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-5- Current and Future Development of Consumer Needs, Attitudes and Se~ents 1. New Smokers may well start on a low tar brand and stay with it. Such smokers would not want a low tar that smoked llke a middle tar. 2. Low tar that smokes llke middle tar is most appropriate for middle tar smokers switching down due to concern over "health'. 3. There is a fickle market segment of "concerned" smokers who will try to switch down, generally find the product less satisfactory than their original middle tar product so keep trying different low tar propositions to find one thatworks for them, this may never be achieved. 4. High on the llst Of consumer needs is nicotine, which I belleve to be the main motivator and sustalner of smoklng behaviour. Without nicotine in sufficient quantity to satisfy the needs of the smoker, the smoker can (a) give up altogether, (b) cut back to a low purchase level, (c) keep switching brands. 5. Irrespectlve of the "women's movement" I believe that many males and females see themselves as different wlth different aspirations. Thus there are two distinct segments; with a masculine and femanlne image. Further segmentation leads to other identifiable groups in the community, e.g. sophisticated (or wanting a sophisticated image), Working Class (or wantlng working class image) Sporting (or with a sporting image) Adventurous, Reassuring, Tradltlooal/Conservatlve, Romantic, Gentle, Rough etc. All of the above can be displaced by a good quality low cost product, if the product has a neutral image, £.e. not offensive to anyone but with sustained low cost. Cc BATCo document for Legal Services • Health Canada 21 May 1999

-6 - 6= . Any consumer Is going to make Judgements about a new product, probably within the first few puffs ou the first cigarette from the pack. This Judgement will reflect quality and strength of taste, as well as impact and irritation. First Impressions are therefore very important. A further Judgement may be made at the end of the pack, which could relate to how long the pack lasted, and whether there is any residual taste, £rrltatlon or lack of satisfaction. The first few puffs need special attention. Consumer attitudes may be segmented into those who only belleve health problems affect other people, "If I give up I can still be run over by a bus', "My father has smoked 40 a day for 60 years and is still mowing the lawn'. "If I give up I will put on weight', "With all the polutlon around in the a~mosphere smoklng can't make any different', etc. These hard core wall probably be the maln source of consumers who either do not worry, do not believe or deliberately wish to project a hard image. The worrled/concerned smoker shows llttle brand loyalty and is llkely to glve up anyway. The target market is therefore, the hard core and those that can be recruited to Join It. Important aspects therefore are: Good value. Low prlce Adequate quallty Enoush nlcotlne No after taste/irrltatlon No offensive image Easy to draw smoke. --C BATCo document for Legal Services • Health Canada 21 May 1999

--4 -- 7 -- Current and Future Product Trends, Needs and Opportunities i. As suggested earlier, high on the llst of product requirements is an adequate level of nicotine to sustain the smoking habit. Smokers have a nicotine threshold below which it is ineffective. (In my case this is a traditional product with no less than 1.2mg nicotine when measured by standard machine smoking.) Such nicotine thresholds will vary with different consumer segments, but for the majority of smokers who buy clgarettes and smoke them regularly levels of nicotine below l.Omg standard delivery wlll be unsatisfactory. 2. Many studles of smokers indicate that a large number will compensate for reduced delivery by increasing the amount of smoke taken from a cigarette with lower delivery. It is also true that most smokers will take less smoke from a cigarette with higher delivery than their usual brand. Clearly it is easier, (less effort) to take less smoke from a cigarette than to take more smoke. Thus a moderate delivery product can easily satisfy a smoker with a low smoke requirement, whereas it Is much more difficult for a product with low delivery to satlsfy a smoker with a high requirement for smoke. If the high requirement smoker smokes the low delivery product with hlgh intensity then smoking becomes intrusive on normal activity. Smoking is usually a passive behavlour which accompanies other activltles rather than being an active pursuit. 3. Following on from this theme, any feature of the cigarette design which is remarkably different from the smokers usual product will stand out and draw the smokers attention away from what he is doing and onto the cigarette. The smoker may then analyse the c~ BATCo document for Legal Services • Health Canada 21 May 1999

4& -8- cigarette critically to say what the differences are An taste, harshness, mechanics etc. Most smokers are therefore very conservative and not unhappy with their current product. 4. Changes in the product should be m/nlmal as far as the smoker is concerned. Thus any innovations should not be intrusive In elther appearance, feel or smoke performance. As a rule of thumb, changes of less than 20% in delivery are not noticeable to the untrained consumer. The tolerance bandwidth will however vary from aspect to aspect. Changes in taste could be more obtrusive than changes in impact level. 5. For economic and political reason& I expect to see an increase in the amount of expanded tobacco used in products. 6. I would also expect longer filters and shorter tobacco rods. 7. Smokers will he weaned gradually to expect fewer puffs, but each puff will have more presence. This Is a way to give satisfaction In smoke at overall lower delivery, whilst maintaining price. 8. Due to the "weakness" of Vlrglnla tobacco taste at lower dellvery levels, I expec~ to see Virginia products for~Ifled wl~h stronger tasting tobaccos - i.e. Modified VlKglnla Blends, and the increasing use of flavour additives as and when sul~able enhancers are developed. 9. Because of the difficulties of satisfactory low delivery (sub 15mg) Virginia products, a trend to US and German blended style products will 5e established and increase. I0. Because the recession is world wide, the developing countrles will not begin to catch up but fall further behind developed countries. Packing may change In developing countries to smaller packs, for kD BATCo document for Legal Services • Health Canada 21 May 1999

International Brands or individually wrapped cigarettes In say plastic sausage skins for stick sales of domestlc product. ii. Cigarettes with ¢ompensatable filters will be developed. Such products will have low delivery when smoked under standard conditions, but, being velocity aensltlve, a smoker may readllly take higher delivery than the standard dellvery, if he so wishes. 12. Selective filters will be developed for specific markets and segments which remove specific delivery components which do not affect smoke taste; eg. Heavy metals, nltrosamlnes acroleln, and acetaldehyde. 13. With an assumed reduction In the avallablllty of advertising and promotion, the presentation of the product at all stages becomes of increasing importance. Every opportunity should be taken to check the visual impact of pack designs for the market segment and in the total market context - Cash and Carry. tOM Cases, 2OO's cartons or bundles and Indlvldual packs. With the loss of ability to sustaln a brand Image by advertising the product In the pack must be of even better quality than ever before. Especially from the polnt of view of physical, taste and flavour and good value attrlbutes when compared with competition. 14. With the Increaslng use of Expanded Tobacco a new problem starts to arise due to the equilibrium moisture of DIET. DIET both picks up and loses water more rapidly than normal tobacco. Thus a new style of packaging may be developed, whlch besides providing a barrier to the gain or loss of moisture when sealed acts as a self conditioning cabinet for an opened pack. If this can be made to work, then the last clgarette from the pack would smoke as well as the first. It would also help to Increase the shelf llfe of tradltlonal products. rID kO CO BATCo document for Legal Services • Health Canada 21 May 1999