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R. J. RE'.'NOLDS TOBACCO COMPANY DOMESTIC OPERATING GOALS AND ASSUMPTIONS DOMESTIC MARKETING GOAL-INCREASE MARKET SHARE BY: • Increas~ Ou~ Young Adult Franchisa. • Improve Our Metro Market Share. • Exploit The Potential O=, The Growing Cigarette CEte{jorie~. • Develop New Brands and Line Extensions. DOMESTIC MANUFACTURING GOALS: • Increase Us~ Of Tobacco Extender,. (G-7 and G-13} • U~. Of Non-Tobacco Extend~s, (J-10, C'~rel and NSM) • Usa Synthetic Tobacco Flavors -- Burley, Flue Cured, and Turkish. • |ncrea~e Prod0=ction Capacity. Ul 0

i~iiiiiiiii;{i::=:::}ii}ii~:.~ R. J. R E Y N O L D S T O B A C C C C O M P A N Y ........ MAR~T~G GOALS ~}~::~::}~::~:::.~ Pr~ary goM in 1925 ~d m ensu~g years is to reestablish RJR's share of gro~th i.n domestic cigarette industry. This wi21 be done by the following: Increase our Young Adult Franchise • 14-24 age group in 1960 was 21% of population; in 1975 :....:.::!:i:i:;::+:':':':,:i :~:::~:: ..... ::::::::::::::::::::::::::::::: i:~::"" . ===================== will be 27%. • As they mature, will account for key share of cigarette volume for next 25 years. • WLNSTON ha~ 14% of this franch!se, while Marlboro has • SALEM has 9%--Kool has 17%. • Will direct a~vertising appeal to this young adult group without alienatiz~g the bra:.'.t's curreat franchise. • Because in 25 and older categories, we exceed our com- petitors in strength. The new WINSTON campaign is an excellent example.

Domestic 4 ssurnptio,~ ,November 21, ~974 i. i!:::::::::::ii: I__p_mpro~e our Metro Market Share • We have histcricaLly been weak in rr.etro areas. • By year 2000, 70% of populat~o,n wilt be ha 12 urban centers, with ha.lf of D~a~ m three centers (New York, Chicago, and Los Angeles}. • Have now es~abJished Ma_rketing Development Managers in these three areas responsible for marketing plans on all our brav, d s. • Will increase our distribution through vending h~ the key metro cigarette sales outlets bd using Tru-Check com- puter systems, a national vendor service• Their main strength is in the northeast, where we are the weakest. • We have established area vending managers who develop vending sales only. • Media spending reallocation with greater emphasis in metro areas-will spend at, or in excess o$, major competitive rates. • Localized promotional effort by sales force that relates directly to R JR brand strengths/¢ppo_--tunitie~ as opposed to a national program o.~ly, Exploit the Potential ~;" the Growin~__~arette Categories • Prh-na.riJ.y 100ram's, low "tar" and nicotine a~.d bex style. - 100mrn's up 9% over 1973 and still increashng though only seven years old. Specia2 advertising campaign developed RM027462 I

Do.~r, es:ic Assumptions - ] - ,November 21, 1974 ..::i:!:!;:.. ii::::::::!~ for WINSTON Supe_~, WINSTON Menthel reh~:roduced. SALE.~I Super wCd have ad campaign i*, women's mage.- zones tyL~g in with style-- "For more of a woman, ~nor'e of a SALEM. " Hzve hired a fashion consultant ~nd w;il lie this campaign ~to m~jor reta~ stores Ln znetro market s. ~w "%at" ~nd n~c~h~e--this is the fastest grow~g seg- ment, We have I[~ (and want more) wi~ VANTAGE and DOLL. Have positioned W~STON Lights ~ ~his field and are us~g the "c~d~d'{ theme ~ media a~ed a% high potential audiences, fema]e ~d urb~. The box s~le Is up I0~[~ from 1973 to 1974. SA~NI and W~STON are ~creas~g %helr sha~ of ~e box market. CAMEL F~ter Box w~ be test marketed ~ IS75. Deveiop New Brands and Line E~ension~ This avenue offers us the quickest opportu~i~ to combat Kool ~d marlboro ~d wi~h d~ected appeal to the young smoker. • Thee new b~ands ~g te~ed ~ 1974-75 ~ this direction ~re SA~M E~ra, a ht-menchol l~e e~ension; W~CHESTER Cigarettes, 85mtn f~ier ~d menthol a~ed ~% h~arlboro ~d K~I ~d caplt~ize on the ysung appeal ~ the W~CHESTER equ ~ty. RM027463

Domestic Assumptions November ========================================= ..::i:i:i:.. - MORE - a 120ram filter and me,~t~l ~ersiou. This is a new cigarette concept and is ah~.ed directly at the young adults (and the ,~,~arlboro ar.d Kool franchises). • Other new brands: - A 100ram cigarette with quality package rand image appeal to capitalize on increasing af,quency. -A female cigarette in regular anJ menthol 1001r, m style, or possibly a 120ram pro,~uct, to give us an entry into hhe growing cigarette market for women. - Coolne.~s without menthol taste--a new concept. Many smokers want coolness without the medicinal taste ~ menthol. -Our R&D people are working on a unique fi.1¢er which delivers low "tar" and nicotine with good flavor. - Lastly, we are working on a cigaret-t~e in which 95% to 98% of the nicotine has been removed from the tobaccc and smoke, The market for a new category of nicoti~.e free cigarettes could be developed in the same manner that Sarlka dev~1oped the decaffinated coffee market. o o ~0 RM027464 f

Domestic A>;sump~ions - 5 - November 21, 1974 MANUFACTURING GOALS Increase Use oi Tobacco E.,denders • G-7 - Plans are s~ill firm to Lncrease G-7 usage by 1% in the first quarter of I975. - CAMEL, W t~l'Oi~;-WENS~ON Super, • G-13 - We are actively engaged in R&D *.o increase G-13 from 12% to 25,%.~ . .. ,~__ ~,z,. ..,, ,' . ~ our- I'l~-pl~g~mr---Theve-is-~L,'~hi-~-year' s manu - ~ur h-~ ...... Non-Tobacco E~enders * J-10 - Since Hyltor. Head, we have run into trouble with our J-10 prototype cigare~t¢. -A forced shelf llfe test indicated the product deterlorateu and gives off an unpleasant pack aroma. We are engaged in solving that problem. ~.~ - WAt_w~ d~ i,~ J-~u,ry loglc~m h~ 0

Don~estic A~sumptions - 6 - Nove.~.ber 21, 1974 --~'ith this setback, .;we are now c.J~m~-~ra-H~.~ on our puffed hurley stem progran~. -- Disc refined stem exper~ents made s~,ce Hyl~on Head offer ~other poss~ity. C~rel ~d NS~I - Wh~e we are follow~g bo[h of these mater[~s closely, our efforts have been on C~rel because tests bare ~dicated that it tastes be~er than NSM. -NFO tests on C~rel ~~pri~g~n %h~ _ li~e d~ference was n~iced by the smokers be~een ~e~]ar W~S~N and W~STON with ~o C~l. - One leg of the lest ~dicated that the American smoker is ready to accept m~-made material. -- Th~sl pr~ucts, however, st~l offer us li~le use as e~enders at this t~e. S2nthetic Tobacco Flavors, ~rley, Flue Cure'and Turkish ~~S are ". Seve~ new brands have the burley ~d flue c~ed flavors ~ them. (CAMEL F~te,', MORE, SA~M E~ra, These flavors w~l give us a broad latitude ~ seleet~g tobacco ex~ende rs.

November .~l. 1974 • Increase Pr:~d',~ction • We will need 50 addition~1 packers by 1979, _. increase. In other word~o a new factory with its rclated eq'.,ipment. • A new C-7 plant " " " ~ ~ :~nd a new G-13 plant. -' - ...... O, ,0