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A c ZC '/ U. %/U/ n-1EMORANUUM TO: Messrs. Tom Jones Dr. Fred Schultz Ben Vila - MCA FROM: Richard E. Smith November 11, 1977 ------------------------------------------------------------- This will summarize areas of concentration and planned action _ steps on new product work beyond EF I (Bounty); the result of our 11/10 meeting in N.Y.C. (These thoughts of course, build - on prior thinking; most especially the 5 Year Plan.) When we're all happy with this memo, it will become a joint recommendation for Dr. Spears, Mr. Ave's information; suggestions and approval. We agreed to concentrate new product development work and thinking into,three areas; described below in order of probable importance, tangibility and market entry. 1. Enriched Flavor II - An entry into the Very Low Tar segment (roughly 5-10 mg, tar) with taste characteristics comparable to Marlboro 85 - This, of course, is a direct extension of our strategy to get dramatically better taste and satisfaction relative-to T&N levels. EF II occupies the high taste side of our "Bracket" on the Very Low Tar category; the category projected to grow fastest by 1981 (+84B units). 2. New Flavor or Sensation - The menthol analogy, and high trial rates for Lemon Twist suggest good potential consumer receptivity for the right alternative. Addition- ally there is a need (and perhaps an opportunity) to mask the lower taste and impact of reduced T&N cigarettes. 3. Identification of Additional, Important, Unfilled Consumer Needs - Most of our thinking was "Discovered" two or tlir.ce year.s :igo whon reduced t,-ir brands had a 152, share, vs. 26% during the lst half of this=year. We need to be sure we're not overlooking a new or emerging opportunity. For each of thc!se concentration areas here are the steps we agreed to make, and rough timings on each. : t

Mes.sr. s. Jones -2- November 11, 1977 Dr. Schultz Vila EF II 1. During January, 1978 Marketing and MCA will develop and clear with top management a business, marketing, product description summary. 2, In February, 1978 serious product development work will begin. (As this moves forward new technologies will be used if available.) 3. Also during February, 1978 we will start serious marketing development. This will include the assignment of both an agency and package designer. 4. Our target is to enter market test by 10/78. (This allows us 3 months more lead time than we anticipate using for Bounty. ) New Flavor or•Sensation 1. By February, 1978 R&D will have developed a reduced tar lemon flavored prototype, and perhaps another reduced tar fresh tasting or sensation prototype (Mint?). 2. Also by February, 1978 MCA will have completed a marketing analysis of flavor popularity in comparable product categor- ies, and R&D will have begun a review of available flavor and sensation agents. Either of these investigations could lead to the development of further prototypes. 3. During February, 1978 we will get both expert and consumer reaction to at least the lemon flavored prototype. Initial consumer reactions will be in Focus Groups where we will seek both marketing and product development leads. 4. We envision following a step-by-step, building pattern to finally reach the right alternative. Market entry is not anti.cip,~tod heCorc 1979. However wo plan to formally review progress with top management in June, 1978; with a recommend- ation to proceed or discontinue work - based on progress to date. 03363'790

4W Messrs. Jones -3- November 11, 1977 Dr. Schultz Vila Additional Needs 1. One thrust of activity will be to confirm or reject several areas that have excited mixed interest to date. a. By 12/77 MCA will have completed an analysis of Lorillard's business opportunity if we could offer an acceptable alternative to cigarette smoking; eg. a socially acceptable chewing tobacco. Based on this review, marketing (with R&D) will recommend for active R&D involvement on this project, or table the subject. b. By 2/78 marketing will have analyzed available consumer information and competitive experience with reduction of gas phase components (CO, HCN, etc.; the allegedly harmful ingredients beyond T&N). Based on this analysis we will either continue new product focused investigations (Step #3, below), or just continue our ongoing corporate product development programs. 2. Also we will seek new ideas. a. We will ask each agency to review any new product ideas they have with the four of us. Our goal is to discuss any ideas that may have occurred over the last several years. As discussed, the Will Graham Co. suggested this approach and has some ideas. b. By February, 1978 MCA will have analyzed the 4-9/77 Switching Study data for additional smoker needs. 3. During March, 1977 we will conduct 9 Focus Group sessi.ons, among past two year switchers into each of the 3 categories under 15 mg. tar. We will seek both further dimension on ideas from Steps #1 and #2 (above), and completely new ideas, If any idea looks like an important need, we will move to quantify our Focus Group based feelings. And if confirmed quantitatively we'll have a new project to work, If we don't get both qualitative and quantitative support, we will table the project with a view toward repeating the process after 24-36 months. Could I have your reactions to all this by Tuesday, 11/15. c h 03363'791 /ar