT 625 ~?-871 To J. M. Ockers, Group Product Manager From M. J. Burns, Produc~ Manager D~le September 27, 1989 Rof APPROVAL RECO~L~ENDATION: LUCKY STRIKE Filters G~neric Price Test This recommends that we reposition I]3CKY STRIKE Filters at a generic price in Section C-2. The generlc priced LUCKY STRIKE Filter will be targeted sir~le-mlndedly at young adult male smokers. This repositlonlng requires a shift in distribution from carton oriented outlets to pack oriented outlets. Since young adult male smokers overwhelmingly prefer king slze styles, we will focus on establishing distribution and display of king size styles. A competitive advertising and promotion support program is also recommended and estimated cost of the entire effort, planned to begin on February iP, 1990 at the start of Campaign #2, is $2.585MM. LUCKY STRIKE Filters will be positioned as a low priced, flavorful, masculine no-nonsense cigarette that appQals to men who view themselves as independent, strong-willed and in control of their destinies. LUCKY STRIKE Filters will be a low priced contemporary alternative to young adult male smokers who choose to reject Marlhoro~ C~/uel and Winston in the full price sBgment thereby 'breaking away from the crow~.' LUCk~'S herltageof rich flavor and fine tobacco supports this positioning. The creative platform encompasses taste and heroism and visually captures LUCKY's history and heritage. Although creative details have to be refined, we expect to use "introductory" advertising featuring a close-up view of LUCKY STRIKE Filter king size soft pack amid military trappings such as a b0mbardie~ leather Jacket and aviator glasses. The copy reads 'LUCKY STRIKE. 'Taste that goes the distance'. A "new low price" snipe will be used in both advertising and POS. Post "introductory" creative marries the past with the present and portrays a young fighter pilot reaching t/trough time (as depicted by a sepia toned photograph) to light the cigarette of today's yotuug male smoker. We propose to use qualitative and quantitative advertising copy research in order tO insure that our advertising appeals to the young adult male smoker. It is extremely important to determine that our advertising communication is clearly understood and believable to the target audience. We plan to concentrate our display efforts on the filter king soft pack. filter king box and the light king soft pack. Support For our focus on kings comes from NOTS data which indicate non menthol kings hold a 50% share among males aged 21-25 versus an 18% share for non menthol 100's. The two 100's styles will also be priced at the generic level. The lO0's styles account for 65% of LUCKY Filter volume in Section C-P.

• ~ J. M. Ockers september 27, 1989 Page 2 We propose tO conduct research to assess the perceptions of and reactions to packages of LUCKY STEIKEFilter KS SP, Magna and Doral. This perception research will be conducted prior to the start of the generic price test and approximately six months after advertising breaks. We will use a sustained magazine campaign that is highly targeted to young adult males. A sustained magazine presence is essential to build LUCKY STRIKE Filter's image as a low priced, flavorful, masculine cigarette. National publications will provide regional coverage to 16 of =he 19 ADI's in Section C-2. Newspaper advertising will be used in t~o of the three remaining markets where national publlca~ions under deliver on our coverage goals. An out-of-home blitz is planned in the introductory phase (first four months) of the launch to bruadBn awareness and impact of LUCKY STRIKE's new positioning. Our goal is ~o reach 90+% of male smokers aged 21 to 35 with primary emphasis on the 21 to 25 age bracket. In addition to rotary bulletins and 30-sheets, we will employ supplemental posters in convenience stores where LUCKY Filters distribution is established. We intend to introduce LUCKY STRIKE Filters in one ADI ~ advertising in order to determine to what degree the brand can still attract young adult male smokers. The promotional part of the generic price test wguld be implemented in this non-advertised market. We also plan to conduct the aforementioned perception research in the non-advertlsed market on a pre and post basis. Heavy retail promotion is planned exclusively at pack oriented outlets. We race--end that LUCKY STRIKE Filters have primary package status in four sales campaigns in 1990. Planned activities include three giGiF offers to quickly prompt trial and a free lighter with two pack purchase to sustain display presence. A heavy BIGIF is planned in the firs=, second and fourth coverages and the lighter promotion will occur in the sixth coverage. It is important to emphasize here that only pack promotions are planned. This is due to buying patterns of our target audience of young adult male smokers who purchase predominantly by the pack. We will scale down the UP effort if it is determined that pack oriented outlets cannot¸ accomodate the large volume of merchandise we plan to place in prominent display locations. Section C-2: AS. LA. MS and Parts of TN, ~ Section E-2 has been selected to test a generic price LUCKY Filter progr~ due to minimal spill-ln/spill-out. Section C-2 has 19 ADI markets where we will track shipments and share. The 'cleanest' and largest of these Include Little Rock, New Orleans and Memphis. Branded generics have a 153 SDI in C-E, the highest in the country. LUCKY Filters currently have a .15% share in Section C-2. This represents an SDI of 48. Since we intend to fundamentally reposition the product wB are comfortable with the selection of a Section where the brand does not have a strong followingl ATCo has an SDI of 72 in Section C-2. Although neither ATCo nor LUCKY are strong in C-g we feel the succes~ of branded generics outweighs these Issues.

, J.M. Ockers • .~ September 27, 1989 Page 3 Concentrate on obtaining pack distribution and primary display in pack oriented outlets. Support new distribution with three heavy BIGIF efforts and one free premium with purchase of two packs. Maintain LUCKY STRIKE Filters as the primary sales effort during four sales campaigns in 1990. Cempaign coverages will mirror the national sales campaign schedule: Campaign #2 (2/12-3/23) Campaign #3 (3/26-5/18) Campaign #5 (7/2-8/10) Campaign #7 (10/1-11/9) l-w-I UP (factory-banded) l-w-I UP (factory-banded) l-w-i UP (factory-handed) llghter/2-paek (field-afflxed) The total cost is budgeted at $2.585D~. Creative development, production, perception research and advertising copy research costs of $495M apply to the 1989 budget. The balance of $2.090~ applies to the 1990 budget. Mag~zThe/ROF $I, 100M 42% OOH~ 600 23 Creative development 200 8 Production 200 8 Advertising Copy Research 25 1 $2,125 82~ l-w-i UP $ 81 3 Sampling 75 3 POe ~ $ 220 8% SPecial Event s3 Darts ~ 7% Perception SV~y $70 _j/ Grand Total ~ 100% Isupplemental back lit posters in C-stores are budgeted at $88M and will only be used in outlets where LUCKY Filters are distributed. 2Promotlon cos~ details are included in the attached exhibit. 3The LUCKY STRIKE dart tournaments in Little Rock and New Orleans will be "tied-in" to special dart related events currently under development. MJB:isn Attachment

J. M. Ockers Ssptember 27, 1989 Page 4 Generic Price Test Promotion CosBs II. III. ~ ~ Total Cost Ist coverage 3,000 90,000 $0.301 $27,000 2rid coverage 3,000 90,000 $0.30 $27,000 4th coverage 3,000 90,000 $0.30 $27,000 6th coverage 2,500 50,000 $02 $0 Pack promotions 8~_~I_~Q~3 Cost of product, part timers, etc. $75,000 Pos POS cost includes production, materials. $64,000 IV. (1.) (2.) (3.) Cost of free goods for a factory banded l-w-i UP. LUCKY STRIKE brand identified lighters purchased in 1989 in storage at Lentz warehouse. We will scale down the UP effort if ws determine that Dack oriented outl~ts in Section 0~2 are ~able to accomodate the large volume of merchandise. We want to avoid a situation where UP's a~e simply 'dumped' in large volume outlets in order to sell quickly.

r i J. M. Ockers Se?~embsr 27~ 1989 Page 5 A?~RD~AL~CD~ATID~: LEVY ~iltAr~ ~eneric 9flee Teat J. M, Ockers J. E.~ V se ql2q 'D/re '°t+Oat. Date Date Date R. E. Smith Date R.' ~. sp~gh~ ~ Date iU// I). S .~/Johnston /Date W. J. Moore Date ~, E. Mulle'n i Date

NEVJ ORLEANS METF~I3 SHipMENT ~HARE FOR LL~Ky ~TRIKE AND COMPENTORS PALL MALE KS NF (L~O~ 2.~7 pALL MALL ~OLD 0.57 t,UCKy ~'TRIKE 70 [~32 LLICK¥ STR P~E FL~ TOTAL 013 CAMEL FLT 0.?5 ~REG ~86 MARLBORO E~8 M~GNA 0,46 BUCKS W~ TOTAL GENE~IC~ 1 ~CG ~OTA L P R~CE VAL(J E I~CI- MALI1B~ 1~6~ 1.45 ~11 149 206 i 03~ 0~ 039 ~ r 0~ (~31 ~22 0 26 0,06~11 0,07 0,07 1~15 1~C~ 0~87 1,97 2088 1925 20.49 13.26 N~A WA N/A ~//~ 0.~ ~E~ 0.76 1.20 1433 1~ 12,8~ 18,16 1 96 167 19~3 1 5~ 17~ ~ ~4 2.~6 0AI 0 3~ 0~5 0.3~ (131 026 (~.54 0~29 ~4 0.30 0,~ 0,25 0,~ 0~ 1,~4 1 ~C~ 1~27 ~7 1,O6 1,27 1 ,~7 1~,6~ 2~4 1~,07 21 9,5 19,10 19 72 ~6~ ~62 0~ U~47 0~59 0 17 r~72 0,~2 1 ~6 ~¢)1 L~70 9.87 0,83 ~70 1,15 1696 16~q I~ 1~16 16,61 1~07 ~3,~