Tobacco Documents Online

. !' .You have asked me to write you a comprehensive letter pertaining to the sales position of our various cigarette brands ... where we are, and where we expect to be ... also, our relationship to -the industry. You seemed particularly concerned about the sales ;=`picture during the months of July and August, as well as a prediction of what may occur during the month of September._ . In this letter I shall attempt to answer all of your inquiries, but feel that in order to do so; it is necessary that I include (a) How did we get here? (b) What are we doing here? (c) Where are we going from here?' Because there is a definite relationship between "the selling of the following major points so that there is a complete understanding about the selling philosophy of our various brands: merchandise and corporate profits", I shall also include the reasons,, therefore, of several past decisions to maintain a proper balance between the two: - Let me start with KEI~IT: As all of us are aware, KENT was marketed as a "safer" cigarette for the smoker who was concerned about smoking and health. In 1956 when an innocent third party (Reader's Digest) created' an awareness to the consumer that KENT was the "safest" of all popular filter cigarettes, Lorillard exploited'this advantage so that within a short period of two years the KENT volume grew from less than four billion cigarettes to thirty-eight billion annually. Between the years of 1956 and 1960 several competitive brands appeared on the market in an attempt, with substantial advertising budgets, to -eras2 the "KENT image of safety". These brands were HIT PARADE, LIFE, and DUKE. It was the decision of Management to imanediately fight back, whenever brands competitive to KENT appeare&on the scene with hard-biting,copy in order to retain the "E•NT safety image", and protect Lorillard's "bread and butter" brand. ,' Gk'wrFIt ~s~.wt .~,,r_~. rj~ P. LORILLARD COMPANY INCORPORATED Krus Uark. September 15. 1964 MEMO TO: M. J. Cramer, President, Chief Executive Officer FROM: '' M. Yellen SUBJECT: LORILLARD SALES POSITION

r I feel we were successful in accomplishing our objective and maintaining the safety image of KEIvT a-nong consumers sensitive taste, taste and taste, with some mention of filter through its ,Cigarette Should" ... with partial mention of its filter benefits. 'In the non-filter area, it was Pall Mall with a selling story of to health; however, corporate life is not one of maintaining one's self on a plateau, but one of continued growth and securing a larger share of the total industry. We must remember that during the years of 1959 to 19'64 there were competitive brands that were growing at a far greater rate than KENT. In the filter area it was WINSTON with a selling story of "taste and pleasure" ... "Winston tastes good Like a "over-under and around its fine tobaccos". of "safety , but because It satisfies their particular taste or ' some smokers remain with the "safer brand" not only for reasons the cigarette brand that satisfies their particular taste, and sensitivity "'wears off" in time, and smokers gradually return to a particular brand by a reputable innocent party;, that this sensitive to the subject during a period after an endorsement of are sensitive to smoking and health ... that smokers are more :.To the writer,, this was sufficient evidence that not all smokers smoking desires. We are forced to realize that the greater majority of smokers are those who smoke for "taste and pleasure" and.have not the most, but "some feeling of safety", providing the cigarette satisfies their smoking taste. Macy's and vice versa. & Taylor would not work very well for the selling philosophy of ~ `the product. As an example, the advertising philosophy of Lord make certain that the execution of his advertising andselling philosophy relates to the image he is attempting to acquire for takes in attempting to secure an "imaget' for his product, he must Very important, however, is that whatever direction the manufacturer was "wearing off", and more and more smokers were switching to filter brands that portrayed "'taste and pleasure" with some inference of the safety factor in the selling and advertising philosophy of the product. During the years of 1961, 1962 and the early part of 1963'it was my opinion that we were dwelling too long "primarily on the therapeuticaL" advantages of KENT at a time when this sensitivity .In the middle of'1963, when I was again asked to head up Advertising for this Company and recommend advertising policies, it was my recommendation that we gradually change our advertising philosophy of KENT with more emphasis on the "taste and pleasure" benefits,, without moving away from the "safety factor"' we had established over•the years. This recommendation was accepted by Management, resulting in our campaign of "KENT Satisfies Best ... For Filter, Taste and Pleasure".

-3- The fact that this decision was the right one is evidenced by the increased volume secured on KENT during the fourth quarter of 1963 when the brand again started on an u2curve, and selling at its highest rate than at any time during the previous two years. This upward curve continued right up to the release of the . Surgeon General's Report after which every brand on the market, except two, suffered a great decline in sales. that, if anything, some statement would be mads by the Conmittee statement we must consider that all of us were under the impression as a whole, its affect upon our brand of Ri.=_, was of far greater impact than any other brand in the industry. In determining this - While the Surgeon General's Report affected the cigarette industry that there was favorable evidence that the smoking of filter cigarettes .was somewhat safer than the smoking of non-filter cidarettes. Since no such statement was forthcoming, an area was created for the continued advertising of non-filter brands on a"taste and pleasure" basis. General. iaanediately preceding the release of the Report by the Surgeon , - safer cigarette" by a member of the Surgeon General's Commit.tee Surgeon General's Committee, was an endorsement of "LA_'ZK as a Most important, however, and that which created a far more adverse >:situation to the brandof KENT than the Report released by the of hospitals via rumors or otherwise (Buffalo and Houston) that medical scientists endorse LARK as the safest cigarette. This marketing technique on the part of LARK proved successful, and prior to the release of the Committee's Report, the sales of LARK surpassed those of KENT in the Buffalo area and came very close to it in the Houston area. marketing of LARR through hospitals and the medical profession was exactly similar to that used in the marketing of KEw'T in 1952. For several months prior to the release of the Surgeon General's Report LARK was setting a base for future sales activities through the use ... KENT was the direct target ... and, the technique used in the. to dethrone KENT' as a primary brand in the "Safer cigarette area" .:'as a filter cigarette'was a well thought-out plan by a competitor . General's Report. First, we must remember that the advent of LARK have made pertaining to KENT since the release of the Surgeon Cigarettes because it had much to do with the manny decisions we Let us go back to the marketing of LARK Charcoal Granule Filter With the endorsement of "LARK as a safer cigarette" by a member of the Surgeon General's Committee, a reputable member of the Medical Profession, and a supposedly disinterested third party; LAu'L'C was precisely in the same position as KENT, with the release of the favorable KENT article in Reader's Digest in 1957, but with far greater opportunity to exploitAts position due to the tremendous publicity given to cigarette smoking at the time of the Surgeon ,~ General's Report. •

1 -4- increased its sales considerably after the Surgeon General's Report. 207, and the brand'of LARK became one of the cigarettes that' J endo of February 1964, the sales of KENT were down approximately in the hands of cigarette consumers in many areas. Wherever this was done, it had an adverse affect upon KENT sales so that by the .its Sales Department was quite successful in placing reprints Advertising Agency was quite successful in placing reprints of "The Statement " in many newspapers throughout the ceunt-. y, and While no national media was used to exploit LARI: connecting the brand with the statement made by a member of the Co-.=ittee, its Code, and the possibility of a Cigarette Advertising Czar, no Because of the preparations of a forthcoming Cibzrette Advertising effort was made by this Company to defend the brand of KENT directly against the publicity beino obta_ned on "The Statement" made by a member of the Surgeon General's Co::mittee in bei.alf of LARK. ':Ten Brands Should You Smoke" was not having~g the desired affect retain the "safer image" for KENT consistino of "Which Of The Top time for decision. Our advertising effort at that time was to could no longer wait to "see what would happen" ... it was the The beginning of February was the critical period for KEc T ... we against the Statement made by Dr. Feiser ... something must be done. be considered carefully before my Office can recommend a policy for Management's decision: - securing new business to overcome losses, and all suggestions must internal suggestions coming from our Lxecutive Group, as well as our Advertising Agencies, all with the well intended purpose of is not a simple one in a Company manufacturing cigarettes. It is not a short-term responsibility on a quarterly or annual basis for the purpose of a single Financial Report ... It is a position responsibility that must weigh all of the factors pertaining to Sales and Advertising and must utilize many years of experience living with our particular brands. It must copa with the inany The responsibility of the Office of Director of Sales and Advertising These were trying times for the writer, and after a great deal cf the KENT image through a process of reassurance to the consumer, as well as a"'statement"' in behalf of the brand that in essence said ... "'There Is Really No Medical Evidence That Any Other Cigarette Is Safer Than KENT". consideration it was my feeling that we make every effort to maintain As a result, at a meeting with our Advertising Agency on February 12, a rough draft of our recent campaign ... "No Medical Evidence or Scientific Endorsement, Ete."' was submitted for Agency consideration and presented to Lorillard Management the following day. The "Statement" was-refined by Legal Counsel and successfully used during a very critical period. N

It was my feeling at the time that if we could successfully execute this campaign of reassurance, along with a "satisfaction of taste °-and pleasure" for the consumer, the odds would be in our favor that LARK would not be able to properly exploit its therapeutical image due to lack of experience in this area, and also that KENT was :"already there", and LARK had the disadvantage of "trying to get there". Since the critical month of February when our KENT sales were down 20% the brand has been able to regain much of its loss so that at the end of August our cumulative loss was reduced to.11%. i.'As I stated in the beginning of this letter ... "'There is a definite relationship between the selling of'merchandise and corporate profits"',.-.. and our Organization was able to accomplish this fact.. ",in spite of: -- (a) A substantial reduction in our advertising expenditures. .(b) A substantial reduction in our Sales Promotion budget. (c) The introduction of the following new brands in the _ "charcoal category" ... each in an attempt to establish a safer cigarette ... CARLTON, PHILIP MORRIS Multi-Filter ... TEMPO. , "(d) The introduction of the following new cigarette brands -. that obtain "new triers" ...LUCKY STRIKE Filters, HALF & HALF and PAXTON. At no time during the past critical seven months was there any loading of our products among our distributors to make any "particular quarter" look good, and our inventories are normal throughout the country. There is also another important matter we must take into consideration ... our KENT - Crush-Proof Box is ' _ down 16.5% and our KENT Regular Size is down 32.4%, whereas our KENT King Size is down only 9.7%. We must face the fact that there is no Crush-Proof Box or Regular Size Cigarette brand that is showing any gains. All are showing losses, and all of our BIG competition have only KING SIZE to sell and~promote. This is where we stand today, Morgan, and the important question at this time is ... "!Where do we go from here?" Our brand of KENT has been able to withstand the threats of .competition over the years and will continue to grow, in my opinion, to greater levels in the future than it has ever seen in the past, providing we are not impatient, and that we continue to advertise and sell the brand properly. There are things that must be gradually changed in our advertising philosophy so that we may ":add to what we already have" without destroying the confidence in the product pre3ently held by the sensitive smoker. This can be done... We are presently in the process of so doing,. and I have great confidence in the future for KENT:

About NEWPORT ... This is a brand I have lived with since its inception and responsible for its marketing philosophy. While I do not want to dwell on matters of the past, I am going to write a .few lines about its "reason for being" primarily as a matter of reference for future decisions. This brand was born during the middle of 1956 and marketed in two cities during the last quarter of 1956 and, if my memory serves me correctLy, the original advertising budget was only $900,000.00. These were the Lorillard "lean years", and at this particular time the Menthol Category consisted of KOOL Cigarettes that had a therapeutical image, with most of its volume done during the Winter .";.months, except in the "hot - dry" areas of the country where its sales held regularly throughout the year. SALEM Cigarettes brought out early in 1956 with a substantial budget was "on its way" with a new menthol image of "refreshing taste". At the time we were "ready to go" with NEWPORT, the brand of Oasis was brought out during the very same week with a six-month budget of six and one-half million dollars. Our initial advertising campaign on NEWPORT was "all set'"' and because of the sudden competition and a realization of our financial-picture it was completely revised. It was felt that we "wouldn't stand a chance" with all of us trying to go down the same road ... We had to sell a"certain type" of person on the brand of NEWPORT until such time as we could establish sufficient volume to make the brand profitable and then gradually change our image to obtain "other types of smokers"'.' The brand was marked'as a"'fun cigarette" ... It was advertised as such and obtained a youthful group as well as an inmature group of smokers. NEWPORT was marketed suceessfully'according to plan; the competition of OASIS was eventually removed from the picture; it :' proved profitable for the Company, and the next step was to let the brand reach a volume of five billion cigarettes annually and then gradually change its advertising philosophy to secure additional "types" of smokers. With the change of advertisingg direction in 1960 the last step never took place. It was not until the last quarter of 1963 that we were able to start the change of advertising philosophy, and before it could obtain sufficient penetration we were hit by the Surgeon General's Report. By the end of February 1964,, NEWPORT sales were down 22.5% and during the month of February when we were about to implement the new advertising campaign with a budget of approximately $500,000.00 it was decided to cancel same in order to reduce advertising - expenditures. Again it became a matter of decision ... While we already had 'started our new campaign ... "NEWPORT Smokes Fresher .. and Tastes Better Than Any Other Menthol Cigarette" ... It had not had a sufficient amount of penetration to notice any favorable sales affect. ~

Better", etc. We have done this, and the results have shown a reversal of the NEWPORT sales decline over the past many months. Should we continue with the campaign ... or ... because of the _ Surgeon General's Report devise a new campaign that could or should slightly modify our brand claim, but continue with the proposed campaign of "NEWPORT Smokes Fresher .. And Tastes "long term" philosophy of brand marketing in 1956 and felt we . could not be more effective. Again, I went back to the original as follows: As a matter of information, the NEWPORT Domestic Shipment Trend is that this size is showing continued losses in this industry. Box was down 14.1% for an average loss of 3.1%.. We must again take into consideration that we have a Crush-Proof Box in this brand and .-7- Average Weekly Shipments % Change vs. Year Ago - (000) 1st Qtr. - 1964 -23.0% 2nd Qtr. - 1964 -10.3.. Weeks # 1-32 - 1964 -14.4 Weeks #11-32 - 1964 -10.0 Weeks #23-32 - 1964 - 3.6 .During the month of August which,, incidentally, had one less shipping day in 1964 than in 1963, NE:JPO?2T King Size was up 1.9% - Crush-Proof .the following: Again, we were able to reverse the declining trend in spite o (a) A substantial reduction in our Advertising Budget. (b) A substantial reduction in our Sales Promotion Budget. (c) The tremendous advertising impact of Montclair Menthol cigarettes - (Less tar - less nicotine). . (d) The remarkable growth of Bel-Air Menthol Cigarettes with the use of coupons. What does the future hold for NEWPORT Cigarettes? be "executed cutely". the proper execution, the brand'will grow to be a 14 or 15 billion brand annually. The direction for growth must come from Lorillard 'Management ... Its selling story must depend upon competitive T activities, and from the direction of Management should come the creative effort. It is a sad mistake to attempt to create a selling story based upon "ideas" from creative people that could There is no doubt in my mind that if we remain consistent in our present advertising, tightening our story as we go along, with

-8- . The brands of KENT and NEWPORT represent Lorillard as a major factor in the cigarette industry. There have been "trying times" in our business during the past, and no doubt will return at timesin the future. They can be overcome with clear thinking,, and the use of ,time to re-position ourselves. The greatest danger, I believe, is the pressing of the "panic button". I am not against the introductory of new cigarette brands for the purpose of securing additional business or meeting business competition; however, "taking established business away from our competitors" is another way of increasing our share of the•total market and many, many times it can be done at far less cost to the Company during a period when competition is experiencing a financial pressure; and, I believe, we are doingg this at the present time. Lat us look at competitive activities: Reynolds with TEMPO Cigarettes must certainly regret this action with a tremendous advertising investment without favorable sales results. The American Tobacco Company with its expenditures on Carlton & Montclair and its introudction of new brands almost on a quarterly basis, of HALF & HALF Cigarettes, Lucky Strike Filters, and Roi-Tan Little Cigars, must certainly pay the penalty in the future. Liggett & Myers with LARK have been forced to reduce its advertising ex- penditures on the brand during the past three months in order to maintain a favorable financial picture, and'the brand of LARK is .•now declining irn sales. (They are now in the predicament of sayin g "Do we continue to spend on LARK ... or ... do we try to stop the decline on L & M Filters and Chesterfields ... We can't do both and - have a good financial picture in the future.) The Philip Morris Company operates much more intelligently and did so in the marketing of Philip Morris Multi-Filters. They "eased" .this brand into the market with the use of a simple paragraph based upon a statement pertaining to the Surgeon General's Committee (definitely in violation to the proposed advertising code) subject to criticism by its competitors and by enthusiastic approval by its shareholders. A good tasting cigarette, it is selling on a most solid basis with an extremely low advertising budget so that it will reflect a favorable financial picture. What else did we do during the trying seven months past? As you are aware, immediately after the release of the Surgeon General's Report, the cigar and little cigar industry became the "darlings" to the consumer and Wall Street. We had'already positioned ourselves with the brands of MADISON and BETt,J3:En THE ACTS and with .stepped up activities became the largest sellers of its type in the industry. We marketed QXEGA during this vital period, which is turning out to be a very successful brand and'recently we markete&ERIK, a ~ new concept in cigar smoking, which is selling extremely well and, if J4 my predications are correct, should turn out to be the largest selling N filter cigar in the industry. All of ou`z cioars are doing well and ~ have contributed greatly to the profits of thic Company at, a time. ~ . when profitS iva3re extrQmely ':mpcxtarlts

v During the past two-zonths there have been reports stating the Cigarette Industry has regained its volume lost because of the Surgeon General's Report.. I do not agree that the Industry has regained its lost volume. The reports from~the TIMA and the TTC -'show Taxable removals and include the multitud'e of new brands marketed during the past seven months ... removals used to fill - the pipe lines ... increasing distributors and retailers stocks ... but, not increasing the total sales volume. Members of our as well as member; of our Board, are subject to these Tax Removal Re,orts, and it may be that you would like to use the information contained in this letter to explain our position at this particular time. Ours is a healthy position, one in which we are maintaining a fairly satisfactory profit position under difficult circumstances. We are not committing marketing sins we may have to pa,T for in the future. The progressive development of our major brands is good, and we shall be prepared to market products in a new smoking category when the proper time arrives. Nifflf