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W - Mr. O'Connor's Speech - January 9, 1974 Presented at Luncheon Meeting - MCEI

You're Fran Tarkenton and you've just seen a punt return ......unfortunately, it was returned by a Dallas Cowboy for a touchdown...w.and your lead is now in jeopardy ...... in a very hostile stadium. You're Tom Clements the junior Q.B. from Notre Dame and you I find you're third and eight on your own two yard line. Oh, your leading alright, leading by a big one point.... and there's still two minutes to go. You're Woody Hayes and maybe you're thinking USC is gonna give it to you again, They have just scored the go ahead touchdown .....and have scored it quickly. Momentum is on their side ....... so are many of the 105,000 people that are on hand. And my name is Frank 0'Connor, and my biggest challenge today is to explain to my people at Lorillard how I'm the featured speaker today and my company's name is spelled incorrectly in the program brochure (had to say that one Mike). Seriously though....how do people answer challenges? Some do not.... some very carefully ..... some explosively'.' Tarkenton did.... so did Notre Dame ..... and Woody Hayes' age old philosophy of three yards and a cloud of dust was never even considered. How....well as you know, Mr. Frantastic Tarkenton threw a 50 yard touchdown bomb .......Clements passed for 35 yards and a first down and Woody Hayes' men found out what the forward pass is all about. 03709912 A1l three men, and I mean men, had their backs against the wall...and they certainly responded to the challenge...don't you think?

2 And if there are any Miami rooters around, I'd like to challenge you all a little later on. 10 Now, how about the challenge the cigarette companies faced in 1970. You're right, we did have our backs against the walls once we were out of broadcast media. We could have panicked.... we could have started yelling.... instead of doing our primary thing...that of selling. We didn't.... the ground rules were already established..... the situation was thouroughly analyzed and decisions were reached. In planning our media strategies, not one avenue of advertising that we could use was passed over or just lightly touched on. Based on strict criteria and the most demanding media standards we knew how to apply, we put our agencies to the task. They responded admirably ". Their media recommendations contained the necessary mix to present our products and messenges to our consumers. A formulation of magazines, newspapers, outdoor and other opportunistic buys such as paperback books answered our new media objectives. The schedules for al-I our print buys and the locations for outdoor are constantly being reviewed to insure proper deliveries of our messages. Now how about Sales Promotion.....well to begin with, I joined Lorillard in January of 1970 and I thought I was loaded for bear. My background claimed I was a pro, so anything I would present should be gospel. Not so........ 03'709913

3 How's this for openers....we can mail 22 million co-op coupons and back that up with 18 million 1 of 1 coupons, thereby W saturating the market with 40 million 500 coupons - hell, potentially .....that's only a 20MM dollar investment. Not so fast, not so fast they said ...... Out of these 40MM consumers that you reach, approximately 20 million smoke.. there's a big waste factor in your plans. O.K., O.K., no direct mail for now....how about deal pack, that always works. How about 5~ off a pack or 10¢ off on giant size, or 25~ off on king. They said no, no.. our king size is our regular size ......we have no giant size. ..only 100's.....and besides, we do not use deal packs in this industry. O.K., O.K....... Now I get the picture. The picture on the surface appeared bleak.... however, early up we stopped yelling and decided to start selling. Enuf said....here's what we did re sales promotion -- The same emphasis that went into developing our advertising plans was placed on our Sales Promotion plans. First, each brand was reviewed with management. Specific objectives were than developed. Off this base, strategies were implemented. 03'70J914 Strategies that would give us the necessary trial.... include repurchase....in addition to maintaining our current consumers.

4 The first major promotion that I was involved in at Lorillard was a 400 page free "2 in 1" cookbook. One book was The Art of Salad Making.... the other dealt with barbequing. These books were on-packed by our salesmen and given away free with a carton of one of our menthol brands...Newport, Kent Menthol or True Green. The rationale....historically.... menthols are on the rise during Springtime.... therefore, why not promote against our brands with a Springtime item. Did it work.... we think so...we moved over two million books ....made the best seller list, and by placing the book in distribution offered numerous repurchase opportunities for our brands. By that, I mean several other self liquidator items were offered within the book. Based on these results, we proceeded ahead...... we11, we had a best seller. Why not a gold record promotion....in other words, we had to buy and,move a million records.... and move we did. The record was Louis Armstrong's last recording. It was entitled "T'was the Night Before Christmas". On the back side - "When the Saints Come Marching In". Of course, I might add, this was only Mr. Armstrong's second gold record...his first being "Hello Dolly". A final tribute to a great performer. 03'709915 From books and records, we moved to promote against coffee... That's right, coffee': We offered a free Dollar Coupon good against any brand of coffee when the consumer purchased a carton of Kent.

5 The promotion not only moved our merchandise...it also involved the-trade in tieing their product into our promotion. Down the line, we had another 400 page best seller. The Art of French and Italian Cooking. The book related directly to the quality of KENT....it was a $2.00 value offered to the consumer free at point-of-purchase. In addition, the receipes contained within the book offered the trade invaluable tie-ins. Again we made the best seller list. Other items that we merchandised successfully were a Thermo Serv Beverage Glass during the hot Summer months, and a Thermo Serv Coffee Mug during the cold Winter months. Both items were displayed as near-packs. They not only generated outstanding trial, but due to the nature of the item involved, delivered many four to six carton purchases, as consumers wanted to accumulate a set. On-packs and near-packs and free coupons were not the only promotional programs we used. During these same periods, through other types of merchandising programs, we ran-these types of promotions. 037Qa9lf; Write Your Own Check Sweepstakes, featuring ten individual categories of cash prizes. In essence, we offered any one person 10 chances to win -- top prize was $10,000 the last prize $1,000 with all other thousand dollar levels covered in between. The fact that any one person could enter ten different contests made our results outstanding.

6 We continued to think along those lines when we initiated Football 'N Kent. Instead of ten contests, we increased them to fourteen weekly contests. The prize.... an all expense paid trip for two to the Superbowl in Miami.. And to keep the pot constantly boiling, we had a super grand prize. A trip to the Superbowl for two, a Dodge Charger and the winners share of the Superbowl.. this case, $17,000. .in Fourteen individual sweeps and a rich grand prize made this sweepstakes one of our biggest to date. In addition to these so-called "gang buster" promotions, we capitalized on several unique opportunities --- The 1972 Elections -- big and broad coverage -- due to an outstanding advertising buy.... a special election supplement that would be contained within three issues of Time. We initiated a Presidential Sweeps for our Kent and True brands. I know everybody runs a Presidential promotion -- we knew it, therefore, we had to be unique.... we think we were. Our first prize was the President's weekly salary for four years of over $16,000. In addition to the sweeps, we gave away over one million Commemorative Plaques at point-of-purchase. Did the program work:' You better believe -- in Cook County alone we outdid ourselves with the response. Another situation arose...and arise it did. The subway fare. Remember the 35~ token -- we did...because in two weeks after the increase, we were on the streets-taith a free Years Supply of Subway Tokens Promotion. _ - ~ ,

•Was it big.... for a regional promotion, it was our biggest to date. And speaking about regional type promotions, let me just briefly touch base with our Kent Ski Stakes. The liesure market is a growth market and one segment of this so-called liesure market is skiing. 8MM buffs.... these buffs were right on the money, profile wise that is, so we promoted against them. For two years we promoted specifically against them and very successfully. Than we decided to improve off that base....how do we do that....we developed a national prize structure that encompases the skier but also appeals to a national audience. First prize...a Ski Chalet....a second house...pretty good ......so far ..... or $130,000 in cash. Enuf said. A super program with super returns. Well, this is where I should say we met the challenge. We stopped yelling in the 1970's and continued to sell.... I've outlined enough programs'that might lead you to believe that.....wouldn't you say!! Wrong -- the challenge is here once again.... it's '74 and it's not only my challenge, it's yours and yours and yours ...... Why ..... ? Well let's read from an article published by Promotional O Marketing ........... ~" ~ 0 co ~ IP+ on

8 RAMPANT INFLATION AFFECTS PROMOTION Rapidly Shrinking Food Dollar Increases Importance of Many Promotional Techniques "While Department of Commerce statistics relate the cold fact that r food costs rose almost 16% during the first six months of this year, they tell nothing of the dramatic implications that the rapidly shrinking food dollar has for marketers. The obvious effects are twofold: discretionary income is reduced as more total dollars are devoted to nec2ssities and consumer purchase decisions are more powerfully impacted by the specific benefits offered through consumer promotion than by less tangible product attributes. If this trend continues (as is likely), consumers will increasingly be forced to differentiate between "luxury" and "necessity" products. Such a trend can obviously have strong negative implications for such product categories as convenience foods, snack items and many aerosol products. Even those products which are universally considered to be "necessities" are being ...... and will be...impacted by the current inflationary trend." Quite a challenge.... won't you say.....and that's only for openers.... how about shortages -- shortages like plastic...wire... metal...how about paper and corrugated.". ~

- 9 - Hell, if we're short, let's pack it up ..... if we can't get the materials to display, why promote at all!! There we go yelling again...instead of doing our thing. Here's what we did....we planned ahead.... we insured the need for materials and we developed promotions that were in line with todays world. We opened our fiscal '74 with the Kent Shopping Bag Sweepstakes --- we told the cor.su.mers to go to there favorite store .....look for our display and drive off in a station wagon filled with a years supply of groceries. The results of this program proved to be our biggest to date. We followed that with the True College Sweepstakes, featuring a free Four Year Scholarship or $20,000 in cash. Was this timely....was this in line with the times.'.' Evidently... just last week on national T.V, there was a show dealing with the problems of going to college. It's theme...."How come you make $20,000 a year and can't send your child to college":' As you can see, we will continue to face up to th,~ challenges that constantly present themselves. Now I stand here..simply as a spokesman for this meeting and look over the potential of sales before me from this great grouping of corporations ........ and I think if I could impart to you a message that I heard during a similar type period - then I would be very fortunate. It was a message I heard when I was a salesman....I was carrying a bag...calling on the retail and chain accounts...and trying to make ends meet by making my quarterly quota. C t.: ~ C CD ~ 0