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OBJECTIVE 5075~ I19~ THE PURPOSE OF THE PRESENTATION IS TO SUMMARIZE RESEARCH RESULTS THAT RELATE TO MARKET DYNAMICS. THE FOCUS IS: • LONGER TERM STRATEGIC FORCES How THE MARKET WORKS WHAT ISSUES ARE IMPORTANT

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BARKET OV, ERV IEW I I!DUSTRY 50753 1t97 POPULATION TRENDS FROM 1965-1978, INDUSTRY GROWTH WAS DUE TO THE BABY BUBBLE AS THE ADULT POPULATION GREW FASTER THAN SMOKING INCIDENCE DECLINED. THIS IS NO LONGER A FACTOR- As A RESULT, INDUSTRY WILL DECLINE BY i%-2% EACH YEAR. EST • LE__VEL 1965 19 70 lq 75 1980 ADIlLT POPULATION SMOKING INCIDENCE NO- OF SMOKERS RATE/DAY INDII,~TRY VOLUME 129.6 42.6 53~0 25.6 495.7 135.3 36.2 49.0 27.7 495.5 148.8 164.0 175.8 118. l 33.9 33.1 28.9 26.0 50.4 5~1.3 50.7 46.8 31 .I 30.q 31.2 31.2 572.5 601.9 578.7 528.0

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MARKET OVERVIEW ,INDUSTRY 50753 1199 POPULATION TRENDS THE BABY BUBBLE IS CURRENTLY 27-qi. DURING THE NEXT S YEARS, THEY WILL CAUSE THE 3S-~9 AGE GROUP TO GROW IN IMPORTANCE- IN I~.°~(], NEARLY TWO-THIRDS OF ALL SMOKERS WILL BE ~+- AGE DISTRIBUTION OF SMOKERS _1980 1985 1990 IR-24 18.3 15.3 13.1 25-34 23.6 26.8 22.5 35-49 31.1 29.1 32.3 50+ 27.0 28.8 32.1 PCT CHANGE -14 -16 +II +II -8-

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MARKET OVERVIEW INDUSTRY 50753 1201 POPULATION TRENDS THE IMPORTANCE OF ETHNIC GROUPS IS RAPIDLY INCREASING- IN 1990, BLACKS AND HISPANICS WILL REPRESENT 18% OF ALL ADULTS AND 2S% OF ALL YOUNGER ADULTS. PCT OF ALL ADUI.TS 1980 1985 1990 BLACKS 10-6 11-0 11-4 HISPANICS 5-S ~-0 ~ TOTAL 16.1 17-0 18-2 PCT OF 18-24 1985 BLACKS 14-4 HISPANICS ~ TOTAL 13.3 14.7 7.4 10-I 20.7 2~.s :z~. 8