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• PM-USA Database Marketing Review March 1994 HIGHLY CONFIDENTIAL Jeanne Eibon (2) • ~ © ~ CV ~ ~ ~ CA

S HIGHLY CONFIDENTIAL PM-USA DATABASE MARKETING REVIEW MARCH 1994 Executive Summary • • Back rg ound This is an updated version of the PM-USA Direct Marketing Review, which was originally issued in November 1992 and previously updated in June 1993. Mission of PM-USA Direct Marketing and Database Development Department The mission of the PM-USA Direct Marketing and Database Development Department is to provide database/information management and direct marketing expertise as core capabilities to support PM-USA Brand efforts to build business and maintain/grow smoker franchises. Toward these ends, the department will ensure that: • The PM-USA Adult Smoker Database is continuously refreshed; • Critical database information is available in a timely manner; • Information on the PM-USA Adult Smoker Database has the highest level of integrity; • All marketing systems and processes are state of the art; • Cutting edge direct marketing disciplines are standard operating procedure. To accomplish these objectives, the PM-USA Direct Marketing and Database Development Department works in partnership with PM-USA Information Services in Richmond as well as the Leo Burnett Database Marketing Group and Corporate Client Services. PM-USA Adult Smoker Database Current projections are that the PM-USA Smoker Database will grow to 30.5MM qualified adult smoker names by year end 1994. This growth will come predominantly from PM-USA Brand name generation efforts such as the Marlboro Country Store Van. At present, there are no plans to conduct a mass mailing to the database as had been done in 1993, with the Corporate Price Announcement Mailing to 25.5MM adult smokers. Therefore, it is

• • anticipated that PM-USA Brand utilization of the database will fall back to previous levels (i.e., 80%), with the delivery of 66 Brand mailings now scheduled to drop over the course of the year. Database Dynamics Unbranded data collection efforts will continue to focus on enhancing the quality of information available for key smoker segments already on the database as opposed to the aggressive name generation efforts of the past. The standard smoker survey will continue to be used. It was successfully revised in 1993 to allow for the collection of new data elements (i.e., attitudes toward brand promotional and price-off offers) as well as more precise smoker behaviors (i.e., coupon usage, consideration set, and share of purchase). Database Mana eg ment Successful management of the PM-USA Adult Smoker Database continues to be achieved through the effective partnership among PM/NY, PM/Richmond IS, and Leo Burnett. The operating objectives of this partnership are to: • Leverage the database as a strategic asset; • Execute flawlessly, and; • Operate efficiently. A core responsibility included in the database management function is effective and efficient information management. Toward that end, there is a project underway to automate the dissemination of key database statistics about database contents and activity throughout the PM-USA organization. The first report is scheduled to be distributed by the end of April. Strategic Direct and Database Applications This is defined as direct and database activities which are cutting edge and have therefore, not yet been mainstreamed into PM-USA Brand. As such, these efforts are typically: • Reactionary to in-market conditions or smoker behaviors; • Systems and/or process driven; • Highly measurable;

• S • Funded by the PM-USA Direct Marketing and Database Development Department; • Complementary to brand efforts, and; • Implemented with Brand participation and approval. Opportunities in this area for 1994 include: • Direct to Smoker Selling; • Selective Binding; • Smoker Relationship Building; • Electronic Couponing (i.e., micra-encoded check coupon); • Interactive POS Technology; • PM Bank, and; • Niche Businesses such as Hispanic smokers and carton buyers. Several initiatives begun in 1993 continue to be top priority in the new year. These projects include: • Name Allocation Policies and Procedures; • Behavioral Models; • Local Area Marketing; • Just in Time Marketing; • Valuing the Smoker; • PM-USA and Competitive Direct Mail Tracking System, and; • Technological Database System Planning. ~ ~ ~ ~ ~ 00 X.1p

S PM-USA DATABASE MARKETING REVIEW TABLE OF CONTENTS age e tion Page I. General Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 - Definition of terms - PM-USA Integrated Marketing Vision II. Historical Perspective of Database Marketing ...................................3 Activity: 1988-1994 - Database Size - Number of Names Used - Corporate Database Marketing III. Why Build a Marketing Database? ..................................................4 IV. The PM-USA Adult Smoker Database .............................................6 - Database Content .............................................................. 6 - Database Structure ............................................................. - Database Dynamics ........................................................... 11 1 - - Data Collection ........................................................ Data Maintenance ..................................................... 13 1 - Data Enhancement .................................................... - Database Validation .................................................. 17 1 - Database Access ............................................................. - Database Output .............................................................. 20 V. PM-USA Database Management .................................................22 - Role of PM-USA Corporate Database Development and Direct Marketing Department . .......................................... 23 - Role of PM-USA Information Services ...................................23 - Role of LBCo. Client Services Corporate Direct Marketing...........24 - Role of LBCo. Database Marketing Group ..............................24 VI. PM-USA Database as a Brand Marketing Tool ................................28 • VII. PM-USA Strategic Database Applications ......................................56 VIII. Attachments TBLCNTS

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~ I. GENERAL OVERVIEW Before getting into the specific direct marketing/database activity of PM-USA, it may be useful to define some of the key terms that will be used throughout this document. These terms are commonly used within the direct marketing community-at-large, but tend to take on unique dimensions within specific organizations. Direct Marketing: The techniques of getting messages or offers direct to a target audience via a variety of media to produce some type of immediate and measurable action. Direct Response: A specialized type of advertising that solicits a lead, an order, or information, and always provides a means to respond. This can be via an order form or a telephone number which enables the consumer to act immediately. Direct Mail: A medium like TV, radio, and print used to carry a message to a customer or prospect, and typically solicits a response. S Database: A central repository of information about current as well as potential PM-USA brand adult smokers, collected from a variety of sources (e.g., consumer surveys, promotion responses, coupon redemption, third party suppliers). Database Marketing: The strategic use of the PM-USA Adult Smoker Database to create and cultivate an ongoing relationship with individual adult smokers, via a variety of media. Database Management: An ongoing effort to keep the database up-to-date, accurate, and mailable as well as reflective of the U.S. smoker population over 21 years of age. At the present time, the primary focus of PM-USA is direct marketing. However, the database can have a much broader impact on how we do business. Potentially, it could drive all brand communication to the consumer, whether it be in the mail, outdoor, in print or at retail. For a visualization of this integrated communication opportunity, please see the following page. 0

DIRECT MAIL PRINT PHILIP MORRIS SMOKER DATABASE RETAIL PROMOTIONS SALES SUPPORT OUT-DOOR Z CORPORATE AFFAIRS U r NON- TRADITIONAL MEDIA RESEARCH 9s9t6ictog

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S Over the past seven years, the database has grown from 8MM to 30.5MM (projected year-end 1994) "qualified" adult smokers. Qualified adult smokers are those adult smokers on the database that are eligible to receive brand programs. This means that at a minimum there is brand information, date of birth, a mailable address, and a signature. The growth of the database is the result of aggressive corporate and brand name generation programs (i.e., adding new adult smoker names) as well as requalification programs (i.e., updating adult smoker information on names held in the database, and since 1990, obtaining adult smoker signature). iZ W ~ CC -.f Oo PM-USA Adult Smoker Database. 00 The following chart summarizes the highlights of the development and use of the yEAR QUALIFIED ADULT SMOKERS* DM PROGRAMS NAMES IN DM PROGRAM CORPORATE MARKETING BUDGET (S) BRAND DIRECT MARKETING BUDGET (S) 1988 8.0 MM n/a n/a 14.3 MM n/a • 1989 11.5 MM n/a 4.3 MM 11.0 MM 30.7 MM 1990 14.3 MM 25 7.3 MM 13.7 MM 60.6 MM 1991 20.8 MM 23 14.7 MM 39.0 MM 62.2 MM 1992 25.6 MM 41 16.0 MM 35.0 MM 122.0 MM 1993 28.5MM 43 25.5 MM 18.0 MM 184.0 MM 1994 ** 30.5MM 61 24.4MM 18.3MM 125MM (OB) IL HISTORICAL PERSPECTIVE OF DIRECT/DATABASE ACTIVITY: 1988-1994 The PM-USA Adult Smoker Database was created in 1986, using names gathered from brand promotions fielded in 1982-1986. Initially, the database was maintained at an outside supplier (i.e., CCX now Acxiom), but in 1988 it was moved in-house (i.e., Richmond) where it continues to reside. * Qualified Adult Smokers = Mailable known adult smokers, with date-of-birth, brand, and signature " Projected FOCUS OF CORPORATE DATABASE ACTIVITY Improve usability of names for brand programs through requalification. Continue requalification programs (mail and outbound telemarketing) and test names generation concept. Continue requalification programs and expand name generation programs. Implement aggressive name generation programs to meet brand name needs. Use requalification programs to obtain signatures as well as update adult smoker data. Continue aggressive name generation programs, with focus on key adult smoker segments. Use requalification programs selectively. Improve quality of information on key adult smoker segments currently held on database. Develop portfolio of database marketing tools that help to build Brand business. 3