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YUUNGER ADULT SMOKERS CX 28-B RM0000986

RM0000987 CX 28-C !::::...i ....... ~:.::~ " :%: = ' .- " ' ..... - -' .... " e .... ..::.:.:.:..-...~ ~ ,,o ,~,.,,,-o, ,,o~o,, ~o ~... ,.~.~.~.~_.,:.:~,,;:::':4~a:~ k',~:: ..... ...... :."a ...... " " ' ' total smokers. By captur~n~ na£= o~ ~-~= * -I ~- "" :~::::<~:~:~:-#~ :- ..... of _- - ....... ~ut ueedin~ to a~ract a sing!~ ::::::::::::::::::::::: :. ...... :..:~ ~~ ,-;,~,~, q -:~ ............ 7 =d~~:-~- " -'" ~ ~ : {:: :::::::::::::::::::::: -- : ~wo-s=~le no.brand introduction, ~th no cannibalization and" no _:.LT~-'.g . .... . ..... -. ,_ : ; . ,:...-.-~:.-.... ~ ~.:'-. ..<

smoker market to shrink •In-share value: smokers who were worth -100.0%'of the market at the beginning of 1983 were worth only ~8.4% by year ~nd. Thus, a brand which had a I0.0% smoker ~hare going into 1983 zmd did not attract any 18-year-old smokers would drop to 9.9% even If it kept every member of it| ~ranchlse. This means ~hat any brand/company which is underdeveloped among 18-year-olds must achieve net switching gains Just to break even, :.-: Aa e company, Philip Morri~ held more t~ 60% of these"lS-year-old smokers in 1983 versus RJR's 15-20%, yiel~in~ PH a .5 point f~-golng SOM advantage in 1983 due only to "new" smokers. The power of this advantage can be seen by the' fact the= RJR'a ~o=al competi=Ive switching gains have been twice as large as PM's during 1980-83 yet, during the same period, RJR has lost smoker share while PM ha= made significant gains (See Appendix D). Furthermore, PH's younger adult smoker advantage has been increasln~ dramatlcall~: SHAK~ OF SMOKERS 18-24 1979 1980 1981 '~1982 26.1 25.0 24.3 23.5 AVERAGE ANNUAL 21.3 - 1.2 PM 44.8 48.8 51.5 54.0 58.4 + 3.4 Source: HDD Tracker .L : C. MOMENTUM FROM AGING Once a brand becomes well-develope~_among younger adult smokers, aginE and brand loy@~y w~ll eventually transmit that strength to older abe brackets. CX 28-D RM0000988 -3- CONFIDENTIAL

iil;iCiiiCiii!i~i~~ Although a competitor could slow this momentum by attracting / switchers, the "first brand" would hold the high ground of brand ~ ..-~ - ': ........ loyalty in such a battle. • ::~:::.. ..~: - ...~, : :~:-~ .... ~ - D. LONO-T~P.H DIVIDENDS -- RATE PER DAY .Governmcn~ and RJR a=udles ~pannlng several decades have shown tha~ smokers increase their consumption as the~ age. The chart belo~ shows " tha~ smokers 25+ consumed 22% more than smokers 18-24 on average ,during 1980-82. RATE PER DAY (1980-82 % Increase Index AG__~E ~ Vs. 18-24 vs. Total 18-24 26.2 85 25-34 30.6 + I7% 99 35-49 34.1 + 30% llO 50+ 31.2 + 19% I01 Total 25+ 32.0 + 22% 103 TOTAL 31.0 + 18% 100 CONFIDENTIAL CX 28-E Source: Incidence/Rate Report, Year 1982. RM0000989 -4-

CX 28-F age group makes to Marlboro's current smoker share and what that contribu~lon would be in 1990 if Marlboro got no more 18-year-olds and merely moved its franchise smokers to older age brackets. On the right side of the table, the smoker share contributions are translated to market share, by factoring in rate per day differences, The bottom llne shows that, even after seven years without 18 year-olds, aging could allow Marlboro's market share to hold withln one point of its 1983 level. " ' --" SMOKER SHARE MARKET SHARE CONTRIBUTION CONTRIBUTION • - . 1983 1990 ' ' 1983' 19'90 TRACKER PROJECTION EST. PROJECTION 18-24 6.8 <-- 0.0 6.6 < 0,0 25-34 6.5 6. g 6.8 7.2 35-49 3.8 7.9 4.6 9.6 50+ 1.8 2.2 2.1 2.5 TOTAL 18,9 <------ 16.9 *20.2 19.3 *Jan.-Dec., 1983 MSA. Thusi. even if a brand falls from favor among younger adults, the ~gnger adults i~ attracted in earlier ~ears and their increasing consumption can carry the brand's market share for yea~s~ slgnifl- ~antly extend!ng its oversll llfe cy.cle. RMO000990 -5- COPTFIDENTIAI

CX 28-G RM0000991 -6- t~

• Aging of loyal younger adult Smokers creates dlsproportlonately large ""gains in market share, due to their increasing consumption. This does not accrue from gains among older smokers. • Younger adult strength, past or present, ~i1 tend to extend the ..... ,llfecycle of a brand. Younger adult smokers-offer the most concentrated switching, opportunity. • Smokers 18-24 are more likely to switch. • Switchers aged 18-24 can provide more share advantage from aging/ increasing consumption than switchers 25+. RM0000992 CX 28-H -7-