Tobacco Documents Online

cc T/~L~2 C~ (~f)NTENTS Eoreword [ Key Questions and Planning Digesis I~,xternaI .................................... 2- 11 rmdustry .................................... i2 - 20 Product Activity ............................. 21 36 Market Place Characteristics ................. 37 42 Key Smoker Groups .......................... 43 49 Marketing Mix ............................... 50 53 Key Competitive Characteristics ............... 54 55 FIxFi Coupon Brand ........................... 56 60 Smoking Tobacco Prices ...................... Furnished Later Analyses External (Seven Analyses) ..................... Small Binder Product Line lThirteen Analyses) .............. Lmrge Binder Smoker Analyses (Twelve Analyses) ............ Large 131nder Marketing Activity {Seventeen Analy~es) ........ Large Binder k- , ~0

• - "F OF, EW17~D The first phase of the Corporate Marketing Strategy project involves the development of k~ ~ssumption~ by the T~sk Force. Alter approval by Management, these ~umption$ will b~ used to identify earp~rate ~nd cGmpetitive strengths/weaknesses as ~veil as areas ~f o~portunity for B&W in the Future. The method of developing plaElning assumptions will be: 1. Review of questions/assumptions in eae~ of eight broad to ausimt in thi~ discusuion, a digest of planning factors hag hewn ewtraeted from the 50 or more analyses developed during the menlh of February. 2, hl m~trly il~st~nces the Uplannill~ f~ctors" m~y l~ol be of sufficient depth foe Task Force assumptions. You are u~ged to reaJ the 'JetaLled analyse5 in such instances. 3, The questions raised in each topic area are not folended to be all-inclusive. They ~]~ould be considered "talkir, g points" fvom which a~surnpttons ~n evolve, Likewise, the planning f~ctor~ ~re s~mm~ries and will lack a great deal of the delai] found in each specific analysis. ~Vilh eight major topics to cover i~ fair days, the schedule must be co~sidered very tight. AS your ~oderafo~, I will do all I can to keep yo~ o~ ~ehedule, but the outpu~ will be the direct result or your collective efforts. After a quick review of the game plan, we will begin di~etlssing topics in the ~arne order a8 $h~wn in the table of contents. O~

cr - Z- EXTERNAL FACTORS -; ....... ~Area I AssUmptions) There axe a large variety of external factors which can have varying impacts on the marketing of clgarettes I~ the future. The following is a llst of questions which when diGcussed might lead the Core Group to make various assumptions. These assumptions should have a signi=icant hearing on the development of th~ Corporate Mark@ring Strategy. Before discussing the various g~estions each member of the Core ~roup is encouraged to reveal the Planning Factors Digest which is a summary of the relevant findings of the ana]yses conducted in preparation for this assignment. Th~ Planning Factors are also identified as to which analysis they stem from in the event Core members meant to review the entire analysis. Question~Assumption Areas - External Factors i. In terms of Governmental actlvity In the future, what threatened actions seem likely to OCCUr that will have a signifizant impact; for example: Greater restrictions On advertising Increased labeling requirements Non active support of the psssive smoking issue Kegulation of product characterbiCS Increased taxation 2. Of the Governmental actions felt most likely to occur, do you expect significant impact in terms of: Reduction in smoker capita consumption Change in the degree of smoking incidence Changes in ~me~er demographics Chahges in product characteristics (eg. tar deliveries) Changes in marketing practices Negative effects on productivity and profitability Other effects:

...... J~ __Do_~mll~e/J_eve_Lhe_~h~p~nq !i~e..sty!es, particul~rly~ong young adults will have a bearing On ~moking incidence and .__ consumption. If yes,_~ow_~.~d_w~h~t_r~/~g~eo~-~gni~e-might be involved? 4. In terms of the economy {inflation~unemployment rates], what is its likely impact on the cigarette industry in the near term future [1980)? 5. Are there any assumptions which should be made concerning the availabllity of raw materials and pote~tkal impact on industry marketing practices? G~ O

-4- A• Governmental Restrictions The following is an extract of the k~y findings from the Corporate Priorities Service on Public Policy and the Tobacco Industry. i. Cigarettes as a Health Hazard As many as 9 OUt of l0 Americans now believe that smoking cigarettes pzesents a serious health hazard. Among smokers, over half are concerned with the potential health effects. Cigarethes are ranked at or near the top of concerns about hazardous products by both the general public and leadership groups. The widespread popularity ef cigarettes coupled with the enormity of the industry in the national economy create an atsLospher~ where banning cigarettes is virtually an imDosslblllty. 2. Advertising and Lab~llng While cigsrettes will not be banned, the potential threats to the industry revolve around attempts to affect the marketing of ths product• Two strong attempts exist among beth the general public and leadership groups: (i) ~arnincs should be given on products {labeling) which hay@ potential ha[mful eff@cts. (2) Advertising which encourages the use of potentially harmful products is of great concern. Between 3 and 4 out of every i0 members of the general public feel that stricter regulation of cigarette advertising in the printed media would be a good idea. The economic dJsJocation invnlued with further re- strictions on cigarette advertising should go a long way in holding off such moves.

C( (r ..... ~. ~ruth in A6vortlsin~ Cigarettes are not a top priority target for truth-in- advertising enforeementt they nonetheless have high visib111ty as new brands making new claims are presented to consumers (particularly in respect to low tar/ health entries, 4. The Long Run Outlook There is no evidence of major public policy threats in the short run to the current status of the tobacco indllstry. "" NO push to ban the produ~ but no real possibi_ity that current label requirements and advertising restrictions will be rescended. In the short run, no apparent legislative inroads on cigarette maketlng practices appear likely. But there will be pressure groups pushing for such policies as: ~tricter restrictions on where one can smoke (b) more careful enforcement of aqe restrictions on cigarette purchases (c) higher taxes on clgarettes 5. Ke[ UndulyingPolitical ?actors: (a) General view about product safety is that business should be required to do everything it can to reduce the hazard Of a product and substantially warn the public about the remaining hazard. (b) There is an inherent danger in the passive smoker issue [low level of problem perceptlon at present (20%) but surprising support for banning cigarette ~ii~kin~ in ~ev~r~l ar~a~), Tb~ danger of thls issue is: lower consumption increased awareness of the health hazard smoking becoming a more self-comscious, anti- Soclal practice. @ O

CC CC . ~c)_~e~g~ng~gov~r~ental perspentive~app~mrs.~o--h~ re]at{rely more resources should be devoted to preventlve health car~ rather than to ~he troatment of disease. Th~s could lead to a political and moral change where the right to ~ndanger your own health can come tn be suparceded by the fact that other~ are bearing the costs of your treatment. ~ndustr~ Rcspon~e to Cigarette/Health Controversy E. Pepples developed an historical analysls on the clgarette/health controversy which might be of value if read in its entirety by the Core Group. Some key informatlon has been extracted in this digest: I. Industry Respon~ to Cigarette/Health Controversy: - produce more f11ter brands and brands wi~h lower tar delivery - ~upport scientific research to refute unfavorable findings or at a minimum to keep the scientific question open - conduct information campaigns against claims by the anti-smoking lobby - voluntarily mcct som~ of the demand~ ef the anti-smoking lobby (e.g. publish tar-nic data in ads) - co~pordte diversification to ~inimize potential adverse financial cons~queDces of the controversy on clgarette s~les 2. From the "history" analysis, the~e po~n~ w~r~ ~xtracted: - The Congress is not staffed adequately nor is it properly structured to deal with ~he medical aspects of the smoking ~D~troversy. - Independent regulatory agencies have been e~tabli~he~ to accomplish government requlatio~ in technica2 ar~as. The FTC, FCC and FCPSC have been on doubtful statutory ground in treating the smoking/health issue. Because of their state,tory cbarter~ broad consideration of the s~oking/ health problem has been made difficult. - FTC and FCC actions have been unexpected an~ precedent settin9 ... ~t~m~in~ from the efforts of individual per sonalities. High profile attitude but Congress has not extended their legislative mandates. GO ~n

CC 7 CC C. • "-~-E~h-a~ ~-~-~ct~y-interest group pressures that cpp~se compromise and cooperation with its oppcnents. - --~he-e~er~i~ht by Congress of it~ departments l~ not effective in resolving differences between departments. - SmoKing and health as a political issue has been unpopular with all but a few pcliticlans (public and economic pressures) - Main interest Cf government ~oncern is in the efforts to regulate advertlsing, but anti-smoking lobby dissatisfled with the impact ~uch efforts have had an total consumptlon. k . - The government has n~t yet intervened dlr~ctly to ~hange th~ content of the product cr limit its use .. hut pres~ sures exist in this area. - Announced purpcse of anti-smoking lobby is ~o make cigarette smoking socially unacceptable. -Tcbacco industry, if it must be regulated, would prefer it ~t the federal level. - Even e~pan~d regulatory efforts may he shaped by the industry to enhance stability in the m~rket as by individual manufacturers to bolster market position [e.g. capitalizing on official tar-nic ratings) - Market cenditions are important in determining company response. In ~ rapidly changin~ cigarette market, i~ is difficult to obtain i~dustry cooperation because Cooperation t~nds to affect individual firms unevenl~. Governmental/Social Pressures This is an additonal a~alys~s prepared by Marketing Analysis. Co~l~SlOn~ reach~: i. The "pa~sl~e smoking" movement groups such as ASH, GASP, etc. have become increasingly vocal. Th~ direction is toward~ the rights of non-smDkers; the ~bj~ctlv~ i~ to make smoking socially u~exceptable. 2. The outcome of the anti-smoking activity has been a domestic increase in the proposed legislation which r~stricts the places cigarettes can be smoked with a c~rrespondlng increase in legislative enactments. Smoking bans could reduce con- sumption by r~ducing the number of smoking opportunities avazlable to the smoker. Publicity and "NO Smoklng" signs could also be a form of anti-smoking advertising.

C( 8 CC E. 3.---9-'u~li~-opindon of~fhe~tobacco ind~stry-has-~n-~w ~ver the ye~r~ but there is no evidence (through 1974) that the a rJ.nion_is-~roaia~. 4. ~ecent action I1975) to establish ceilings on tar-nic d~- ~iveries have not been successful as neither FTC of HEW was willing to undertake such a regulatory effort and i% was determi~led by Co*Igr~s that th~ CPSC do~s I~ot hav~ jurisdiction over tobacco products. Tax Trends 1. The total tax per package has generally increased Gver t~ years, but the number of increases has diminished since ]970. The average t~x p@r package has been about 20¢ s~nce 1973. 2. The total tax per packace has not kept up with inflation -- therefore, the r~l tax (ln ~u~istallt 1967 dollars) has remained relatively constant through time and has actually decreased in the last four years. Tax increases are likely on the Federal, State and Local level. Federal Tax Unchangsd since i~54_ Increases anticipated in ~he 9¢ and 12¢ range; up from 8¢. State Tax Virtually no in~rea~es (since 1960) leads to a i¢ to 5¢ change by 1980, for a total of 13¢ and 17¢. City and County Taxes Have been level for four years and amount to 3% of total revenues. Anticipate increase of .i¢ to .2¢; up from .4¢. The total tax p~r package in 1980 should be about 26¢ plus or minus 4¢. It could not be concluded that individual state tax increases have had a negative long term ~ffect on total state tax paid sales. ~n pa~t twn y~av~. Trend extrapolation several 4, Price Sensitivity This analysis, as requested, could not be concluded bgt ub~erv~tiulL~ w~re fel~ to be of v~lue; O

CC 9 (( F. G. I.-~e ~rbeeef ~iga~b~es-has-mcrc~than doub[~-e~e~-~he--~&st twenty years the results of tax increases and manu- --~ac~urers~pr~e-incre~s~-which.-hav~kheen-ca~d ~yinF~ation. The average price is ~7.9¢ and range~ to a high of 57.5~ and a lo~ of 35.8¢. The real price of cigarettes lln 1967 dollazs) has declined over the past six years. So tax Increase~ and prlc~ increase~ have not kept up with inflation and c~gar~tte~ have become relatively cheaper. 3. Comparing the cost of cigarettes as a ~ of disposable incom~ also sho~s a decline (high of 4.1% Ln 1970 to about 3.5% in 1975). 4. The above facts may not mean anything if smoker perception of the cost cf c~garettes is that they have become more expensive and are t~erefore ~ Luxury which shoul~ be cut back during times of economic difficulty. Economic Considerations i. Serious economic setbacks will affe~ the tobaccD industry in total -- a peak unemployment ef over 9% cost the industry 1 1/2 to 2% in t~tal volume in 1974-75. (Peak inflation wa~ 12.7%.) 2. ~he ~conomy should improve through the third quarter of 197~, when the next slowdown should begin -- lasting through 1978 and part of 1979. 3. Brands directed at those segraents which are mo~t ~ffect~ by ~conomic adversity -- th~ youn~ and blacks -- will be affected disproportionately (will lose share) ~hen the economy ~ayG. Life Styl~/Attitude~ Toward Smokin~ Several anal~ses were conducted on the psychological and physioloq- ical aspects of smoking which might have a bearing o~ f~ture assumptions concerning incidence and consumption. i. Ycun~ Adult Smoker Life St~les and Attitudes {K&E Researchl (a) Smoking ~tart~ with younger peopl~ for four r~ons C1) gain maturity (21 peer pressur~ (3) rebel a~ainst parents and (41 physic~l challenge ~sn~Dke but not get ~±ck). Once becoming smeker~, youn~ p~opl~ did not feel addlcted~ They continued to smoke becaus~ (i) ~l~x~tion in social ~ituations (2) eased tension (31 help passed time (4) provided a sense of security (5) helped pac~ activity and (61 eased the change from one activity to