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Vo YOUNGER k,~LT SMOKERS 50718 1743 ~I~ACT OF YAS P~FORMANCETHEND .-- "THE BOTTOM L~NE" id~NSTOM*S LARGE GAP OElldIEN uNlldS" AND U0UZTS" ZNOZCATES THAT ZTMZLL CONTINUE ZTS L04~ER TEEN DECLZRE. SZNZLARLY, SALI~*S DECLZNEli6 ~ STARTED SHORTLY AFTER ZT LOST XT$ AGZNG ADVANTAGE. C~4FlsS NOD[IATE DECLZNE ZS THE RESULT OF A SHALL GAP. WZNSTOM TOTAL 12.2 11.9 10.6 18-24 7.8 7.0 4.3 S~ 11.5 12.0 12.4 1987 S~RE CUG. ~ _Vs. 198Z (8.1) (1.3) SALEM TOTAL g. 7 9.8 8. S 18-24 10.7 9.4 S. 2 50." 9 ..... CAMEL TOTAL 18-24 50* (3.9) (1.3) ~.~ 11 o 6.9 5.4 *5.0 (2.0) (.2) 3& If l pa3npo. d 87M03844 CX 36-K

V. 111PACT OF YAS PERFORMANCE TREND .-- "THE BOTTOIq LIl~IE" 50718 1744 . NARLJORO AND NEMPORT TOGETI~It ACCOUNT FOR TMO-TN~I~S OF ALL YOUNGER ADULT glOKERS. CASES. FUTUI~ GleOIml ZS ASSUIte~B OOe TO TNE ~ ~ XIICte-4SXlIG GAP |Lrn~eJi 19~7 $~Ate C~. 1982 ~ "A~;~ GAp" ~ TOTAL 15.0 17.0 23.6 18-24 30.6 36.3 54. Z 50÷ 5.5 5.6 7.8 4.46 4.6.6 NEMPOIIT TOTAL 1.7 2.4 4.1 18-24 S.Z 7.8 11.0 4.10 4.1.7 87M03845 CX 36-L

50718 1745 V. ~IIPACT OF YAS PBIFI)MMIICE TREND -- =THE BOTTOH Lille= ~RBS DIS4:REPANCY |LrTI~EN "NEMSm AND WQUXTS" HAS BOTH A NEAR T~NN AND LONGER l~llN XNPACT. PLACES ZNCRF.ASEO PRESSURE OM BOM'BusznESS BUILDING VOU~E DELXVERY TQNAKE UP FOR ANNUAL SHORTFALL (APPROXZNATELY 6-7 NILLZON UMITS/YEAN). THIS IS XN SHARP CONTRAST TO THE VOLQ~IE GRQlfTH EXp~flZENCEO BY P~DUE TO AGING. THE CHART B[I.~OIdOEPICT$ THE ESTINATEI) VOLIN4E IMPACT OUE TO AGING FOR eoTHR3R AND PN. ALSO INCLUDED ZS A IREAKDOUN OF 14A3OR ~R VOLUNE SUPPORT PNOGRANS - LOADING AND SAVINGS VOLUNE GROMTH - THAT MERE NEEDF.O TO ACHIEVE ~ VOLUNE GOALS. LIIP _I pa.+npoad R7M03846 CX 36-M ' ' '

YOUNGER ADULT SHOi(ER$ s07so 1746 114PACT OF YA$ PERFOM(AIRE TREND -- "THE BOTI'OM LlrNE" • L~Iu_TL~q~'~ IIIXLL ULTXNAT|LY REDUCE OVEItALL SON UNLESS ~ SblXTCHXNG GAXN$ ARE GENERATED ANNUALLY |l.E.e 00P.,AL). - TOTAL MARKET SHAItE GAP UETblEEN R3R AND PH b/ILL 5IXOEN TO 21 SHARE POINTS :IN 1995 GIVEN CURRENT TREND AMONG YAS. PROJECTED SHARE TRENDS BASED ON YAS PERFORMANCE 1007 lOOO 1091 1003 87M03847 cx 3 ~;- N

YOUHGER ADb~.T SHOKERS VZ. RECOII4EHOET) ACT~0N C I~ECOI~EliDAT~ON SIAI4ARY RJRT HUST COHNXT TO ACHXEV~NG AGGRESSXVE GROkrI'H AMONG YOUNGER ADULT SMOKERS NObl TO STEN FU|THER EROSZON ~N OUR ABEL~TY TO NEET DOTN SHORT AND LONG TERI4 ~ONPORATE VOLUNEI SHARE ANDPROFXTABZLZTY O~ECTXVE$. - 3-4~ GROSfTN HEEDED ANNUALLY TO OFFSET THE CONPANYOS RAGE GAPu BY |995. ONLY BE ACHIEVED VIA COH|/NATION OF E~TABLZSHED BRAND AND N[~ RESOURCES DEVOTED TO |HPROV|HG R3R's PERFORHAHCE AHOHG YOU#G~# ADULT SHOKERS HUST BE INCREASED SZGN|F|¢ANTLY HZTfl FOCUSED APPLZC&TZON BEfl|ND SAL[H AND CN~[L, BUSENESS BU|LO|NG RESOURCES BEHIND SALEH AND CAMEL SHOULD ~NCREAS[ BY $28HH :N 1989 UETH HONXTORENG OF SUPPORT BECONZNG A ROUTINE PART OF THE BUDGET ANn FLANNZRG PROCESS, THE CR|Tzc~L~F~)~D,~O~IR~"E~-~F~J~ ACTXOPg ANO YA$ D:RECT ~ARKET|N~ I!I

V~. RECONg~eED ACTZON RECOIml~NI)A'IION 5tl~llY A PROCESS FOR OEVELOPXlIG AMI) IqONZTORZNG YAS CONCEPTS/PROGRAI4S NUST f~ ~ TO NAXXNZZ[ ~,JRoS ABZLZTY TO I~EACll YOUNGER ADULT SI4Oi(ERS XN A RELEVANT, ZNPACTFUL NANNIrI~, ESTABLISH YOUNGER ADULT ~qOKEN PANELS TO ASSXST ZN OKVELOPIqEIIT ANt) NONZTOtZNG OF YAS PflOGIIAN~o FOI~I4ALIZEO PROCESS TO FACXLXTATE BOTH THE IOENTZFXCATZON OF N~ YA$ CONCEPTS ANO ZNCREASEO EFFECTXVENESS OF ESTABLZSHEO PII~OGRA~. INI.DNV 3ZHfH Xq paanpoad CX 36-P 87M03849

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RECO~ENOED ACTION A. YAS S~AIt[ Os:-cTzm ACIIIEVZli~ 3-~J S0S iN)rill ¢Olllq)UTELY IS ~li AG~IE$$IYE GOAL. HObI~rVEll, S:XNCE THE 1-8-24 SI40KXNG POPULATZON ZS EXPECTEO TO CON11:NUE DECLXNZNG DUR.TNG THE CONZNG YEABS, EFFORTS TO ZNCREASE SHARE 14UST |EGZN NOW. ADDZI"ZONALLY, THE BENEFZT$ OF NEALTZZNG THZS GROVTH ZNPACT NOllE THAN THE CJ)I4PANY'S LONGER TEW4 PERFORNANCE. TT REDUCES THE NEAR TERN NEED TO nELlY VOLUHEa FllON A) VOLUNE SUPPORT PROGRANS. |) EXCESSZVE TRADE LOADI:NG, AND C) DEPENDENCE ON 00RAL VOLUNE GROblTH. ACNIEVZNG ESTA|LZSHED OB.TECTZVES WZLL REDUCE ANTZCZPATED VOLtm[ LOSS DUE TO A~Z.G 8Y~J'P~OXZNATEL* 140HH UNZTS ZN 1989 A~O 600114 ZX 1990. ES~T~ i VOLme b~*¢~ |AS~ O*~ YAS Pz~n~uJ¢, lSaJ [I [ -7.ZO/ -7.Ola * l)t ~0 -A.23| -5, Ate * S73 S| • -7.17Z -S.|TS ~)Z -|, 451 -6,412 ~ Z39 ,,...,,,-,:,,,,-- 87M03851 CX 36-R

RECONql~D~ ACT~Qll A. YAS $~ARE O~EC~zv~s YOUNGER Au..,.T SMOKERS SO718 tTSt TNZS ANALYSIS XNOICATES THAT ~ Aim SAU~ ARE RJR'S STRONGEST YAS ENTRIES INOULD tEI4AIN THE PtXORITY SRANOS BASED ON TllE IrOLLO~NG UT~OULE: • DnJOUSTtA~J) ABILITY TO ATTRACT YAS I~Ht, N SUPPOItTEO EN EARLY |980'S. • • CURRENTLY RJR's L~NGEST YA5 SHARE 8RANO. • RELATIVELY STABLE PERFONf4ANCEANONG • YAS. REPOSITIONING BEGINNING TO CHANGE PERCEPTIONS .qJ4ONG TAIh~ET. • STRONG HERITAGE. IqYSTIQUE. RESPECT , . NEARLY 30~ OF YAS RUSZNESS IS HENTHOLo REPRESENTS RJR's BEST OPPORTUNITY WITHIN TWO VITAL YA5 SUBGROUPS: BLACKS AND FEMALES. 87M03852 CX 36-S

YOUNGER ~v.,~LT SNOI(ERS 50718 175Z Ae I ZT zS R,Cm4ZND~ THAT CAHF.L AXO SALEH ACCOUNT fOR Z40~ THe 3-4~ UNU~L ~ ~oxa 18-24 smKus. TH~S br~LL POSXTXON CAHEL FOre LONGER ~HZLE TN%$ TXME FRANE NAY APPEAR LENGTHY, SALD4 NUST REVERSE %TS TREND N4ONG YA$ IdNXLE ~U(E~L NEEDS TO NUXLD NONENTUN. ]~T SHOULD BE NOTED THAT REAL GROtdTH %S DEF%NED AS nNEGATXNG THE ADVERSE EFFECT QF AGINGw ON A BRAND'S AB%LXTY TO EXPERZENCE YEAR-TO-YEAR SHARE OF SNOKEll GAXNS. 0BVXOUSLY, BOTH BRAND'S CAN BE ZN A POSJ:TZON TO EXPENZENCE MSA on NZELSEN sHAnE GROkrTH ~ TO THXS EQUZLTON]:UI4 POXNT VXA VOLUNE EUZLDXNG pItOGItANS. I11 3 J~l 1';1 ~q P ~3n p oj d 87M03853 CX 36-T