Tobacco Documents Online

0 • _DI: Ct1SSIC)N DRAFT SOCIOPOII'PI(M STRA03GY (Draft 1/21/86) 1 CRITICAL ISSUES Cigarette sales are dropping in the U.S. Cigarette volume is affected by two variables: the- number of people who smoke (incidence) and the number of cigarettes they smoke (consumption). Incidence is affected largely by the health-risk and social acceptability perceptions associated with smoking;. consumption largely by the retail price of cigarettes. Variables affecting incidence and consumption are not necessarily distinct. A tax increase might reduce consumption and lower incidence among young adult smokers. A smoking restriction law might.decrease incidence by making smoking less socially acceptable and lower consumption by reducing the number of smoking-opportunity hours./°The convergence of the variables effecting incidence and consumption has - be most pronounced in the past five years. Where in the past concern for one's own health seems to have lowered incidence, recently concern for self-image among peer group (social acceptability) and authoritative restrictions on smoking have driven_incidence and consumption dcxan. The cainbination of these variables has reduc.ed the incidence--of-cigarette smoking• from 39 percent of all adult cin; 19744o 33 percent ixi 1984:~ T'his decline is especially pronounced in our ke`y"~'young adult market."'°Thumber of cigarettes smoked has also dropped by about.one per day in recent years. As we stated in last year's ~ilan, PM-USA's strategic objective is to maximize industry volume by aggressively blunting attacks fron anti-smoker advocates and improving public perceptions of smoking. PM-USA now has underway several major programs to influence political decision-makers, smokers and non-smokers and the mass media. The major challenges of the plan period remain: • Social ostracism of smokers and inhibitions about when and where to smoke due to health-risk perceptions, effective lobbying by anti-smoking groups, restrictive smoking policies (public and private), and biased media coverage. • Restrictions on the type of cigarettes sold how they are sold, and where they are sold, including advertising bans, sampling restrictions, increases in legal age and "self-extinguishing" cigarette bills. • Pressure for higher excise taxes by federal, state and local govexrunents. • State legislation on product liability which weakens our ability to defend ourselves in litigation. Social Ostracism Social ostracism remains.a serious challe~.nge. Surveys demonstrate a hardening of attitudes against smoking, a growing number of smokers who feel t.~ ~ uncomfortable about smoking around others, and continued social pressure to ~ ~ ~ .~. ~ DISCUSSION DRAFT v ~ ~

2 quit. State and local restrictive legislation show a similar adverse trend. Both of these measures point to continued social intolerance toward smokers. ATTITUDES TOWP,RD SMOKING * 1978 1982 1984 1985 Segregate S<nokers/Non-Smokers in Eating Places 73% 84% 90% Segregate Smokers/Non-Smokers in Work Places 61% 65% 68% Ambient Smoke Probably Hazardous to Non-Smokers 58% 65% 68% 63% Smokers Frequently Uncomfortable Smoking Around Others 13% 14% 18% 34% * 1978-84 data from Roper Survey, 1985 fran TSI survey. Variations may be result of question structure. SMOKING RESTRICTIONS BILT.S (State and Local) 1980 1981 1982 1983 1984 1985 Debated 158 155 165 207 228 182 Enacted 32 45 44 67 66 49 While the effects of intolerance are difficult to quantify, one way to look at the effects is the smoking opportunity index below. 7:00 7:30 8:00 8:30 9:00 10:30 10:45 12:30 1:30 2:30 2:45 5:30 6:00 6:30 WEMAY SMOKING OPPORTUNITIES FOR A HYPOTHETICAL SMOKER ACTIVITY 7:30-11:00 wake-up, shower dress breakfast coumute work coffee break work lunch back to work coffee break back to work commute dinner hcme entertainment sleep SMOKING OPPORTUNITY no no yes yes yes yes yes yes yes yes yes yes no yes (unless (unless (unless (unless (unless (unless (unless (unless (unless banned in public transport) restricted restricted restricted restricted restricted restricted restricted restricted yes (unless restricted sports arena) no in workplace) in workplace) in workplace) in restaurants) in workplace) in workplace) in workplace) in public transport) in theater or •

3 • " In total, the office worker who smokes has roughly 15 hours available to • smoke during a weekday. A ccYnprehensive smoking~restriction law, such as in Minnesota, could reduce this to fewer than 7 hours. Any evening activity such as a movie, play, or indoor ballgame might further reduce a smoker's smoking opportunities, depending on the applicable restriction. Each restriction on smoking, whether by government or business, reduces the time available to a smoker to smoke. A comprehensive smoking restriction could reduce the smoking opportunity time by 50%. Moreover, perceived social pressure could reduce smoking regardless of the legal situation. The most serious single threat in this area is proposed Federal legislation to ban or restrict smoking in all federal buildings. If enacted, this proposal would effect the largest work force in the country and set a precedent for all governments and businesses to restrict smoking. Restrictive smoking legislation at the state and local level is also a major industry problam. Local restrictions will continue to outpace state legislative consideration of smoking restrictions. The shift to the local level is due to better organization of local anti-smoking groups and the industry's strength at the state level. Surgeon General Koop and anti-smoking advocates have targeted the private workplace as a major battleground. Only by working with major business groups to make them aware of the costs of smoking restrictions and, where necessary, by providing technical assistance to businesses interested in establishing voluntary workplace policies can we blunt this effort. ~" Most state and local proposals are very onerous when first proposed. Despite the fact that we are often able to change the final product to minimize the penalties and restrictions, sane state and local governments hold a mind set that "sanething must pass," not "do we need this type of legislation." 'Moreover, the legislative battles over each smoking bill generate media attention. Although the final law may contain few actual restrictions, the public perceives that smoking has been banned or greatly restricted by law and this perception reinforces the trend in bus~ness that smokers should be segregated. 1 . i . ~ l Market Restrictions The most serious challenge we will face in this area for the remainder of the decade is the American Medical Association's call for banning all cigarette prornotional advertising, changing the legal age for cigarette purchases to 21, and ending vending machine sales. We anticipate legislation to effect these ends will be introduced in plan period. Federal legislation has already been introduced to prohibit cigarette manufacturers from claiming advertising expenditures as a business expense. Various regulatory bodies such as the Federal Trade Ccxrmission will also be lobbied by anti-smoker groups to restrict our ability to advertise our products. Other market restrictions stem largely from bans on sampling, efforts to ~ restrict outdoor advertising by punitive taxation, refusals of public ~ authorities to accept such ads and the movement to ban stadium signs. Since w .~, 1980, nine such restrictions have been enacted, the most serious of which a.+ ~ ~ ~ r~

4 prohibit sampling in Boston and Minneapolis-St. Paul and prohibit cigarette ads on public transportation in Denver. The 30 month federal study of the "self-extinguishing cigarettes" reduced state legislative activity in this area, but the issue will resurface in 1987 and could result in federal or state cigarette burn standards, or a new warning label on the product. In 1985, PM-USA changed laws in the five remaining jurisdictions (New York, New Jersey, Montana, Nevada and the District of Columbia) where the excise tax structure prevented marketing a 25-pack. The 25-pack is now available nationwide. In addition, PM-USA still seeks legislative or administrative redress in states and localities that restrict sample-pack size or fail to provide proper stamps for 25 pack cartons. Excise Taxation Since the 16~: federal excise tax has been made permanent, we anticipate a restoration of some tax stability to cigarette.market. State tax increases should be moderate, but we do anticipate sone large (8,~ per 20-pack) increases in 1986 as a residue of the 8~ FET debate. In 1985, the aggregate tax burden on cigarette rose by 3 percent and breaks out as follows: Federal excise State excise Local excise State/local sales tax Total tax 1985 Cents per 20-pack 16.0~ 16.2(~ 0.7~ 4.5~ 37.4~ 1984 Cents per 20-pack 16.0(~ 15.3(~ 0.6~ 4.1~ 36.0~ % of Retail price 35.6% 38.3% ~ Apart fran the sunset effects, states still impose specific taxes and increase them incrementally 4-5G per pack. This increase represents less than 5 percent of the average retail price. Consequently, the aggregate tax burden on cigarettes (federal, state and local) should continue to grow at a rate below inflation and continue to decline as a percent of retail price (see chart). \ A critical element to maintaining a stable or declining tax incidence on cigarettes is to prevent any significant move toward ad valorem excise taxation. Although there have been sane minor state and local attempts to move in this direction, Hawaii remains the sole U.S. state or locality with an EEC-level ad valorem excise tax. Of concern in this regard is the Advisory Commission on Intergovernmental Affairs' (ACIR) report recamanending that states adopt ad valorem cigarette excise taxes. ACIR is comprised of elected and appointed officials fran all levels of government and its reconmP.ndations gain wide attention. PRODUCT LIABILITY • .0

5 In 1985, the industry saw the introduction of almost identical bills in Illinois and Wisconsin that would establish a presumption of cigarette manufacturer liability for wrongful death if an individual smoked for a cumulative period of 10 years, and 10 percent of the cigarettes smoked were attributable to a particular cigarette manufacturer, and the individual developed lung cancer or emphysema after the 10 year period. Although bothh bills have not made it out of conmittee, we expect product liability legislation to be the new wave of anti-tobacco state legislation in the plan period. Already, research in this area is being conducted by the California State Senate Research Office using the Illinois bill as an example. The increased public awareness of cigarette liability litigation will intensify pressure at. the state level for product liability legislation. County and local governments are often unable to obtain insurance policies for liability coverage or cover disability claims by employees. The Illinois and Wisconsin bills both have subrogation clauses that allow governments to collect for reimbursements they made to victims and families through health care systems. The potential of large damages from cigarette liability suits and possible distribution of these monies to county and city governments will encourage proliferation of this type of legislation. Although the American Medical Association has opposed product liability suits as an inappropriate way to shape public policy, trial lawyers are particularly supportive of this legislation and will be formidable opposition. C r ORPORATE AFFAIRS STRATEGIES e In last year's plan, PM-USA reported that the anti-tobacco threat had escalated to "menacing proportions" and we would confront it head on with our own counter-initiatives. The plan we described was not one of simply blindly striking back when faced with the attacks by anti-smoker forces, but to mobilize smokers to act in our and their own behalf. We are well along in the execution of this plan. To canbat the well-organized, well-funded anti-smoker movement in this icountry and abroad, we have put into place programs that target the following ,groups whose decisions and actions ultimately determmi.ne the long term Jviability of our marketplace and product: • Political decision-makers, • Smokers, business allies and others potentially sympathetic to our aims, and • The mass media. Political Decision-Makers PM-USA is taking actions to improve its ability to participate directly in the political process. To influence federal, state and local politicians, a regional public affairs network has been established to monitor and combat

6 legislation (in conjunction with the Tobacco Institute) unfavorable to PM-USA interests and coordinate our activity with the field sales force and other allies. State political action conm.ittees have been created to make contributions to key political decision-makers in states where direct corporate contributions are not permitted. At the federal level, the revised tobacco program should improve farmer manufacture relations and strengthen our political base in Congress. We plan to rebuild our relationship with the agricultural canrnanity through an active outreach program. We also intend to develop business briefings in the New York headquarters for key legislators during which they will meet senior management and be informed about the cigarette business. We believe these briefings will lessen the bias that clouds our issues. Smokers and Other Potential Allies Direct lobbying alone cannot stop the anti-smoking movement or influence an indifferent public and media that tolerate fanatical anti-smoking activities. To enlist public support, PM-USA has begun a canprehensive program of identification, education, recruitment, carmunication and mobilization to reach out to the smoking and non-smoking public. This program has three goals: • Secure the freedan to smoke without fear of legal harassment or social ostracism. • Make the public aware that PM-USA and the industry have a valid and reasonable case on the smoking issue. • Put anti-smoking groups on the defensive. Specifically, the constituency development program will target: ~ • Smokers in PM-USA's direct marketing data base. • Consumers who cotnmanicate directly with PM-USA. • Retailers who sell and profit from tobacco products. • Organizations that support or have reason to support the industry. • Smokers and non-smokers identified through special political mobilizations. • • ! ~ ~ i our principal source for our mass mobilization will be the direct marketing data base which we are working with the Philip Morris U.S.A. Marketing Department to build. The data base will eventually include perhaps half of the 55 million smokers in the U.S. with whom we will cotnnunicate in one way or another as we go forward. As we gather these names, they are entered into our computerized political t,a ~ mobilization system to identify voting districts and elected representatives. When political threats arise, advanced mobilization techniques (described ~ . ~ .~ ~ ~

7 • below) are utilized to encourage these groups to ccYmiunicate with political decision-makers. Once these potential allies are identified, they will participate in a comprehensive commanication program on smoking issues designed to appeal to the concerns of each group. The most visible caYmunication_vehicle is Philip Morris Magazine. It is designed to present PM-USA's point of view on smoking issues in a calm, rational manner devoid of the hyperbole and histrionics of the anti-smokers. The first issue came out in sunmer 1985 with circulation reaching 650,000 in the most recent issue. It was well received by the media and especially by smokers, while subject to criticism by the anti-smokers. We project significant circulation growth: Year Circulation by year's end 1986 1,000,000 1987 5,000,000 1988 7,000,000 1989 10,000,000 1990 12,000,000 By 1990, Philip Morris Magazine will be the largest periodical of its kind in the U.S. the Multifilter issues coupon. Beginning in November 1985, we placed a coupon describing the principal issues involving smokers on all packs of Multifilter. To date we have received nearly 4,000 responses, convincing us more than ever that we are reaching smokers who can be mobilized to work in our behalf. The Multifilter smoker who fills out the coupon receives a variety of issue material, most of which has been prepared by The Tobacco Institute. They also receive Philip Morris Ma azine. We plan to expand this program to other brands, judiciously and without threat to brand image or sales. We also solicit allies through select advertisements in newspapers. For example, the Connecticut Mutual Life Insurance Company in Hartford banned smoking among its workers. We took political exception to their action in an I/- Another activity that is designed to both identify and educate smokers is J open letter in The Harttord Courant to Connecticut r2utuat employees ana to rne ~ citizens of the Hartford area, that presented an alternative view. Although " Connecticut Mutual did not reverse their smoking ban, received requests for Philip Morris Magazine from hundreds of readers many of whom are employees of • Connecticut Mutual. We ran a similar advertisement in Kansas to generate public debate over an arbitrary administrative decision to ban smoking in a state agency. Again, the response was favorable. Mass Media The mass media, like political decision-makers, require a special progr to achieve a more balanced presentation of positions in the media. The tar audience is the print and broadcast editors, who influence the general publ am get ic. I For the print media, PM-USA has created a comprehensive monitoring system to

8 track articles and editorials on smoking in daily newspapers and periodicals throughout the U.S. This system allows PM-USA to detect emerging issues and unbalanced reporting in order to respond accordingly. Responses include: • Rebuttal pieces. • Letters to the editor frcan allies. • Meetings with editorial boards. • Special press briefings. • Cultivation of editors and journalists through special events. In addition to redressing media imbalances, our cc¢nprehensive communication program generates media articles and academic pieces on the negative effects of excise taxation, the suppression of research questioning the adverse health-effects of cigarette use, the social engineering fanaticism of anti-smoking groups and the rights of smokers. As noted above, advocacy advertising is also used as a way to carmunicate PM-USA's side of the issues. Prototype Mass Mobilization The last sections have dealt with the identification and education elements of PM-USA's strategy. To demonstrate a mass political mobilization, we review our experience with "bperation Apodosis," our grass roots lobbying effort to keep the cigarette excise tax at 16(~ per 20-pack. The strategy created enormous public pressure on key congressmen for the tax to "sunset" to its original 8~. Although prospects of an actual sunset were remote, PM-USA had to force the congressional debate to be between-8(~ and 16~ not between 16(~ and a 40,~ tax proposed by anti-tobacco congressmen. The mobilization effort used geodemographic clustering--a demographic technique that permits us to speak to smokers and non-smokers geographically, demographically, and attitudinally by breaking down the 250,000 census block groups nationwide into 40 clusters through a factor analysis best stmtnedd up with the cliche, "birds of a feather flock together." The results were a deluge of mail to Congress. The President of PM-USA sent a personal letter to 95,000 local business leaders which was followed up by a Western Union letter and a telephone call to the secretary of the individual. All of the coirmunications described the negative effects of excise taxes on business in general. Of the 95,000 persons contacted, fully 51 percent or 48,000 sent a letter to the Congress. In another category, the populist cluster, the results were even bette . 80,000 populists received a brochure outlining the issue that focused on eir anti-government and anti-tax attitudes, followed by a Western Union letter, from the President of PM-USA, followed by a telephone call to ask if fheir name could be used on a mailgram to their congressman--55 percent, or 44,000 persons agreed. The number of responses was higher among employees, their friends and relatives, retailers and suppliers. In all Operatio Apodosis generated 138,100 pieces of mail to the two tax writing ccmittees f the U.S. Congress. (See chart below). This process is the model PM-US/1~ will use in dealing with serious political threats during the plan period. ( • •

9 • would significantly reduce our present market share advantage over RJR and cause nearly a $400 million drop in marginal contribution. 'Moreover 66 percent of a1l-Wokers begin smoking at or before age 18, 80 percent begin before age,?1•"~nIally, banning vending machines would affect 8 percent of our market -( percent of total industry market)--especially the young adult segment who so often purchase by the pack. young adult market (17-20) where we sell about 25 billion cigarettes and enjoy a 70 percent market share. If we caripletely lost this market segment,, it Raising the legal minimum age for cigarette purchaser to 21 could gut our key gnificant lead, and into the retail environment, where RJR is dominant. The AMA's Challenge in December 1985 the American Medical Association resolved to ban the advertising and promotion of cigarettes, to raise the minimum age for tobacco purchase to 21 and to prohibit vending machine sales of cigar ttes. These three resolutions strike at the core of PM-USA's busines's.! ~e.el:btdnation of advertising would channel competition into the couponing, e~value,~rea, where we are not yet ccmpetitive, into direct marketing, wher.e_RJR-has a We regard the AMA's action as a seminal event analogous to the 1981 g -,,P 'J • Tegislation to prohibit any tax deduction for cigarette advertising expenditures was introduced as was legislation to ban cigarette advertising in I~ebraska. Even if these outright bans are defeated, legislators looking for 1"compran.ise" might well settle on raising the legal age to 21, severely restricting vending sales, prohibiting outdoor advertising of cigarettes, or ~ bannin all s lin action is taken, make advertising and marketing restrictions the issue over the next five years Indeed within days of the AMA's resolutions federal Hirayama Study on the health-effects of "passive smoking".' Just as the Hirayama Study sparked a surge in media coverage of the "passive smoking" issue, helped to harden public support for segregating smokers and non-smokers, ignited hundreds of legislative and business proposals to restrict smoking, and made "passive smoking" issue the issue in 1980s, we believe the the AMA resolutions will, unless imYtediate and forceful counter g • - P To confront this very serious threat, we have developed a multifaceted t plan to mobilize the support of businesses, government officials and the ~ublic In essence we wi11• eneral 1. Define the AMA's resolutions in the public's mind as repugnant to the First Amendment and the U.S. tradition of free speech by generating media articles, conferences and other activities to draw public sympathy to our side of the issue. 2. Build a coalition of non-tobacco businesses, using the Apodosis proto-type, especially advertising firms and print media, which will solidly oppose the AMA's resolutions in political and public arenas because of their effect on livelihoods and values of this coalition. F

10 3. Create a force of lobbyists nationwide to insure though quiet persuasion that none of the ANA's resolutions becane law anywhere--especially the 21 year old mi.nimum age and vending machine ban. We intend to see the AMA's proposals die an unquiet death. ~ OBJECTIVES FOR PLAN PERIOD ` In last year's jylan PM-USA identified seven objectives for the plan period; they remain our objectives: • Stop the growth of public intolerance toward smoking and the social discccnfort of smokers enjoying tobacco products in public. • Keep the growth of aggregate cigarette excise taxes below the inflation rate and a declining share of retail product price. / ~ ~ • Improve media coverage of smoking issues as measured by the media "objectivity index." • Prevent further marketing restrictions, especially advertising or sampling bans, and remove existing bans of significance through legislation or litigation. • Slow the increase in legal restrictions on smoking from its current pace of 60+ new laws annually, and reverse select bans to put our opponents on the defensive. o Forestall any state or local legislation on "self-extinguishing" cigarettes and allow the federal study group to direct appropriate product and/or labelling action, if any, in order to avoid conflicting requirements within the U.S. market. • Remove any legal restriction on pack-size for sampling our products. An addition of a new objective, no less important than the rest, illustrates the rapidly changing political threats we face: • Prevent any legislation frcm weakening our ability to defend ourselves in product liability litigation. Insofar as we achieve these objectives, we hope to slow the decline in volume and incidence. • • .