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- 8 - Rationale ~or• have been •dded to the creative ob)ecttve as they are a historical source of FOOL strength and are being dlsproportion•tely leveraged now by Newport, Salmu, and Marlboro. There is no evidence that swltching in must rise before starting. KOOL h•d ~ •nd erroneously walked away from this key /source of business. Smoking satisfaction and attractive, contwnporary, imagery •re broadly held consumer needs, particularly among young adults. Support for this exi•ts in numerous i~•ge/•ttitude studies done over the years end in the marketplace experience of Marlboro, Camel, and Newport. • i,,,'t~,~ i ' ~'~ /, The KOOL •tr•tegic equity is its image of •trength and heavy menthol delivery supported by its real product character. Implicit in the strategy is a judgment that various coneuunication devices can define these attributes positively leaving a net impression that the most menthol delivery means the belt - taste, satisf•ction •rid refreshment., e '~/~ ,, .I ,~%.~ t:~.~,,r 7, ~,. "" 17/5 J~'~z- ", ~.,,.,,/ ~' ~ - ..... KOOL deviated from this strategic promise between 1972 •nd 3981. Keel sh•re decline began durSng thi• po~Lod along with Newport's •scent. Smok•r inflow erorsion W•S the cause of this ph•no~onon, both switch•rs in and Itarteri. It h•s been concluded that the failure to positively reinforce the KOOL product heritage and legitimize menthol smoking for young •dult m•les caused this inflow decay. The perceived qu•lity of KOOL also decayed during this period. A creative stance which clearly states "the best" is believed necessary to correct this. Being perceived as "cool" is also supported by image rese•rch as an important consumer need. It h•s elements cf control, self-assurance, being a winner, fashionable, and confident. These needs are desirable per ae and poiitlve translations of • Black heritage/ image.

- 9 - J / , ,I: Strata Ch na e Rationale f'" f /(~'~ ~ ....... / The change from "the e~itome of menthol satisfaction" to the broader "eptt~ne of smoking satisfaction" recognizes the conc/~uaion that XOOL'a beat source of incremental share/is through menthol segment expansion. This wee true in/the past and is felt to Me true today given the rugged image of KOOL and the different needs/ attitudes of competitive menthol smokers .... Ex loretor Rationale ~~ ~-' % ~r ..... ~, - The executional exploratory is ~ustified by the following: r Inadequate image change produced by current copy. White smoker share erosion. Continued inflow erosion. Aging franchise. Key negative Image shifts (e.g., less for someone llke me) Weak product benefit copy test playback. -Judgment and TAT feedback that current visuals are too old, Black, intellectual, and not cool. Overall ", relevance to target audience is felt to be lacking in relation to the quick, easy identification with Newport / and Salem. No evidence exists that the cerebral process of understanding, respect, and admiration for the serious, mature Jazz musician happens ~m0ng ou~ target audience. L/ FamilY Advaztisin~_Rationale One campaign for all tar styles and races is desired to avoid image confusion or dilution and to ~aximize synargy. Moreover, this strategy has been producing adequate trial levels for all styles in 1982. The elimination of ULTRA only executions is due to the old- fashioned image of the Ultra segment {1983 image study) which may harm the total brand. Secondarily, this segment is not vibrant and is most contradictory with the KOOL heritage. This style should seek its own level in the marketplace until KOOL prospects feel the need to switch tar categories. Conversely, heavier weight on Lights is valid due to the fashionable,

- 10- popular image of this segment and its greater proximity to the needs of XOOL prospects end the heritage Of the brand. Nedia Tar et Audience Provide advertising support in media vehicles most likely to reach prospects who can affect: - Inflow reatorat~o~among XOOL'e historical source of strength, tha~starter market. - Stabilization of national market share d~el-14te. Strat le~ Tar et Audience Base 1984 target audience REV weights on KOOL'a 1975 demographic p~'oflle adjusted for total smoker de~o- graphic population shifts 1975 to 1984. 1984 Keel Normalized REV Welqhta* I-III XV-__.~V Total Na__~n 9__!1 12__! 11._~S Under 25 153 208 193 25-34 100 136 124 35+ 69 94 86 women s__2 9~ e__~3 Under 25 149 204 191 25-34 58 78 71 35+ 43 59 53 Total 77 iii I00 *Detail of REV weight derivation in Exhibit I.

- Ii - Media Selection Select national books based on cost to reach REV weighted audience. Continue cinema advertising accordin9 to current guidelines. - Use paint with 30 sheet as basic local media for wldescale a~reoess generation. t ~~ • new. of ..pport in major :,rket, with Black media. Spend at fair share level in military specific national and local press. Provide coverage (based on local KOOL Family sales) only after all other media needs have been fulfilled (above five items). Based on reco~ended working media budget ($36.5MM), KOOL style support in 1984 is as follows: t of Dollar Dollars Amount Family of Products 40t $14.60MM Parent 30% 10.95MM Lights 30..._~t 10.95~ Total 100% $36.50MM Priorities dtillze media categories to reflect the following priorities: 4/C National Print Cinema 4/C Out-of-Home ROP if budget permits

- 12 - Media priorities by style should reflect inflow potential of: • ght./ I"2 :'/ in that order. / ~/// Tar at Audience RatAonale / - Continued net negatSve/f~O~ for KeeL results from deteriorating inflow for the brand. Total Total Inflow Outflow Ne_.~t 2980 -26.2 1981 -24.2 1982 -19.7 Source: Switching Study Share of Smokers 6.8 6.3 6.2 Although current male smokers under 25 have slipped draittcally since 1979, young adult malei are an appxopriate target audience for KOOL. • Indexed to menthol, KOOL ia heavily ikl,a4 lale {153) and under 25 {127). Fifty-eight percent of current Keel iuokers are male (with no change from 1981) and 32t are males under 35.

- 13 - \ ~le starters under 25 indexed (95) on a fair ~hare basis in 1982 versus total smokers. I~X)L'a share of Black smokers has slipped from 48~ ~n 1979 to a current 26.3%. KOOL must continue ..... (Source:-B/1~.-k"Smoker Study) Caution: Methodology of studies varied The recommended REV weights are based on KOOL's 1975 demographic profile because: 1975 was KOOL's highest share year (10.18% SOM). This profile represents KOOL's greatest period of strength. The profile has been adjusted for changes in the total ~,//smoker population demography tc reflect the changing ~ ~profile of the cigarette category. The REV weights ~ ,~ provide coverage of all smokers in the cigarette ,/ ( i i~ category, to recognize the potential of the Lights /and Ultra styles to attract females and older smokers ,) /due to the profiles of the categories in which they -3' L compete. Media Rationale - Limited media budget recognizes/emphasizes most cost- effective, efficient reach to target audience. . - Four color in-home continues image revitalization ~>~'" and can be effectively REV weighted. - .~A~ly~gher cinema CPM is offset by extreme young adder skew of movie-9oing audience; ad recall OVer six times better than our next most efficient "~ media; and by its reach to very low readership quintiles. - Four color out-of-~ome is an economical means of reaching nearly any target audience. Paint units, on judgment, overcome clutter. Thirty sheet supports widespread awareness.

- 14 - National/local split provides reasonable local media interaction in major markets where we are developed and thus defending share. K~L Style Allocation Rationale The reconmended style allocation recognizes brand Style needs and strengths in relationship to category growth segments. Ultra only executions are not recommended d~s to the possible image rub off to the Family (old fashioned segment}. Furthermore, the style is contradictory to the Keel heritage and its growth will occur only when KOOL prospects seek a tar category change. CI Music $ nsorshi Ob_~sctives Measurably increase KOOL market share via: Enhancing the awareness and .image of ](OOL by favorable association with popular music, artists, or venues. Reaching low readership quintile with a EOOL message. Publicity acquisition To build/maintsin equity in a long term marketing tool we may need to rely more heavily upon in the future. t

- 15- - Design and execute a sponsorship program that precisely fits the ~OOL creative strategy. Epitome of entertainment • High quality Cool Attractive, Contm~porsry • Relevant to young, adultWhite and Black audiences (engender positive attitudes about KOOL). Construct program such that all operation costs (fees, overhead, free events/donatlon8, stage Identification, and artist relations) are covered by conservative revenue estimates. In other words, no cost of operations hits the brand budget. Media, promotion, publicity and production expenses will be covered as brand marketing costs. Change performer mix from currant old, Black, Jazz skew to younger, White, blend of Jazz, Pop, Rock and Rhythm & Blues. Avoid extremes of Classical or Country. Quality and class are to be maintained. Change name of event from KOOL JAZZ Festival to more accurately reflect contemporary program with pan- racial relevance. Aggressively seek o~t revenue enhancers/message extenders such as sale of broadcast rights, rocording rights, and merchandise rights. Rationale While not measurable to-date, Judgment suggests that s~e positive effect of the music sponsorship program must accrue to KOOL over time.

- 16 - The long term marketing value of such • program can be significant. Given the above, the program should be continued; however, 1983 operations cost Is estimated to be $3,119,000, net of revenue, In addition, $4,343,000 is being spent on media, promotion, publicity and production. Given our declining market share and budget pressure, it is felt to be unacceptable to extend this situation into 1984. All avenues should be explored to eliminate costs fro~ changing pro- moter to more popular entertainers to fewer cities. PrOgram name and content should depart from the rigid Jazz identity to communicate positively with younger, White and Black target audience. There is no com- pelling reason to retain the Jazz-specific identity. Data and Judqment suggest it is considerably off- strategy, and it may be defining our ad campaign imagery in the minds of cons~ers. We see no need to attempt to redefine the term Jazz for people. D, Prc~otlon Overall Objective - Generate competitive trial for all styles. - Profitably generate short term incremental voltnue. Overall Strategies Any incentive on KOOL should be delivered with brand image messages and/or should directly e~nanate from the brand image. Trial incentives whose cost is in excess of variable margin will only be used after successful in-market testing.

- 17 - Short term volume strategies will be used to meet competition and maintain share. As long as the cost of these strategies iS less than variable margin, they need not be tested. Permanent package display and SMP presence will occasionally be used for purposes beyond promotion incentive deliver~ These cannot and should not be rationalized as purely promotional expenses. Duo to budget constraints, 1984 promotions are limited to the following proqrams: NATIONAL PROGRA~4S IO4DP (including City Jams) First Quarter SMP Van Program Military (including Super Nights) Third Quarter SMP/Music Sponsorship ProRotion support a) KOOL Market Develoume~t Program Cost: $5.6MM Payback: 1.4 years National Theoretical $9.0MM Tactics The program will continue in the current 24,000 store universe with incremental call frequency, 90/180 displays, buy 10/Get one free retail offer and package t~pe-on trial incentives. EOOL City Jams will also continue. Rationale The program has proven successful at slowing share erosion for KOOL end all other B&W brands (Exhibits ~