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STRUCTURED CREATIVITY CONFERENCE EXECUTIVE SUMMARY C, CDO "CO BATCo document for Legal Services " Health Canada 19 May 1999

STRUCTURED CREATIVITY CONFERENCE EXECUT IVE SUM~fARY Background: The Conference objective was: "To bring key marketinff and product applications thinkers together in a situation which is sufficiently creative to stimulate genuinely innovative produc~-based project ideas, but sufficiently structured =6 examine these ideas against realistic technical feasibility and marketability constraints" The objective was achieved within a three day structure where eight delegates selected from BAT Group Marketing departments and GR&DC Product Applications group presented de%ailed project propositions to the group on the first day and each project was discussed in detail on the second day. Following :his discussion each presenter re-cast his original projects to reflect more tightly specified projec: objectives and technical/marketing feasibility. The project proposals (together with the strategic objective) identified and evaluated during the Conference are shown in List B. During the evenings, each delegate was interviewed individually and his judgemental criteria for defining commercially applicable projects were identified. On the morning of the third day, the criteria generated by the delegates individually were amalgamated in a group session resulting in 8 major criteria, show in List A. The afternoon of the third day was spent by the group evaluat- ing each of the re-structured project proposals against these 8 judgemental criteria. C Oc ~O BATCo document for Legal Services • Health Canada 19 May 1999

• Conclusion: Project propositions, duly rated against the judgemenza! criteria, were :reared with the type of analysis now familiar from DELTA, and GR&DC's Strategic Project Selection method. The top-line results of the analysis indicate that the projects can be broadly grouped in three categories. I, Large market potential, high behavioural validation (evi- dence of consumer need) but potentially high associated risk to the business: io ii. ilL. Low sidestream and irritation/aroma ameliorated cigarettes. Compensatable cigarettes. Nicotine optimised ciNarettes (least risk element). 2, High return on investment, high communicability and high cost savings in manufacture but lower market size poren- tia!: iv. Individually wrapped cigarettes. v. Slim/short and high expanded tobacco cigaretues. vl. Moist snuff. 3. Interestin~ and potentially useful concepts but lac'" g behavioura! validation at this stage: vii. viii. ix. x. 'Traditional' full flavour cigarette. Grezter satisfaction in early puffs (front end lift). Modified menthol (aniseed, spices etc.) Low CO cigarette. C Oc £j- BATCo document for Legal Services • Health Canada 19 May 1999

LI ST A i. Return on investment (by time scale) 2. Ease of communication 3. Scale of the target marke: 4. Lead time to manufacturabi!iZy @ 5. Positive/negative manufacturer cost impact 6. Degree of behavioural validation (evidence of consumer need) 7. Degree of external risk 8. Degree of commercial applicability BATCo document for Legal Services • Health Canada 19 May 1999

LIST B I. Modified Henthol/SDice Flavour Products "To develop a product which would offer something extra to current and potentla! menthol smokers who require either menthol plus an overt modifier or a cooling/spice alterna=ive to men~hol." 2. The 'Ameliorated' Cigarette "To capizzlise on the potential for a cigarette which produces less of the unpleasant after effects of smoking i.e. irri:a%ion, aftertaste, dryness." 3. Shorter Lenszh/Reduced Tobacco Conzen~ "To offer consumers value for money through our technical ability ;o provide the same ~aste/satisfaction as conventional cigarettes with a considerable reduction in tobacco content." 4. Individually Heat Sealed Cigarettes "By offering cigarettes in peak smoking condition in any unit volume, to increase: a) Total sales through increasing price accessability. b) Market share through genuine product benefit. c) Profi=abi!ity through reduced variable cost, reduced F & SV costs and control of distribution up to the end user." 5. Front End Lift "To improve the taste and flavour of :he first few puffs on cigarettes." OC BATCo document for Legal Services • Health Canada 19 May 1999

6. Comoensatable Filters "To make i= easier for smokers to take what they require from a cigarette. This means in e~fect that the filter will be compensatab!e and implies z high taste to tar ratio." 7. Nicotine Optimised Cigarettes "More efficient uti!isation of in situ nicotine in cigarette smoke." 8. Ultra Slim Cigarettes "To develop a new, higher margin, low price cigarezte offering." 9. Moist Snuff "To capitalise on the potential do~ntrend of the smoking habit as the only means to achieve nicotine satisfaction by participating in a parallel product market free of social/health concerns and with a=tractive profitability." I0. Full Flavour Product Ii. "To capiZalise on a potential return to full flavour by offering a cigarette with markedly superior smoking characteristics at physiologically acceptable delivery levels." Low CO "To understand how to design low CO/tar ratio products and make them acceptable to smokers in the event that they are required for league table CO." p~ L'- BATCo document for Legal Services • Health Canada 19 May 1999

12. Hish Expanded Tobacco Cisarette "To maximise financial return by use of lower amoun:s of tobacco while maintainin~ consumer attributes of the product." 13. Low Sidestream/Ameliorated Aroma Product "To pre-empt potential volume decline from smokers under 6 pressure in social and work environments b7 providing them with an offer which combines re-assurance in social smoking with taste and satisfaction." u~ C-- r-. BATCo document for Legal Services • Health Canada 19 May 1999

CONFERE~;CE OBJECTIVE To BRING KEY MARKETING AND PRODUCT APPLICATIONS THINKERS TOGETHER IN A SITUATION WHICH IS SUFFICIENTLY CREATIVE TO STIMULATE GENUIt~ELY INNOVATIVE PRODUCT BASED PROJECT IDEAS, BUT SUFFICIENTLY STRUCTURE3 TO EXAMINE THESE IDEAS AGAINST REALISTIC TECHNICAL FEASIBILITY AND MARKETABILITY CONSTRA:NTS- C..T. CO BATCo document for Legal Services • Health Canada 19 May 1999

LIST OF PARTICIPANTS BOB BEXON TED PARRACK IAN ROSS MIKE SCOTT MAURICIU WURMSER : GEOFF BROOKS DAVID CRE[GHTON : ROB FERR[S (GONVENQR) COLIN GREIG TAJ HIRJI IMPERIAL TOBACCO LIMITED, CANADA BROWN AND WILLIAMSON, USA SUOMEN TUPAKKA, FINLAND B.A.T. UK & E, ENGLAND TABACANARIA, CANARY ISLES MARKETING DEPARTMENT, MILLBANK PRODUCT APPLICATIONS GROUP, GR & DC PRODUCT APPLICATIONS GROUP, GR & DC PRODUCT APPLICATIONS GROUP. GR & DC PRODUCT APPLICATIONS GROUP, GR & DC C BATCo document for Legal Services • Health Canada 19 May 1999

BACKG2OUND AND CONFERE~;CE STRUCTURE What are the distinguishing features of a commercially applicable produc= projec=? It is generally accep=ed that, given any set of potentla!ly applicable projects, decision makers are capable of prioreTising such a set against the criterion of 'degree of commercial applicability'. What is less well understood is the nature of judgements taken into account when making that prioretisazion. A good illustration of this problem can be seen in RgD cultures. Any R&D culture generates a large pot=folio of projects, each of which exhibits a life cycle running from origination as a 'source' projec~ generating information and fundamental understanding of principles, through to deployment as an 'applied' project exploi=ing such information in product applications. The problem for R&D decision makers committed ~o the application of R&D innovations to the product lies in reliably distinguishing 'applied' from 'source' projects and understanding the basis on which such distinctions are made. GR&DC have at=empted to resolve some of thesc problems by developing a systematic approach to evaluating projects and isolating and defining the judgements used in such evaluations. The me~hod is called 'Strategic Prosect Selection' and was developed in ia~e 1983. In this approach every discrete project within the R&D portfolio (70 projects in all) was subjected to • standardised examination of strategic objectives, anticipated constraints, criteria of success, anticipated applications etc. Following this, several of =he pro~ects thus described were used in interviews with a small group of selected decision makers within GR&DC. The interviews followed an established psychological approach in which successive pairing of projects are compared and contrasted, with a view to drawing out the implicit set of judgements which the interviewee is using to justify a more global judgement (i.e. that one pro~ect is Cf: C Oo BATCo document for Legal Services • Health Canada 19 May 1999

perceived more commercially applicable :ban another). Typically it is found that the judgement of commerclai applicability for any one individual seems Zo rest on a struc=ure of about 8 'sub judgements' on average. These personal judgement sets typically show quite a high degree of overlap within any team of decision makers. This eszab!ishes a foundation of consensus for Zhe next s~a~e of the me,hod, in which the interviewees are brought zone:her ~n a group session where the individual judgement sets are reconciled to a commonly agreed and operationally defined set of judgements all of which are agreed to contribute :o uhe overall perception of 'commercial applicability'. The GR~DC judgemental sea appears as Appendix I, illustrating the types of jud~emen~ which were isolated in this particular a;plica:ion. The judgements are isolated as bi-polar dimensions, ~hich means than they can subsequently be used as scales &~inst which projects can be ranked or scored. In the final stage of ~he method all the projects constituting the GR&DC ;reject portfolio were scaled by the group against their agreed set of judgementa! criteria. This quantitative data was ~hen analysed using the principal components method familiar to DF_~TA evaluations. This technique had the advantage of i!!us:ra~ing: a) The contribution of particular 'sub judgements' zo the overall perception of 'commercial applicability'. b) The prioretisation of projects relative to this structure of judgement, and in terms of perceived difference/similarity to one another. The utility of this technique within the GR&DC context has been in the identification of product applications projects. The conference reported here represents an extension of the technique to support a joint R&D/Marketing approach :o: C w LF CC BATCo document for Legal Services • Health Canada 19 May 1999

a) Generation cf innovative product project propositions. b) Iden~flcz=ion of a jointly agreed set of judgemen=al criteria re!~zing to perceived commercial applicability. c) Eva!u~:ion cf the innovative propositions against the commercial a~plicability criteria. The conference represents a significant further step in the Commi~men~ to ge~ =he most out of the R&D/Marketing interface, particularly in terms of providing marketing relevant leads for R&D project activity. An obvious approach to uniting R&D/~arke~ng =h~nking on the generation and evaluation of project leads is to bring selected R~D and Marketing professionals to~ether in discussion. The conference ~as therefore based on six internationally selected Marketing professionz!s and four members of GR&DC Product Applications group. All too often however, 'creativity' sessions fail through lack of s=ruc=ured outcome, therefore GR&DC's experience with Strategic Projec= Selection was incorporated into the structure of the three day conference. %_. C ~Z BATCo document for Legal Services • Health Canada 19 May 1999

-" r'-- CREATi STn. CT..maD VITY : THE PROCESS This technique recogzises zhat there are three stages to t~e process of generzziz~ project ideas: DATA ACQUISITION CONSTRUCTIVE CRITIQUE SYSTEMATIC ANALYSIS T~T .- DATA ACOUIS.~_O., (DAY I) Refers to the conuributions which the delegates make to initiate the process of structured creativity. In :his case each individual made a formal, one hour presentation to the conference durln£ the first day. The timing was designed to allow sufficien~ discussion time for points of clarlfica~ion only at this sta~e. The presentatlons required considerable pre-work and were used as a means Of generating a number of concrete projeou ideas for the conference to subsequen~!y work with. The insuructions to the delegates, in preparing their presentation, were as follows: "The theme of your presentation must be a personal interpretation of: a) The current tobacco marketing scenario, it's key comstraln~s, challenges and opportunities; b) A prediczlcn of future market trends, directions, cons~ralnts, and opportunizies; c) A persona! view of the current and future develop- ment of consumer needs, attiZudes, and segments; d) Views on current and future product trends, needs and opportunities. The presentzzion should be structured in such a way as to end wi:h :wo fully specified product project pro- posals accompanied with reasonable specifications of product parame:ers, consumer relevance, market scenario and, idea!!7, :arget segment and communication strategy." K_b b C7~ CD BATCo document for Legal Services : Health Canada 19 May 1999

These formal presentations are reproduced in full within ~he voluze which accompanies this renorZ. CONSTRUCTIVE CRITIQUE <DAY 2) Refers to the subsequent process in which, after due time to 'incubate' the ideas presented in the papers, each contribution was re-visited and construcziveiy examined by the group for technical feasibility, marketing possibilities, and any refinements/alterations to the basic idea. This stage resulted in an agreed statement for every project proposition specifying the strategic objective, constraints applying to its achievement, The product specification, the technical feasibility and the marketin~ strategy. SYST:~ATIC ANALYSIS (DAY 3) Refers to the process of setting up a system of judgements which can be used to evaluate the final outcome of the first two stages. In this case individual delegmtes were interviewed durin~ the evenings of ~he first two days of the conference to systematically draw out the types of personal judgement which they made when considering those aspects of projects which they felt contributed most to the probability that the project will succeed in commercial application. On Day 3, these individual judgement sets were consolidated through group discussion to a consensus set which was then used as a judgemen:al framework against which the project ideas generated in Days 1 and 2 were evaluated. Eventual ana!zsis was by principal components technique. C: C ~c Ox BATCo document for Legal Services : Health Canada 19 May 1999

The conference is therefore designed both to generate project ideas, and to develop a sysnem for their evaluation against a criterion of commercial applicability. The conference structure is as follows:- DAY ONE DATA ACQUISITION Personal present- ations of projec: propositions. DAY ONE (EVE) INDIVIDU~ INTERVIEWS DAY TWO CONSTRUCTIVE CRITIOUE Deve!opmenz of s~rauegic objectives and consideration of feasibility. I DAY TWO (EVE) INDIVIDUAL INTERVIEWS DAY THREE SYSTEMATIC ANALYSIS Agreement of a consensus se~ of judgements. Scaling of project propositions against the judge- ment sez. Analysis of results. C C w BATCo document for Legal Services • Health Canada 19 May 1999

STRUCTUP.ED CREAT'_V:TY : THE OUTCO!,'.- The Jud~emental Set All delega=es were subjected to a psychological interview conducted by the conference convenor either on the first or second evening of the conference. These interviews, based on pairwise comparison of project ideas, produced a Total of 69 judgements (an average of 8-8 ~udgements per delegate, excluding the convenor and one delegate who had been intervie~'ed on a previous occasion). To i!!us%rate the diversify, of judgements identified as relevant :o commercial applicabillzy, this list of judgements is reproduced in full as Appendix If. It should be re-emphasised that these judgements are 'bi- polar' that is, they represent dimensions with logically opposite ends along which projects could be scaled or ranked :o i!lus~rate their relative positions. It is apparent from Appendix [I that there exists a high degree of overlap across individual judgement sets, which contributed to =he relative ease with which the group came to an agreed consensus set of judgemen=s on the final day of ~he conference, it is interesting to note ~hat no fundamental differences in judgemental structure emerged between those delegates with a Marketing, and those with a Product Applications background. The finally derived set of judgements was discussed to produce an agreed operational definition of what each term meant. This ~greement on definition is most important since any lack of precision a~ this stage inevitably leads to 'bending' of the judEementa! rules at later stages when particular projects are being evaluated. The judgemenzal set, with associated definitions, was finally agreed as; C CO BATCo document for Legal Services : Health Canada 19 May 1999

i. High V Low Behavioural Valida=ion 'A measure of ihe evidence which exists to suppor= a proposition, i.e. Evidence versus speculation, where high = specific observed consumer behaviour and Io= = inferential specu!a=ion.' 2. Large V SmAll Tarse: Marke~ 'The size of :he target market expressed in equation terms as the number of potential markets X the pro~ected size of each affected segment within those marke~s.' 3. Short V Lonz Lead Time to Manufacturabili~y 'The time required :o design :he product and develop the necessary technology in an=icipation of scale produczion, where short = < 1 year, and long = ~ 3 years.' 4. Easy V Hard =o Communicate 'Ability to exDress the claim clearly within the constraints of the given market.' 5. High V Low Ex:ernal Risk 'The probability of provoking a significant attack from external groups which could undermine the ability of the company and industry to continue to operate profitably.' 6. Positive V :;e~azive Manufac=urer Cost ImPact 'A measure of the economic benefit to the manufacturer considering variable costs, fixed and semi-variable costs, and asset u:±lisation.' @a/eo C~ C_ Co. BATCo document for Legal Services • Health Canada 19 May 1999

7. High V Low Five Year Return on !nves:ment 'Defined by total offer deve!opmenz cost, by zotal m~rke~ing inves~menz requirement, by variable margin yield derived from unit volume potential.' 8. High V Low Commercial Applicability (Master Construct) -o0o- - . I: is interesting to compare this judgemenzal set with the earlier set derived from in-house GR~DC acZivity under Strategic Pro~ect Selection. This comN~rison is il!uszrzted in Table i: TABLE 1 COM/~ARISON OF GR&DC A2:D JOIN'f- R&D/MAtRKETINO JUDGEMEh~rAL SETS CR&DC SEUIATEGIC PROJECT SELECTION Degree of Technical/Cost Feasibility ) Long Range V Imminent ) De~ree of Breakthrough Reeuirement ) Technology Push V Commercial Pull ) Degree of Consumer Relevance ) De~ree of Evidenced Certainty of Success) Size of Creative ODDortunit7 M~nitude of Business Impact R&D/YARKETING STRUCTURED CKEATIVITY Lead Time :o Mmnufac=urabili~y Behavioural Validation Size of Target Market Contribution to Profit ODtimlsation Low V Hieh Co~erclal Communicability Ease of Cc=munication Degree of Commercial ADD!Icabl!Ity Defensive V Offensive Low V High Clari=y of Objective Info:nna:ion V Produ¢: Orientation Positive V Nesative .Manufacturer Cost Impact 5 Year Re=urn on Inves:ment De~ree of Commercial Applicability Dezree of External Risk r-- L-. BATCo document for Legal Services • Health Canada 19 May 1999

It is notable zhzt despite the difference in objectives for these exercises, the degree of correspondence in judgemental structures is impressive. Degree of external risk is apparently the sole judgement unique to :he joint R~D/Marketing exercise, whilst the three judgements unique %o the GR~DC exercise reflect :he more parochial emphasis of such an in-house approach. THE PROJECT PROPOSITIONS The proceedings of :he conference generated 13 discrete, product based project propositions, :he only propositions which mere arrived a: by more than one delegate being sides:ream reduced cigare%tes and slim cigarettes. The initial, uncritiqued presentations are reproduced in the companion volume zo this report. Each project proposition was subjected to critique during the conference designed zo produce an agreed specifica%~on of: I. STRATEGIC OBJECTIVE (The commercial aim of :he project) 2. CONSTRAINTS (Applying to the achievement of the objective) 3. PRODUCT SPECIFICATION (Physical/subjective features of the product design) 4. TECHNICAL HOW? (Design options, and the technical feasibility of achieving the product specification) 5. MARKETING HOW? (Quality of strategy required to market the product proposition) C'- C C~ BATCo document for Legal Services • Health Canada 19 May 1999

The 13 ~ropositions were as follows: I. MODIFIED MENTHOL/SPICE FLAVOURED PRODUCTS 2. THE 'AMELIORATED' CIGARETTE 3. SHORTER LENGTH~REDUCED TOBACCO CONTENT CIGARETTES 4. IXDIVIDUALLY HEAT SEALED CIGARETTES 5. 'FRONT END LIFT' CIGARETTES 6. CO~[PENSATABLE FILTERS 7. NICOTINE OPTIMISED CIGARETTES 8. ULTRA SLIM CIGARETTES 9. MOIST SNUFF I0. FULL FLAVOUR CIGARETTES !I. LO~ CO CIGARETTES 12. HIGH EXPANDED TOBACCO CIGARETTES 13. LO~ SIDESTEEA~/AMELIORATED AROMA PRODUCT Critiqued specifications of these propositions appear in the next see:ion of :his report. .--..% C_ OZ_• O~ "-4 BATCo document for Legal Services • Health Canada 19 May 1999

STRUCTURED CREATIVITY PROJECT SPECIFICATIONS c._-; C Co Co BATCo document for Legal Services - Health Canada 19 May 1999

I. MODIFIED ~IENTHOL/~P!CE FLAVOURED PRODUCTS Strategic Ob~ective: To develop a product which would offer something extra to curren~ and po~en~izl menthol smokers who require either menthol plus an overt modifier or a cooling/spice alternative to menthol. Constrain:s: i. The spice modifier must be highly tobacco compatible. 2. There may be a carry over/build up effect which would result in an undesirable aftertaste. 3. The concept may be confined to existing menthol markets or only be applicable to certain geographical regions. 4. Retention of flavour during shelf life and after pack opening may be difficult to achieve. Product Specification: A normal king size filter, full flavour US blended product with a stron~ suppor:in~ blend. Technical How: Feasible using current technoloEy unless flavour retention requires the use of micro-encapsulation either distributed in the blend or incorporated on ~he cigarette paper. C. O~ %0 BATCo document for Legal Services • Health Canada 19 May 1999

Marketin~ How: I. Requires extensive tes~in~ =o establish type and level of modifying spice. 2. Requires qualitative work to establish va!idi:y of the concept. 3. To be positioned as a fresh, clean, high taste alternative to menthol. 4. Fresh brea=h assurance and good residual aftertaste should be emphasised in consumer communication. 5. The possibilizy of less offensive sidesZream than normal cigarettes may be a spin-off product plus. -o0o- CC, C CO C BATCo document for Legal Services : Health Canada 19 May 1999

2. THE ' ~-,- v.~ , Ak-_iO ..... D CIGAP.ETTE Strategic Objective: To capitalise on the potential for a cigarette which produces less of the unpleasant after effects of smoking in terms of irritation, aftertaste, dryness. Constraints: Ability to make a product. Product Soecification: Regular and kin~ size. Around 14mg, around lOmg Noticeable relative reduction of aftereffects. Maintenance of desirable (=aste satisfaction) character- istics during smoking. Technical Ho~: - Coolants? Subliminal/low levels of coolant addition? - New coolants - additives - eugenol - duolite filters - citrus pack aromas - saliva generators - ventilation? blends? Marketin~ How - position as a positive, more enjoyable smoking experience - do no~ concentrate on the problem - do not stigmatize the current product -o00- C_D C Oz_ BATCo document for Legal Services • Health Canada 19 May 1999

3. SHORTER LE~GTH'EEDUCED TOBACCO CO~TENT CIGARETTES Strategic Ob~ec=±ve: To offer consumers value for money through our technical ability to provLde the same taste/satisfaction as conventional ci~zrettes with a considerable reduction in tobacco conten:.= Duty structures will in most markezs allow significant cost savin~s, helng based to varylng degrees on ~obacco weight/ad valorem. • Based on the ~= _-c: that only a small proportion of tobacco is actually smoked, the rest bein~ dissipated during the smoulder process. Constraints: Specific duty szructures where applied will not allow for comparable cost savings. The product will be unconventional in appearance and it may be difficult to communicate the concept in a believable manner. "Product Soecification: Use of specia!is: paper (Papyrosa?) to achieve slow burn rate thereby cu:~ing down dissipation. Possible use of extra length holder. Possible use of 20 low circumference/exZra length rather than say 25 small size cigarettes at same price as normal length cigarettes. r~ C m Co BATCo document for Legal Services • Health Canada 19 May 1999

Technical How: No:hing new suggested in the making technology - szandard blends, Papers already available. Packaging may require new machinery dependen: on filmer zype used. Marke~in~ How: Market as a new, unconventional break=hrough - smoking on a really different product concept. Pack design/adverzising should reflecz this difference. Pricing could be based on more cigarettes for same price (25 for 20 price) or even at a cer:ain premium. Possibly 20 cigarettes for lower price especially if a slim size/ex:ra length concep~ is used. There is a spin-off benefi: of low sidestream which could be the main markezing concep: under appropriate marke~ conditions. -o0o- C ~_z4 BATCo document for Legal Services • Health Canada 19 May 1999

4. INDIVIDUALLY HEAT SEALED CIGARETTES Strategic Objective: By offering cigarettes in peak smoking condition in any unit volume, to increase: a) b) c) Total sales through increasing price accessxbility. Market share through a genuine product benefit. Profitability through - reduced variable cos~ - reduced F&SV costs - control of distribution up to the end user. Constraints: i. Innate conservatism of Target smokers. 2. Resistance of traders to lower mar~ins on s~ick sales. 3. Increasing accessability to young people. 4. Physical protection of the cigarette may be reduced. 5. Ease of opening - consumer acceptable? 6. Visibility of individual stick VS. cost constraint of using clear films. 7. Greater bulk - shipping costs. Product Specification: - standard product with hot foil dye stamped brand identifier - continuous reel or board backed units - printed film or blister packs oo/oa C BATCo document for Legal Services • Health Canada 19 May 1999

Technical How: - Adapt existing technology for heat sealing on :he maker thus eliminating the packing unit. Marketin$ HoT: - Use the selling proposition of "Factory Sealed for Perfect Quality" It should be ensured the branding and value added image is enhanced by the new packaging. This could be achieved in a number of ways: i. Ho~ loll s~amping of ~he brand identifier on each product/stick 2. Branding material printed on the film wrap 3. Use of dispensers in conjunction wi~h reels of individually wrapped sticks 4. Self !iquidaZing permanent packs as give-aways with stick sales. -o0o- C BATCo document for Legal Services • Health Canada 19 May 1999

5. 'FRONT END LIFT' CIGAE-TTES S:rate$ic Objective: To improve the taste and flavour of the first few puffs on cigarettes. i. It is assumed that smokers are most likely to make judgements &bout cigarette quality in the first few puffs. 2. It is assumed tha~ "need" for smoking satisfaction is highest when a cigarette is first lit. Constraints: People do not smoke like machines. It is understood that they do in fact take longer puffs to some extent at the beginning of a cigare:te which will give an effective front end lifT. Any additional designed 'front end lift' should be modest to remain credible. People are unlikely to want to change their 'normal' smoking patterns. Front end lift is likely to disturb normal smoking pa~terns. Smokers may have to learn how to smoke these products. Product Specification: Can be applied to all cigarettes, but likely to be less effective on low delivery products for established low delivery smokers, where such a product may lack credibility. oo/.. r- CL BATCo document for Legal Services " Health Canada 19 May 1999

Technical How: Several ideas currently in RkD: i. Balanced ventilation designs. 2. Codevac design (tobacco rods =ith constant density but variable blend composizion). 3. Strucnured cigaretZes wi~h hiEh flavour tobacco at fron= end. 4. Low efficiency blocking filters such as HEE, CSF. 5. Par=ial blocking filters of ozher designs. 6. Addition of volatile flavours. ~arketin~ How: Use the general selling proposition e.g. "a better flavour produc=". Do not s=ress "front end lift" or anything technical. -o0o- Cl OD --4 ---d BATCo document for Legal Services • Health Canada 19 May 1999

6. COMPENSATABLE FILTERS Strategic Objective: To make it easier for smokers to take wha= they require from a cigarette. This means in effec: that the filter will be compensatable and implies a high caste to tar ratio. Constraints: What are the e=hica! implications of such a development? People who buy an 8m~ product expec= to get 8mg. It is also understood that people smoke cigarettes differently under different conditions of stress and relaxation, so they must be aware a~ some level that they can adjust the delivery of individual cigarettes as well as smoking different numbers of cigarettes. Should such a development be the subject of a clear declaration of i~s elasticity? If such a declaration is not made, how well protected is our competitive advantage from the reaction of our competitors? Should we monitor competition product to see if they already have "elastic designs"? Produc% Specification: This concept is aimed at low and ultra low products. Care must be exercised with blend s~ren~h or a credibility gap will be found. Thus a successful low or ultra low should show ~us~ more than a prorata increase in delivery for the increase in puff volume. Itma7 be desirable to take these changes step wise rather than abrupt development of an ul~ra low tha= smokes llke full f!avour. C_- C C~ BATCo document for Legal Services • Health Canada 19 May 1999

The concept of a 14mg cigarette designed =o smoke llke a 17-18mg clgarezze was also discussed and endorsed. Technical How: Not known at present, but current R&D leads centre around: !. Optizised combinations of conventional ma=erial. 2. Velocity sensitive fil:ers. Marketin~ How: If the eventual design is visually conventional, zhe proposi=~on would be of a better cigarette Zha= helps you get wha= you wan= more easily. If :he design is visually different ~he proposi=ion would be for a low :ar product specially designed zo produce more enhanced zaste and flavour. -o0o- C_i C OO ~j ~O BATCo document for Legal Services : Health Canada 19 May 1999

7. NICOTINE OPT!I,~ISED CIGARETTES Strat9~ic Objectives: More efficient utilisation of in situ nicotine in cigarette smoke. Constraints: I. Development of a reliable measurement system for free base nicotine. 2. We require a better understanding of how to produce the effect of increasing the ratio of free base nicotine available from smoke. 3. Unknown effects when applied to Virginia blends. Product Soecification: US blended cigarettes in general. Technical How: i. Use of ammonia treated sheen material. 2. Use of di-ammonium phospate on blend on sheet. 3. Other 'basic' treatments for the blend. 4. The same effect is no% achieved with alkaline filters. Marketin~ How: i, 2, Full flavour brands:- utilise either no message or a reinforced flavour proposition. Low delivery brands: use improved taste or special process type propositions. -o0o- C_D C CO (DO <D BATCo document for Legal Services • Health Canada 19 May 1999

8. "' ' SLTM ~TP..-...,. C1 GARETTES Straze$ic Objec=ives: !. US ~[arket: To develop a new, mainly fema!e-orlen%ed, 's%yle' segmenz. 2. InTernational: To develop a new, higher margin, low price offering. Cons~rainls: !. Physical produc~ assembly. 2. Consumer acceptance: Handling b) Mouthfeel c) Smoke quality d) Social acceptability e) ~a!e VS Female appeal Product Soecificatfon/Technical How: I. US : !7 X 94 - lOOmm, 20 + sticks, unique box 2. InT: 17-20 X 80 - 84, 20 sticks, STD 1O's box 3. Average puff 3, %aste/flavour profile 4. Packaging configuration) 5. FilTer/Rod Assembly ) as appropriate &larke%in~ How: Proposi=ion themes would depend on marke% context, bu= in :he US for example prime selling propositions would be as a cigarette for females and as a stylish product variant. Secondary benefits with potential proposition use would be ezonomy and io~ sidestream. -o0o- CI C CO BATCo document for Legal Services • Health Canada 19 May 1999

9. MOIST SNUFF Strmte$ic Objective: To capizallse on the potential downtrend of the smoking habi~ as the only means of achieving nicotine satisfaction by par:icipatin~ in a parallel product market which is free of social/health concerns, and with attractive profitability potential. Constraints: a) Alleged irritation effects b) Potential criticism from the medical/dental profession. c) Technological know how is currently non-existent within the BAT group. Product Specification: a) Loose snuff in li to 2 ounce cans in oval form or 20 pouches in rectangular can. b) Starter low tar, with menthol and full flavour extensions. Technical How: To be developed based on currently existing industries in the US, Sweden and Denmark. Marketin~ How: open to fu~ - ~. creative treatment The product ca=egory is free of any advertising restric=ions in most environments. -o0o- <- Co OO BATCo document for Legal Services • Health Canada 19 May 1999

I0. FULL FLAVOUE ;RODUCT Strategic Objective: To capltalise on a potential return to full flavour by offering a cigarette with markedly superior smoking characteristics (particularly qualitatively) az physiologically acceptable delivery levels. Constraints: I. No empirical evidence of a consumer demand. 2. Variable cos~ implications. 3. Unconventional technology would be a long term development if feasible a: all. 4. Can the concept justify a price premium? 5. Strength of existing full flavour brand images. Product Specifications: 80/84 X 24.8,'27.0 X 20mm KS or SC US or Va Blend PMWNF 14 mgs approx. Nic: 1.4 mgs Technical How: - Blend and/or " ) - Annular/Sezi-annular construction ) Short term - Fron~ end lift ) - Aerosol dispersion (modified smoke - Long term flow pc:terns) o./oo p~ %_. Oz OD BATCo document for Legal Services : Health Canada 19 May 1999

Marketin~ How - Direct appeal to nostaigia of the 'good old' cigarettes. - Strong, supportable produc: claims. - Kigh image consonant with product characteristics. -o0o- Oz_ Cc BATCo document for Legal Services • Health Canada 19 May 1999

ii. LOW CO CIGARETTES Strate$ic Objectives: To understand how to design low CO/tar ratio products and make =hem acceptable to smokers in the event that they are required for league table CO. Constraints: l) This is an area where we should be prepared but should be reactive rather than pro-active. 2) There is increasing evidence ~hat consumers don't wane more product information - one view is that low CO cZgaret~es should be marketed covertly. 3) There will be a "warning period" which should allow time for transition to the new product should league table CO be introduced in any market. Produc= Specification: i) This project is already within GR&DC and sets out principals of product construction rather than any single product specification. 2) Dependan~ upon the style of league tables it may be necessary to develop a product in several categories and ensure that we are not "top". Technica' How: l) T~is is essentially understood. There may be a conflict of interest since CO levels tend to rise if highly expanded tobacco levels are used for financial reasons. Provided that the smoker concurs, we should take the money now and only Eo to low CO if forced to. ! t i C~ Crz~ Co BATCo document for Legal Services • Health Canada 19 May 1999

Marke:in~ How: i. Make no overz proposition ~o the consumer in the absence of CO league tables. 2o In the case of the appearance of league tables, emphasise posi=ive positioning pre and post Zh±s imposition. -o0o- Or- (DO O~ BATCo document for Legal Services • Health Canada 19 May 1999

12. HIGH EXPANDED TOBACCO CIGARETTES Strate$ic Objective: To maximise financial return by :he use of lower amounts of tobacco. Thus lower tobacco purchases enable lower warehousing and finance charges while maintainizg consumer attributes of ~he product. Constraints: I) Use of high levels of expanded tobacco must not in any way jeopardize product quality. 2) IZ can be anticipated that there may be adverse consumer reaction to some elements of the produc:. (e.g. burn rate, firmness, draw characteristics, ash stability). Product SpecificaTion: lJ Current!y under test proposal, with the attempt being to match an existin~ brand off a live market as closely as possible. Product specification is similar to the existing brand in question, and level of inclusion of expanded tobacco is at 80%. 2. There are alternative blend/constructions/tar levels available. Technical How: i) This is a known area and with The possible exception of fast drying out in ho:/dry markets is well documented. Marketin~ How: l) Since there is little mileage in telling the consumer that he/she is getting less tobacco for his/her money, this is a covert proposition. CO CO BATCo document for Legal Services • Health Canada 19 May 1999

IZ may be possible to turn this concept into a producz plus if required i.e. within an ultra slim "new era technology" product positioning, it may be possible To add a "new tobacco blend technology" proposition. Positive soin-offs of the use of high level of inclusion of expanded :obacco: i) "Elastic" delivery products. 2) Low CO products. 3) Reduced sidestream products. -o0o- w._.., c~ Co ,Do BATCo document for Legal Services • Health Canada 19 May 1999

13. LOW SIDEST?.E-'.M S}.IOKE/A~IELIORATED AROMA CIGARETTES Strategic ObSective: To pre-empt/avoid potential volume decline from smokers under pressure in social and work environments bF providing them with an offer which combines reassurance in social smoking whilst delivering good taste and satisfaction. Constraints: a) Risk of government enforced expendability to ~I! brands. b) Difficu!:y in achieving equivalent taste satisfaction to conventional products. c) Potential negative consumer reaction to possible non- tobacco t~ste or unusual visual/tactile characteristics of the product. d) Questionable real psychological pressure release for smokers. Non smokers reaction to the proposition is unpredictable. Product Specification: a) Minimum actual reduction in sidestream smoke of 50% required to achieve a visually perceivable effect. b) Use of Ecusta velvet paper or equivalent. c) At least 20~ of expanded tobacco in blend zo maintain conventional puff number expectations. d) Deliver? levels open to market specifics. oe/e, %_.. ~C BATCo document for Legal Services • Health Canada 19 May 1999

/2 Technical How: Further development work required on papers and appropriate blends, considerably more development work required on sidestream aroma ameliorants. ~arketin~ How: Communication platform based on a sociability or 'smoker courtesy' focus with perceived lower sides:ream smoke and pleasant aroma as the reinforcing elements. Consumer targets would be socially concerned, pressured or 'dissonant° smokers. -o0o- Cc 0 BATCo document for Legal Services • Health Canada 19 May 1999

EVALUATION OF PROJECT PROPOSITIONS The project s;ecificati0ns were subsequently used by the conference delegates as the basis for evaluating the projects against the cermercial applicability judgements previously outlined. The process involved taking each project singly and assigning i~ a score (by group consensus) on each of the 8 judgements! iimensions. For this purpose each judgement was considered to be a I0 poin~ scale. For example: LOW CO~I~,iERC!AL I I I I ~ I ] I I I I HIGH COH~IERCIAL APPLICABILITY 1 2 3 4 5 6 7 8 9 I0 APPLICABILITY The outcome of this process is a matrix of scores for projects X judgements. The matrix arrived at can be seen in Table 2. Visual inspec:ion of the matrix indicates the types of eva!u&zlon beizg made about each project. For example, it can be inferred that the low sidestream/ameliorated aroma product proposition is seen as having high behaviour&! validation, lmrge target market, long lead time to manufaczurabili:y, easy communicability, high external risk and negative manufacturer cost impact, only modest return on investment, bus relatively high commercial applicability. The first step to analysing the relationships in this data in a more systematic fashion is to establish correlations of the following types within :he matrix: Io ROW TO ROW: in which case we are comparing the scorin~ behaviour on any one judgement (across all the projects), with the scoring behaviour on any other judgement (across all the projects). For example, the correlation between the first two data rows of our matrix would give us an estimate of the degree to which the use of those judgements was simi!zr or not i.e. whether judgements of degree of behavioural validazion were similar or different to judgements of size of' target market. f~ BATCo document for Legal Services • Health Canada 19 May 1999

TABLE 2 PROJECT. E%'ALUAT~ON DATA > .~. ~C j2 > m _< -> g "- 2 x g ~ > ,.q > ,-1 > .~ =, ~ ~, ~ ~, =- IND!~ ~DU.-~-_ ~ HEAT • SEALED CIGARETTES -'- ~ ~ ~ ~= ~ FULL FLAVOUR PRODUCT -~ .~ ~ ,; = = LOW S I DES T REA~M/A.~_ L- IO~%~-D A_RO}t% PRODUCT -- ~z ~ ~ ~- = MOIST S ~;L'FF -" ~ ~ c= ~ ~ ULTRA SLIM (AS A FEMAL! SMOKER PROPOSITIO.';) c~ = =~ == ~ ~ ULTRA SLIM (AS A LOW COST PROPOSITION) -~ ~ ~ ~ ~ 'FRONT END LIFT' CIGARETTES ~ ~-, --- =~ == COMPENSATABLE FILTERS -- -- ~- ~, -- -- MODIFIED MENTHOL/SPICE FLAVOUEED PRODUCTS ~ ~, ~, ~ ~ NICOTINE OPTIMISED CIGARETTES ~ .~ ~ ~- -- SHORTER LENGTH/REDUCED TOBACCO CONTENT CIG. (D ~n 7 r- C I ~ 'AMELIORATED' CIGARETTE -- I HIGH EXP~;DED TOBACCO CIGARETTES LO~; CO CIGARETTES b m~ ~0 BATCo document for Legal Services • Health Canada 19 May 1999

2. COLUMN TO COLU~!S: in which case we mre comparing the scoring beh~viour on any one project (across all judgements) with the scoring behaviour on any other project (across all judgements). For example, the correlation bet=een the firs~ ~o data columns of our matrix would give us an estimate of the degree to which the projects under comparison were Judged Zo be similar or different in character i.e. whether individual wrap and full flavour product projects were seen as relatively similar or different in nature. 3o ROW TO COIU~N: in which case we are estimating the extent to which Dzrticular projects correlate, or load high or low, on particular judgement dimensions. This gives us a type of descriptive profile of the nature of the project. The interpretation of a correlation estimate is straigh=forward, an estimated corre!z:ion between two sets of scores expresses the degree of similarity or difference between them. A correlation czn fall anywhere between I, through O, ~o +I. A +i corre!a~!on indicates that the profiles of scores under comparison are exactly the same; a -I correlation indicates that the profiles of scores are exactly inversely opposite ~o one another (an equally high correlation, but a negative one); whilst a correlation of 0 indicates a perfectly random relationship between the scores. Clearly in most circumstances correlated relationships will fall somewhere between :he extremes of ~i to -I. -o0o- The correlated relationships between the ~udsements derived and used in this conference are presented as Table 3: (Do ~D BATCo document for Legal Services • Health Canada 19 May 1999

TABLE 3 CORRELATIONS BET'.~E;;; ."-DGE.V~NTS BEKAV IOURAL VALIDATIO:; TARGET MARKET LEAD TIME COMMUNICABILITY EXTERNAL KISK POS. PL~N-U FACTU RING COST I.~[PACT R.O .I. COF2~--RCZ.~L APP LiCABIL i ~"~; Z O -C H +i .0 O E-I a= ~a +.4 -.5 +l.0 -.2 +I .0 ~- ej ,.2, ~'~ °" I ~ O ~ ~ O +.i -.6 0 +.3 +.2 -.3 -.4 -.4 0 +.5 +.2 +.7 +.5 +.3 0 +I.0 -.I +.3 +.2 +.I +I .0 +.4 +.2 -.5 +i .0 +.7 -.2 +i .0 +.I :+i .0 This informal!on gives interestlng insights into the relationships between judgements. Picking out jus: two of :he more notable correlations, we can observe a relatively high negative correlation (-.6) between 'behaviourzl validation' and 'external risk' indicatin~ that, in the judgements of these delegates, ~hen behavioural validation is hiEh, external risk tends to be low and vice versa. We observe a high positive correlation (+.7) between 'positive manufacturin~ cost impact' ~nd 're~urn on invesznent' indicating th&t the delegates expect a close positive relationship between manufacturing cos: and re:urn on investment. It is of particular interes~ Zo examine the correlations of judgements to ~he major judgement of interest to us : COMMERCIAL APPLICABILITY. These correlations indicate the exuent to which particular judgements conzrlbu=e to this overall perception: C oo ~O h. BATCo document for Legal Services • Health Canada 19 May 1999

JUDGEMEh~ DEGREE OF CORRELATION TO THE COM,~ERCI AL APPLICABILITY JUDG E~[EA-T BEHAVIOURAL VALIDATION TARGET MARKET LEAD TIME COMMUNICABILITY EXTERNAL RISK POS.MANUFACTURING COST IMPACT RETURN ON INVESTMENT +.2 ÷.5 0 --.5 --°2 +.l This information indicates that for these delegates the most powerful contributors to the judgemen~ of potential commercial applicability of projects are size of target market (a positive relationship), and degree of external risk (a negative relationship). Degree of behavioural validation is also relatively positively related %o commercial applicability, and perhaps suprisingly ~'~ " , pos-..~e manufacturing cos~ impact is relatively ne~ativelZ re!zted zo commercial applicability (indicating the expectation that commercially applicable projects cost more in manufacturing terms). -o0o- The correlated relationships between :he projects developed during this conference are presented as Table 4: C ~C BATCo document for Legal Services • Health Canada 19 May 1999

6661, AelN 61. epeueo q;leaH " sao!tuaS le6a-I Joj J, uawnoop o01v9 cO m m ;1 Z C ~e I • C) I + + I I° I • ~1~ ~. ~ -- :.E ~ ,-.~ u ~ u -~'~ ~I~

The perceived sim!larity/difference between any pair of projects can be derived from :his information by reading the correlation at the appropriate row/column intersection of the two projects which it is deszred to compare. Illustrating some of the more notable relationships, strong similarities (positive correlations) in the commercial applicability characteristics of the following project pairs can be seen: COKPENSATABLE FILTERS SHORT CIGARETTE HIGH EXPANDED CIGARETTE : LOW SIDESTREAM (+.8) : SLIMS - FEMALE CONCEPT (-.8) : " SLIMS - LOW COST CONCEPT (+.7) Correspondingly s~rong differences (negative correlations) in ~he commercial applicabi!ity characteristics of the following project pairs can be seen: SLIMS - LOW COST CONCEPT : FRONT END LIFT SHORT CIGARETTE COM[PENSATABLE FILTERS LOW SIDESTREAM (-.9) MOIST SNUFF (-.9) CO~ENSATABLE FILTERS (-,8) SLIMS - FE~ALE CONCEPT (-.8) -o0o- The correlated relationships of projects to particular Judgements are presented as Table 5. <.T ",4 BATCo document for Legal Services • Health Canada 19 May 1999

]UOI I 1898 0 IlI{;tl BEIIAVIOURAL VALIDATION LARGE TARGET HARKET SIIORT LEAD TIHE EASY COI'IFIUN [CABII, ITY I,ON EXTERNAl, RISK POS. F1ANUFACTURING COST IHPACT IIIGII R.O,I. IIIC, II COHMF.RCIAL APPI.ICABtLITY I~ II~ I I~ I I~ I.~ I ~ I I I I~ I~ I I~ I~ I~ I I~ la I !1 I .l °° :1:: o H E I.I " 0 ~Ig l~ I~ I'~ I~ la l~ I~ la I~ l~ INI° • I ~,4 I H I I "" I "' I I ::~ I D-I I ~ I l 0 I I~I I 0 I~ I~ I~ I~. ~ I~ I~: I~ I~ I~ I~ I,~ I~' o I~, :~ ~-~ -,I -,3 +.6 +.3 -.4 -.5 -.3 +.6 -.5 -.6 • -.5 +.6 -.7 -.3 0 +.5 +.5 -.3 -.7 -.2 +.3 +,6 -.6 +,7 -.5 -,3 -.2 -.3 +,7 +,3 -,8 +,5 +,6 +,7 -,4 -,7 -.2 -,3 -l-,3 -,5 +,5 +,2 +.7 -.~ +.2 +.5 -F.5 -.2 -.7 -.3 -.2 -.3 -I-.2 0 -.7 +.5 +.3 +.3 -.9 -.2 -.7 -.7 0 -.9 -.3 -.5 +.7 -.1 +.5 -.2 +.4 -.5 -.6 +.9 +.8 +.8 -.8 -.5 -.2 -.I +.6 +.I ÷.2 -.2 +.5 -.5 -.4 +.6 +.6 +.6 -.7 -.2 -.7 +.4 +.~ +,3 0 -.3 .I-,2 -,1 +.4 -,2 -,4 -,1 -,1 +,5 -,7 +,7 -,6 -,5 -,1 +,5 >,, G"# 'at'- ¢- (,3 .i,.., "1" ID O 'E II) m / l_ o W-- t- E -s O "O O 0 y- r~

Each column of this table represents a descriptive profile of ~he relevant projec~ against the judgements on which i~ was eva!ua5ed. For example, examination of ~he 'optimised nicotine' column indicates :mat this projec% was perceived :o have hlgh behavioural validation, a large target market, modera:el7 Long lead time :o maunfaczurability, relatively difficult comzunlcabliizy, a high external risk, in:ermedia;e manufacturing cost impact, moderately high return on investment and overall, a high commercial applicability. A useful way of representing information comparing projects is to plot correlations from this Table on a profile diagram. For example, comparing 'modified menthol' with the 'optimised nicozlne' project: ( DEGREE OF CORRELATION > -i 0 +I LOW BZKAV 1OURAL VALiDATIO'[ S Y_QLL TARGET ~£~.<E T LONC LEAD T!.~ TO M~"J FA C .-'J R- AEIL!T~ DIFFICULT C0._~NICABILITY HIGH EXTErnAL PgSK NEGATIVE .~- FACTURING COST INP_ACT LOW RETUF.N ON Ih%~ST~NT LOW COMI~RCIAL APPLICABILITY ° .,< HIGH BEHAViOURAi VALiDAIION LARGE TARGE'f MARKET SHORT LEAD TI.~ TO .~-'~.%~J FA Ci'J F.- ABILITY EASY CO}-~FJNl CABIL ITY 1 LOW EA-fE RN;.L RISK i POSITIVE MA~" 7J - I FACTURINGIMPACT COST 1 HIGH RZTUR~N OX INVEST,~_~ NT I HIGH C0~RCI~/. i 7T .v~.- APP,.CABI.,~. I --- OPTIMISED NICSTIh~ ......... MODIFIED .V~N.~DL C ,,.C ,,g BATCo document for Legal Services : Health Canada 19 May 1999

In th±s manner, the strengths and weaknesses of particular projects, as evaluated, are graphically illustrated. Another means of representing information of this sort is to use all of these correlations in a principal components analysis of the type familiar from the DELTA technique. The advanzage of this approach is that it produces a single represenzazlon of all of the relationships between the judgements and ~he projeczs on one map. From this way of presenting the information we can discern the overall trends within the data, ~hich is difficult to achieve by using zhe more detailed correlation tables. Principal components analysis works by treating all of the corre!azion data reviewed so far as though it were simply a col!eczion of angular measurements (which in fact correlations are). The szaZisuical method produces a 'best fit' organisation all these angles zo produce a two dimensional representation, or map, of the relationships between judgements and projects. The posi~ons of projects are determined in this szazisti3al map by the sum effect of correlations relating them in various degrees of s:ren£th or weakness to all other projects and all judgements on which the project was evaluated. The princ!pa! components analysis of the data from this conference appears as Figure i. On this map, judgements appear as dimension lines with positive and negative ends (like ~he evaluative scales which they represent), ~he angle between any two dimension lines indicates the degree of relationship between those types of judgement, the smaller the angle, ~he more similar the types of judgement. We can see for example =hat size of target market and degree of external r~sk are highly related judgements, whereas return on investment and size of target marke~ are relatively unrelated. C_~, C ~D C BATCo document for Legal Services • Health Canada 19 May 1999

FIGURE 1 C.,,..~'_.,-.,,S PLOT OF STRUCTURED CREATIVITY RESULTS PR!N C! ~.,_,_ ^ ......... HIGH BEHAVIOURAL VALIDATION HIGH COMMERCIAL APPLICABILI~ HIGH COMMUNICABILITY HIGH RETURN ON INVESTMENT POSITIVE MANUFACTURING IMPACT HIGH EXTERNAL RISK LARGE TARGET MARKET LONG LEAD TIME .5 o6 .ll SHORT LEAD TI~.F_ SMALL TARGET MARKET LOW EXTERNAL RiSK NEGATIVE MA;'IUFACTURING COST IMPACT LOW RETURN ON INVEI LOW CO~4UNICABILZTY COMMERCIAL APPLICABILITY LOW BEHAVIOURAL VALIDATION I. INDIVIDUALLY WRAPPED C:GARETTES 2. FULL FLAVOUR PRODUCT 3. LOW SIDESTREAM/AMELiG~.&TED AROr.~A 4. MOIST SNUFF 5. ULTRA SLIM (FEMALE CO:;CEPT) 6. ULTRA SLIM (LOW COST C3:;CEPT) 7. 'FRONT END LIFT' C;GAZZTTES 8. COMPENSATABLE FILTERS 9. MODIFIED MENTHOL/SPICE PRODUCTS lO. NICOTINE OPTIMISED CIGARETTES II. SHORTER LENGTH/REDUCED TOBACCO CONTENT 12. 'AMELIORATED'CIGARETTE 13. HIGH EXPANDED TOBACCO CIGARETTES 14. LOW CO CIGARETTES C C BATCo document for Legal Services • Health Canada 19 May 1999

The perceived similarity or difference of projects (in terms of :heir commercial applicability characteristics) is given simply by the physical proximity of :heir points on :he map. For example, we can see that low sides~ream and compensatab!e filter projects are judged to have similar commercial applications characteristics, whereas modified menthol and moist snuff projects are clearly perceived :o have different characteristics. The predominant features of any particular project will be revealed by ~he extent to which it locates itself toward ~he ends of any particular judgemenz dimension or cluster of dimensions. For example, sidestream and compensatabie filter projects show predominant features of large target market, high external risk and high commercial applicabi!i~y. PRINCIPAL CO.~LWONENTS INTERPRETATION Inspection of this plot structure indicates three zones of project classification into which pro~ects tend to segregate themselves. ZONE 1 "GLOBAL STRATEGIC PROJECTS" Characterised by: HIGH COMMERCIAL APPLICABILITY HIGH BEHAVIOURAL VALIDATION (EVIDENCE OF CONSUMER NEED) LARGE TARGET MARKET But with associated: HIGH EXTERNAL RISK LONGER LEAD TIME TO MANUFACTURABILZTY C_T. ~D O r~j BATCo document for Legal Services • Health Canada 19 May 1999

Projects charac~erised in this way are: LOW SIDESTREAM/AMELIORATED AROMA COMPENSATABLE FILTERS NICOTINE OPTI~ISED CIGARETTES Within this projecz set, 'nicotine opzimised' cigarettes represents the least risk e!emen~ and the highest perceived commercial applicabilizy (and in fac= exhibiz the highest loading on return on investment). These projects should be regarded as risky but major in terms of the scope and size of markets affected. ZONE 2 "OPPORTUNISTIC PROJECTS" Characterised by: HIGH RETURN ON INVESTMENT POSITIVE MANUFACTURING COST I.qPACT SHORT LEAD TIME TO MANUFACTURABILiTY LOW EXTERNAL RISK But with associated; SMALL TARGET MARKET Projects characterised in this way are: INDIVIDUALLY WRAPPED CIGARETTES MOIST SNUFF ULTRA SLIMS (FEMALE CONCEPT) ULTRA SLIMS (LOW COST CONCEPT) SHORTER LENGH/REDUCED TOBACCO CONTENT HIGH EXPANDED TOBACCO CIGARETTES These projects could be regarded as unproblematic, profitable, opportunistic developments likely to be restricted in scope Zo specific markets. O BATCo document for Legal Services • Health Canada 19 May 1999

ZONE 3 "VALIDATION PROJECTS" Characterised by: LOW BEHAVIOURAL VALIDATION LOW RETURN ON INVEST~E:;T LOW CO~fI%TNI CABILITY Projects characterised in this way are: FULL FLAVOUR PRODUCT 'FRONT END LIFT' CIGARETTES MODIFIED MENTHOL/SPICE PRODUCTS The most characteristic feature of zone 3 ;rojec~s is their current lack of behavioural validation i.e. they are good ideas/produc~s looking for a rationale in =erms of consumer needs. The most urgent requirement prior =o further development of =hese projects would be appropriate consumer valida=ion exercises on the concepts. The sole exception to this broad classificazion of project zones is the 'ameliorated cigarette' concep~ which positions on the basis of high behaviourai validation, low external risk and high re~urn on investmenz° This idiosyncratic positioning may reflect the fact that ~his project was presented within =he context of iZs thoroughgoing validation within the specific contex= of the Canadian market (see delegate presentations). As a point of interpretation, it should be clearly understood that this classification into zones is a relative exercise and that alzhouEh it is possible to generalise abou~ the characteristics of each zone, it is equally true that particular pro~ects wi=hin each zone will exhibit more or less of each of the feauures going :o characterise tha= zone. G ~D CD BATCo document for Legal Services • Health Canada 19 May 1999

$.-, : 2";:i; .. 2 i~i" =.. STRUCTURED CREATIVITY CONCLUSIONS . C m~ m C) BATCo document for Legal Services • Health Canada 19 May 1999

% • !.,_ • .. 2 . 4 - I . . .. •=: Im 2, 3. 4. Markezing and Product Applications professionals apparenzly achieve ~: ~,=h levels of synerEy in creativity sessions struczured in such a way as to produce disciplined considerz:ion of the marketinE and technical feasibility of projecz leads. Comparisons of the judgements used by Marketing and by R&D professionals in distinguishing commercially applicable projects indicates only marginal differences betzeen these groups. Marketing professionals are likely to be relatively more sensitive to risks involved in certain project propositioas with regard to external backlash from Governmenual and Competitor sources. The szruc:ure of judgements contributing most clearly to perceived probability of commercial application includes considerations of behavioural validation (evidence of consumer need), external risk, and size of target markez. The highes~ probability of successful commercial application is associazed with high levels of all of these attributes. The portfolio of projects generated in this conference can be classified in terms of: a) "GLOBAL STRATEGIC PROJECTS" representing propositions wizh zhe most universal relevance and hence potential scale of market, least market specificity, and most risk of exuernal response. b) "OPPORTUNISTIC PROJECTS" representing unproblematic, profitable propositions which are likely, however, to be restriczed in scale to specific markets. c) "VALIDATION PROJECTS" representing well elaborated producz proposizions in the absence of any behavioural validation (evidence of consumer need). Further development of validation projects should pend approprla:e consumer validation exercises. m~/,, C- 0 BATCo document for Legal Services • Health Canada 19 May 1999

.~ .°: : :22 • .,,. ~k~ • ,< i.'° .° 5. This type of exercise should not be confused ~i~h de=ailed feasibility exercises. The intention is to provide appropriate leads for a subsequent in-depth feasibility programme conduc:ed by assiEned Projec~ ManaEers. Project Selec¢ion and Structured Creativity exercises apparently offer a rela=ively sysZemztie and time effective route to ~enera=ing and evaluating projec: propositions against the crizerion of Commercial "Applicability. It is anticipated that the exercise of such techniques within key Operating Companies would add a local market perspective Zo our current, less market specific level of understanding. ~C BATCo document for Legal Services • Health Canada 19 May 1999

APPENDIX I GR&DC STRATEGIC PROJECT SELECTION ~UDGEMENT~L SEI c ,.c C BATCo document for Legal Services • Health Canada 19 May 1999

A. LONG RANGE V IM:,f.'NENT The timescale be=ween the curren= point in Time and =he point at which zhe project is complete (defined as the point at which one could reasonably expect to make a viable produc=). B. DEFENSIVE V OFFENSIVE A measure of how we are reacting to external pressure as contrasted with how far we are taking action independent of external pressures, e.g.: STRATEGIC STRATEGIC STRATEGIC STRATEGIC INFORMATION > PRODUCT ~ INFOR~iATION -2PRODUCT BASED BASED BASED BASED DEFENSE DEFENSE ATTACK ATTACK C. TECHNOLOGY PUSH V COMMERCIAL PULL The distinc=ion between projects which have origins within GR&DC and may be dominated by what we can do, and those which have =argets emerging from commercial activity and may be domina:ed by considerations of wha~ we should do. D. LOW V HIGH CONSUMER RELEVANCE The degree to which a project is informed by or directed by any understandin~ of consumer needs/requirements. E. LOW V HIGH BREAKTHROUGH REQUIRE~fENT The extent to which the perceived required technology is available. F. INFORMATION V PRODUCT ORIENTATION Activity aimed at producing information about the product as contrasted wi~h activi=y aimed at chan~ing the produc=. ~D BATCo document for Legal Services • Health Canada 19 May 1999

G. LOW V HIGH TECHNICAL/COST FEASIBILITY A measure of likelihood of uptake in the operating (specifically manufacturing) environment. H. LESS V MORE CREATIVE OPPORTUNITY I • The degree of scope or lack of constraint in ter=s of anticipated number of opportunities for new produc=s. LOW V HiGH CLARITY OF OBJECTIVE The degree of specifica=ioh or quantification of parameters of the project within an agreed end target. J. LO~ V HIGH COMMERCIAL COMMUNICABILITY Ability and/or freedom Zo put over the project outcome message free of cons~rain:s in terms of consumer comprehension and legisla:ive barriers. K. LOW V HIGH EVIDENCED CERTAINTY OF SUCCESS A measure of the extent of prior cos~nercial pathfinding or precedent. L. LOW V HIGH MAGNITUDE OF BUSINESS IMPACT On the assumption of projec: success - a measure of anticipated commercial value. M. LOW V HIGH CONTRIBUTION TO PROFIT OPTIMISATION The extent :o which the projecz is seen =o con=ribute :o achieving opZimisa=ion/improvemen= of profit from =he current commercial scenario. N. LOW V HIGH CO~MERCIAL APPLICABILITY (~as:er Cons=ruc=) c~ C~ BATCo document for Legal Services • Health Canada 19 May 1999

APPENDIX II TOTAL INDIVIDUAL COMMERCIAL APPLICABILITY JUDGE;'~ENTS FROM STRUCTURED CREATZVITY INTERVIEW~ C BATCo document for Legal Services • Health Canada 19 May 1999

INTERVIEW ! KNOWN MANUFACTURABILITY REALISTIC SELLING PRICE LOW DEVELOPMENT COST IMMEDIATE PRACTICAL IMPLEMENTATIO~ APPLICABLE TO DEVELOPED MARKETS UNIVERSAL APPEAL CONTROVERSIAL LOW CONCEPT COMKUNICABILITY HIGH DEFINED CO~iSUMER OPPORTUNITY HIGH PROFIT CONTRiBUTIUN HIGH HEALTH REASSURANCE PERCEIVED GOOD VALUE FOR MONEY V UNKNOWN MANUFACTURABILITY V UNKNOWN SELLING PRICE V HIGH DEVELOPMENT COST V LUNG TERM (SPECULAT[','~) V APPLICABLE TO DEVELO?ING MARKETS V LIMITED SEGMENT APPEAL V UNCONTROVERSIAL V HIGH CONCEPT COMMUNICABILITY V LOW DEFINED CONSUMER OPPORTUNITY V LOW PROFIT CONTRIBUTZON V LOW HEALTH REASSURANSE V PERCEIVED POOR VALUE FOR MONEY w p~ C I ",.0 BATCo document for Legal Services • Health Canada 19 May 1999

INTERVIEW 2 HIGH PROFIT POTENTIAL V IMMEDIATE MARKET RELEVANCE V CONCRETE CONSUMER NEED V EVIDENCE PROMPTED V HIGH TECHNOLOGY/RESOURCE V DEMAND HIGH CONSUMER COMMUNICABILITY V LOW CORPORATE KUDOS V LOW SPIN-OFF PROBABILITY V LOW PROFIT POTENTIAL ANTICIPATED MARKET RELEVANCE PERCEIVED CONSUMER BENEFIT SPECULATION PROMPTED LOW TECHNOLOGY/RESOURCE DEMAND LOW CONSUMER COMMUNICABILITY HIGH CORPORATE KUDOS HIGH SPIN-OFF PROBABILITY c~ (j< BATCo document for Legal Services • Health Canada 19 May 1999

Z~ DEMANDING LEAST BEHAVIOUR CHANGE LARGE SCALE BUSINESS IMPACT HIGH POTENTIAL SPIN-OFF HIGH PRECE~EIJT FOR SUCCESS HIGH ShlOKIt~G & HEALTH RELEVANC~ MARKET PULL HIGH CONSUMER ORIENTATION LOW PROFIT CONTRIBUTION PRODUCT ATTACK V DEMANDING MOST BEHAVIOUR CHANGE V SMALL SCALE BUS!NESS IMPACT V LDW POTENTIAL SPIN-OFF LOW PRECEDENT FOR SUCCESS LOW SMOKING & HEALTH RELEVANCE V TECHNOLOGY PUSH V LOW CO~SUMER ORIENTATION V HIGH PROFIT CONTRIBUTION V STRATEGIC ~ ='' ~ BATCo document for Legal Services • Health Canada 19 May 1999

INTERVIEW '~ SHORT TERM FEASIBILITY DEFINED CONSUMER NEED/ SEGMENT ESTABLISHED BEHAVIOUR MODES WITHIN BASE TECHNOLOGY RISK MINIMISATION V LONG TERM FEASIBILITY V GENERIC NEED/AMORPHOUS TARGET V NEW BEHAVIOURAL HABIT V OUTSIDE BASE TECHNOLOGY V RISK TOLERANCE HIGH RETURN ON TOTAL V LOW RETURN ON TOTAL ASSET REQUIREMENT ASSET REQUIRMENT HIGH CONSUMER SALIENCE V LOW CONSUMER SALIENCE LOW CONSUMER COMMUNICABILITY V HIGH CONSUMER COMMUNICABILITY POSITIVE PRECEDENT V NEGATIVE PRECEDENT LOW PROFIT OPTiMISATION V HIGH PROFIT OPTIMISATION ....:. c..T. ,,E, BATCo document for Legal Services • Health Canada 19 May 1999

INTERVIEW 5 HIGH EVIDENCE OF MARKET OPPORTUNITY MORAL/ETHICAL FREEDOM IMPROVE~IENT OI~ ESTABLISHED SITUATION LIMITED IMPACT (MARKET SPECIFIC) PROTECTION OF MARKET SHARE CONSUMER BENEF I T V LOW EVIDENCE OF MARKET OPPORTUNITY V MORAL/ETHICAL LIMITATIONS V NEW OPPORTUN{TY GAP V BROADER IMPACT (GROUP RELEVANT) V VOLUME BUILDING V "MANUFACTURER BENEFIT C 0", BATCo document for Legal Services • Health Canada 19 May 1999

INTERVIEW 6 CONVENTIONAL TECHNOLOGY V UNCONVENTIONAL TECHNOLOGY SHORT DEVELOPMENT TIME V L~G DEVELOPMENT TIME EVIDENCE/BEHAVIOURAL FACT V SUPPCSITION/ATTITUDINAL STANCE EASY TECHNICAL REALISATION V DIFFICULT TECHNICAL REALISATION LARGE POTENTIAL MARKET V SMALL POTENTIAL MARKET BREADTH OF IMPACT V LIMITED SEGMENT APPEAL HIGH CONTRIBUTION V LOW CONTRIBUTION COMMERCIAL DEMAND V SELF JUSTIFYING TECHNOLOGY HIGH CONSUMER RELEVANCE V LOW CONSUMER RELEVANCE INCREMENTAL V CANNIBALISING BATCo document for Legal Services • Health Canada 19 May 1999

INTERVIEW 7 HIGH CERTAINTY OF EVIDENCE OF A NEED LOW RISK POTEr~TIALLY REDUCES INDUSTRY SIZE UNETHICAL LOWER NET NEW SHARE V LOW CERTAINTY OF EVIDENCE OF A NEED V HIGH RISK V POTENTIALLY INCREASES INDUSTRY SIZE V ETHICAL V HIGHER NET NEW SHARE m CT. Cc. BATCo document for Legal Services • Health Canada 19 May 1999

INTERVIEW 8 IDENTIFIABLE SEGMENT TARGET FAMILIAR PERCEIVED NEEDS & ATTITUDES GENERALISED CONSUMER CATCHMENT REMOTE COMMUNICATION LOW PROFIT OPTIMISAT!ON LOW RATIO OF CONTROLLED RISK MANUFACTURER BENEFIT V UNIDENTIFIABLE V ALIEN SEGMENT TARGET V CONCRETE NEEDS & BEHAVIOUR V SPECIFIC SEGMENT APPEAL V 'SYMPATHETIC' COMMUNICATION V HIGH PROFIT OPTIMISATION V HIGH RATIO OF CONTROLLED RISK V CONSUMER BENEFIT BATCo document for Legal Services • Health Canada 19 May 1999