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VIRGINIA SLIMS ULTRA THIN 10/21/88 f'. LQt6 IVb t? Z ~

VIRGINIA SLIMS ULTRA THIN PHILIP MORRIS IS CURRENTLY CONSIDERING INTRODUCING AN ULTRA THIN CIGARETTE. THE PURPOSE OF THIS DOCUMENT IS TO DISCUSS WHERE THE GREATEST VOLUME POTENTIAL LIES FOR A VIRGINIA SLIMS ULTRA THIN. DISCUSSION POINTS - ULTRA THIN CATEGORY (AKA CAPRI) - ULTRA THIN TESTING - ALTERNATIVES ?,C061vtrQz

CAPRI BUSINESS SITUATION 0 CAPRI WAS INTRODUCED INTO TEST MARKET IN JANUARY 1987 BUT DID NOT ACHIEVE TOTAL NATIONAL DISTRIBUTION UNTIL JUNE 1988. 0 CAPRI'S MONTHLY SHARE PEAKED IN JANUARY 1988 AT .82, DURING WAVE V OF ROLL OUT. - FEBRUARY-APRIL SHARES FLUCTUATED DUE TO PAYBACK. 0 CAPRI'S SHARE INCREASES MAY-JULY WERE TIED TO GEOGRAPHIC EXPANSION. - AUGUST SHARE DECREASE REFLECTS PAYBACK FROM FINAL ROLL-OUT LOAD. 0 CAPRI'S YTD NATIONAL SHARE HAS BEEN STABLE FOR Tin10 MONTHS AT .44. CAPRI MONTHLY SHARES: JANUARY - AUGUST 1988 JAN FEB MAR APR MAY JUN JUL AUG 1988 1988 1988 1988 1988 1988 1988 1988 REGION 1 0.64 0.16 0.13 0.29 0.42 0.48 0.55 0.33 REGION 2 0.60 0.14 0.16 0.26 0.60 0.36 0.47 0.42 REGION 3 0.36 0.18 0.26 0.41 0.38 0.57 0.73 0.44 REGION 4 0.97 0.28 0.16 0.31 0.37 0.52 0.76 0.46 REGION 5 1.31 0.54 0.23 0.49 0.42 0.62 0.61 0.46 REGION 6 1.15 0.65 0.14 0.25 0.26 0.67 0.59 0.42 REGION 7 1.02 0.59 0.42 0.71 0.51 0.76 0.65 0.68 TOTAL U.S. .82 .33 .21 .39 .43 .55 .62 .45 SOURCE: MSA 6cOV6xttcrz

CAPRI SWITCHING 0 21% OF CAPRI'S IN-SWITCHERS CAME FROM VIRGINIA SLIMS, WITH LIGHTS MOST SEVERELY AFFECTED. HOWEVER, ONLY 9% OF LIGHTS LOSSES WENT TO CAPRI. NEXT LARGEST CONTRIBUTOR TO CAPRI WAS SALEM, 13%. 1987 CAPRI SWITCHING % GAINS B&H CARLTON DoRAL EVE KENT MARLBORO MERIT MORE NEWPORT PARLIAMENT PLAYERS SALEM SATIN VANTAGE VIRGINIA SLIMS WINSTON NEw/NPB MENTHOL 11% 0 6 6 6 0 0 0 6 0 0 28 0 0 22 0 17 TOTAL 10% 3 3 3 5 8 3 3 3 3 3 13 3 3 21 8 10 SOURCE: PM SWITCHING STUDY 0a061ttaZ - 4

CAPRI DEMOGRAPHICS 0 DEMOGRAPHICALLY CAPRI AND VIRGINIA SLIMS HAVE SIMILAR CUSTOMER PROFILES CAPRI • SKEWS 18-34 • BETTER EDUCATED • $30M+ HHI • SKEW A,B, COUNTIES • REGION 5,7 VIRGINIA SLIMS • SKEWS 18-34 • BETTER EDUCATED • $30M+ HHI • SKEW A COUNTY • REGION 3,5 SOURCE: 1988 TRACKING STUDY 0 CAPRI SMOKERS SEEM TO BE MORE VALUE DRIVE THAN PRODUCT LOYAL - 31% OF CAPRI'S VOLUME WAS SOLD ON PROMOTION ACCORDING TO THE LAST COUPON REDEMPTION REPORT. - 4% OF VIRGINIA SLIMS VOLUME SOLD ON PROMOTION. SOURCE: PM COUPON REPORT Too"ztrtOZ 5

CAPRI PSYCHOGRAPHICS 0 NOT SURPRISINGLY, THE CAPRI SMOKER IS SIMILAR TO THE VIRGINIA SLIMS SMOKER PSYCHOGRAPHICALLY. CAPRI SMOKER DESCRIPTION OF CAPRI WOMEN ASPIRATIONAL CLASSY YOUNG STYLISH SUCCESSFUL AGGRESSIVE VIRGINIA SLIMS SMOKER DESCRIPTION OF SLIMS WOMEN ASPIRATIONAL ATTRACTIVE YOUNG GLANIOROUs INDEPENDENT SOURCE: CAPRI IN-DEPTHS 6 Z906100z

CAPRI PSYCHOGRAPHICS 0 CAPRI IS AN EVEN MORE FEMININE PROPOSITION THAN SLIMS. FEMININITY OF CAPRI IS REINFORCED BY THE: - PRODUCT THINNESS - PACKAGE DESIGN - PACKAGE GRAPHICS 0 CAPRI TRIERS ARE PRIMARILY DRAWN TO CAPRI BY THE PRODUCT'S THINNESS, BUT OTHER REASONS FOR TRYING THE PRODUCT WERE ITS: - LIGHT GOOD TASTE - THINNESS, CONNOTING POTENTIAL HEALTH BENEFIT - DESIGN OF PACK 0 ON THE OTHER HAND, THINNESS WAS GIVEN AS THE MAIN REASON FOR REJECTING THE PRODUCT, NOT TASTE. SOURCE: CAPRI IN-DEPTHS 4/13/87

CAPRI SUNIARY 0 CAPRI BUSINESS HAS STABILIZED AT .44 YTD AFTER THE SUMMER LOAD. SHARE IS EXPECTED TO REMAIN STABLE UNTIL YEAR END LOAD, BECAUSE SHARE INCREASES HAVE ONLY COME WITH GEOGRAPHIC EXPANSION. 0 THE ABILITY FOR CAPRI TO BUILD SHARE COULD DEPEND HEAVILY ON FUTURE PROMOTIONAL SPENDING LEVELS AND B&W'S COMMITMENT TO PROMOTION FOR THE BRAND. 0 THE CAPRI AND VIRGINIA SLIMS CUSTOMER PROFILE PARALLEL EACH OTHER DEMOGRAPHICALLY AND PSYCHOGRAPHICALLY. 0 CAPRI'S GAINS HAVE COST VIRGINIA SLIMS AN ESTIMATED .10 SHARE, PER SWITCHING STUDY AND TEST MARKET STUDIES. baov6jvvou - 8

ULTRA THIN TESTING 0 CAPRI'S STRONG HOLD ON THE ULTRA THIN CATEGORY HAS NOT SUCCESSFULLY BEEN CHALLENGED TO DATE. 0 THE ORIGINAL ELAN CONCEPT (IMAGE, "ME T00') PURCHASE INTEREST SCORED BELOW CAPRI. 0 ELAN ULTRA/L.S. SCORED BETTER THAN ORIGINAL ELAN BUT CAPRI STILL PRODUCED HIGHER "DEFINITELY BUY' SCORE. ELAN (ORIGINAL) SLIMS COMPETITIVE POSITIVE INTEREST 41 41 DEFINITELY BUY 10 11 PROBABLY BUY 31 30 ELAN ULTRA/L.S. CAPRI SLIMS COMPETITIVE COMPETITIVE 47 46 50 20 19 25 27 27 25 0 RESEARCH SHOWS THAT INTEREST IN ELAN WAS DRIVEN IN PART BY THE VIRGINIA SLIMS PARENTAGE. To MOST, THE VIRGINIA SLIMS NAME PROVIDED QUALITY ASSURANCE AND SENSE OF FAMILIARITY. 0 BARCLAY DROPPED THEIR ULTRA THIN TEST PRODUCT AFTER 4 MONTHS ... SHARE TOPPED AT .4-.5 (LOAD) THEN DECLINED TO .2 BEHIND STRONG PROMOTIONAL, MEDIA SUPPORT 0 WE BELIEVE RJR IS CURRENTLY INVESTIGATING ULTRA THIN. SOURCE: 2/3/88 ELAN IN-DEPTHS 99VW6FA'1l77Ar

ALTERNATIVES 0 ONE OPPORTUNITY NOT YET EXPLORED FOR THE ULTRA THIN IS A VALUE PROPOSITION. 0 BECAUSE A HIGH PERCENTAGE (APPROXIMATELY 31%) OF CAPRI'S VOLUME IS SOLD PROMOTIONALLY, A VALUE PROPOSITION COULD PRESENT A REAL OPPORTUNITY TO TAKE CAPRI'S SMOKERS. 0 Two VALUE OPTIONS EXIST: - DECREASED COST - VALUE ADDED qsowttuz - 10 -