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DRAFT P HI LIP MORRI S US A INTER- OFFI CE CORRES PONDINCE 120 PARK AVENUE, NEW YORK, NY 10017-5592 TO: Peter Henriques DATE: April 16, 1993 FROM: Den ise Coh en SUBJECT: Asian-American Market Study Asian-Americans are the fastest growing ethnic group in the country. However, it is a difficult group to describe because it is not homogenous. The diverse population consists of at least thirteen separate ethnic groups, each with differen t lan guages an d cultures. Un fortun ately, th ere h as been a tendency to generalize this population and ignore each individual heritage. Still, this population does share certain characteristics which makes it an attr active segmen t for mar ketin g. Asian -Amer ican s h ave th e h igh est median h ouseh old in come of an y gr oup in th e US. 'Ih ey ar e geogr aph ically cluster ed, predominantly in urban centers. And compared to white Americans, they h ave h igh er r ates of population in crease an d education al ach ievemen t. Recommendations I recommend reaching this population by focusing on the four largest coh esive eth n ic groups as listed below: Chinese-Americans America's first Asian -Amer ican minority Population doubled between 1980 and 1990 to 1.6 million 63% foreign-born 61.2% live in three in MSA clusters - San Francisco-Sacramento, New York, Los Angeles-San Diego Median Age 29.8 years Filioino-Americans The least "foreign" of all Asian-Americans Always treated as American n ation als Second largest Asian immigrant group Educated, white collar, affluent 70% live in 5 urban areas - Los Angeles-San Diego, San Francisco-Sacramento, Hon olulu, New Yor k, Ch icago Median Age under 29 2/ 3 speak en glish Cultural fragmentation and linguistic differences Japanese-Americans America's most assimilated Asian-Americans 70% born in U.S. (Census 1980) vs. 70% of most Asian-Americans are foreign- born High degree of assimilation, more than half marry a member of another race 58% live in Hon olulu, Los An geles-San Diego, San Fr an cisco-Sacr amen to Japanese-Americans in NY are not assimilated due to temporary business commun ity

Korean- Americans A n ew immigran t population Typically young, foreign-born, and Korean-speaking Ch ur ch is th e cen ter of social activity High degree of self-employment 25% live in Los An geles-San Diego, 15% in New Yor k, 6% in San Fr an cisco- Sacr amen to Sign fican t prin t media for Korean-American s I suggest using print media, community marketing, pack promotions, direct mail, an d n ame gen er ation . Print Media As Asian -Amer ican s gen er ally live in major urban cen ter s, th ey ten d to read the metro papers. Their favorite reading sections are local news, foreign/national news, and business/finance. They tend to read the three n ation al n ewspaper s in h igh er percen tages th an th e gen er al population as follows: - USA Today - 4.8% of the Asian-American population - The Wall Street Journal - 4.3% -TheNewYorkTimes-2.1% While these papers are non-specific to any ethnic group, B&H could tailor an en glish -lan guage message to each group for special occasion s. For example, an ad could be run to wish the Chinese-American population for their New Year. However, these vehicles are really too broad for general advertising to have an effective impact. Alternatively, B&H could place an unmodified print ad in a number of Asian magazines and papers. The Asian-American Journalists Association r ecommen ds th e followin g widely-circulated n ation al an d/ or local publications: - Asian Week - gen er al - Pacific Citizen - Japanese-American market - Ph ilippin e News - n ation al an d local - Korean Tim e - in en glish an d Kor ean for th e LA mar ket -World Jou rn al - n ative lan gu age, tar gets Ch in ese-Amer ican s These publications reach all four ethnic groups. There is no need to translate th e copy in to an y of th e Asian lan gu ages because en glish pr oficien cy is h igh enough. While Korean-Americans are not concentrated geographically, there are numerous publications for this group - The Korean Times and Dbng-A I/Bo are daily publication s in Los An geles, an d Th e New Korea is a weekly L.A. publication. All three provide Korean language service. I th in k we sh ould study th is option to deter min e if it is a cost-effective meth od of reaching a large portion of the Asian-American community. Community Marketing After speakin g to Jose Fon tan ez, I un der stan d th at th er e ar e limited opportunities, at this point, for community marketing. It is almost entirely limited to the West Coast as there are too many restrictions in New York to make th is feasible. In C'a.lifor n ia, th er e are still ver y few even ts. Th e Ch in ese- American Festival in Pasadena, CA to celebrate the Chinese New Year will be 2

attended by Marlboro. If the event is large enough, there may be room for B&H to atten d. Th is could be a good oppor tun ity as 20% of all Ch in ese- Americans live in the Los Angeles-San Diego market. B&H is alr eady sch eduled to atten d th e Kor ean Festiv al in Oran ge Coun ty in October 1993. However, the Cherry Blossom Festival in San Francisco is no lon ger an option as th ey h as disallowed th e sellin g of cigarettes. Beyon d th is, there are few other events listed. I would recommend searching for more events to attend because these have been proven to be effective marketing tools for minority groups that appreciate special attention. Promotions Incentive items in pack outlets that serve these groups could effectively increase volume if the items have enough appeal. Although not confirmed by the market research that I have read, Jose Fontanez believes that gambling related promotions would be well received. Playing cards, dice, and poker chips are some options. A two-pack promotion with cards could be developed to encourage aa four-pack purchase. Qie pack would be black, the other gold. Many cardgames require more than one pack, so another two-pack set would be purchased. The same concept could be used with poker chips. Buy one pack, receive some chips free. Continue this process until enough chips have been collected. Again, I'm not sure about this gambling theme, but if there's an y truth to it, th ese in cen tives could wor k well. Again, these promotions would only need to run for the few geographical clusters in which Asian-Americans live. Direct Mail Asian-Americans are more likely to read their direct mail than the general population. At the same time, they do not respond positively to coupons. It is not clear if this results from their perceptions that use of coupons is interpretected to be a sign of lower income or if coupons have not tr adition ally been sen t to th ese groups. We n eed to un der stan d th is coupon issue and address it in a direct mail campaign. Test-marketing in one of the smaller mar kets migh t brin g ligh t to th is. If coupon s are n ot feasible, perh aps th e direct mail piece could in clude a promotion that is redeemable after purchasing Xamount of packs, a continuity offer, or even men tion of a sweepstakes available in pack outlets. I doubt th at it makes sense to mail a direct piece without some incentive to purchase, but I am not sure about the best coupon-alternative. Nonetheless, direct mail is one of the best ways to reach the individual groups in this diverse community. As we discussed earlier today, they can be sorted by th eir last n ames. Th e direct piece can th en be tailored somewh at to respon d to th e cultur al specifics of each gr oup, such as wh en th eir n ation al h olidays fall. Name Generation In order for a direct mail campaign to work effectively, the database for Asian -Amer ican s migh t n eed to be updated. I recommen d run n in g an unbranded name generation program, possibly through inserts in the local Asian papers, or in pack outlets. A suitable gift for completion could be sunglasses as 43.5% of the Asian-American population in California ranked goin g to th e beach as on e of th eir favorite outdoor activities (th ird to exercise and travel). Cbviously, this would not be necessary if the database is complete 3

en ough . Beyond these marketing efforts, I would also recommend utilizing the sales force to enhance this program. As we discussed today, there is a high level of store ownership by Korean-Americans - the majority of whom do not speak english - and Asian Indian-Americans. Sales reps who speak the appropriate language, or at least share the same culture could move quickly to bridge gaps and build relationships with the owners. At the very least, this could improve B&H's visible inventory/out-of-stock situation in the small outlets. At best, if r elation sh ips do develop, th e mer ch an ts could h elp sell our products. I th in k this option shouldbe explored. Perhaps we can learn from the SMSi trial. The following is a summary of key points from the March 1991 supplement to the 1990 Census Bureau's Current Population Survey. Also included are highlights from the Findlsvp study of the Asian-American market, as well as various other sources. Most studies use the white population as a benchmark for comparison. Population Size and Growth In March of 1991, the Asian-American population was estimated to be just over 7 million, or about 3% of the total population. It is not expected to exceed 5% by th e n ext gen er ation , so it will n ot accoun t for a sign ifican t por tion of th e total. By 2000, the population is projected to be 11 million. Most of the growth will come from immigration as it did over the past decade, contributing 71%. Growth from immigration among the white population was 24%, and for the total population was 28%. There are some theories that "selective immigr ation " will explain cer tain ch ar acter istics, such as h igh academic performance and value systems. Geographical Clustering Th e Asian -Amer ican population is h igh ly con cen tr ated in th e wester n r egion . 59% of the segment lives' in the West, and approximately 25% live in the Northeast. In the West, Asian-Americans represent 8% of the total population. This clustering is further defined by the ethnic mix within each region. In th e West, Filip in o-, Ch in ese-, an d Jap an ese-Amer ican s ar e con cen tr ated. Ch in ese- an d Asian -In dian s ar e th e m ajor ity in th e Nor th east. 94% of Asian-Americans live in metropolitan areas. They are more likely th an wh ite Amer ican s to live in metr op olitan ar eas, an d in th e cen tr al cities of th ese ar eas. Two-thirds live in 24 identified Metropolitan Statistical Areas (MSAs), each with 50,000 or more Asian-Americans. As many of these MSAs are contiguous, they constitute "megamarkets". The largest of these markets is Southern California where 20% of the entire Asian-American population lives. The next two population centers are the San Francisco-Sacramento are with 15%, and the New York are with 11%. Ethnic Mix This diverse population is comprised of Chinese-, Filipino-, Japanese-, Asian In dian -, Kor ean -, Vietn amese-, Laotian -, Th ai-, Cambodian -, Pakistan i-, an d Indonesian-Americans. Exhibit 1 gives a population breakdown of the first 6 major groups by region. 4

Chinese-Americans are expected to remain the largest group due to political turmoil and the uncertainty of Hong Kong's economic future. The number of Japanese-Americans are declining and they are projected to be the smallest of the 6 major groups by 2000. This trend will result from little immigration to th e US an d a low fer tility r ate. Simultan eously, an an ticipated sur ge in th e Korean an d Vietn amese population s sh ould displace Japan ese-Amer ican s. Age and Sex Asian -Amer ican s h ave th e secon d oldest median age, 30.4 year s, wh ile th e white population median age is 33.9 years. The age breakdown is as follows: 0 - 19 year s .....................33.6% 20 - 34 year s ....................24.4% 35 - 54 years ....................27.8% 55 years and over........... 13.1 % Japanese-Americans are the oldest (33.5 median age) and Vietnamese- Amer ican s are th e youn gest (21.5 median age), main ly due to recen t immigration. Women slightly outnumber men by 3%, and they are slightly older as well - 31.8 years versus 29.0 years for men. However, under 18 years, men constitute a larger portion of the Asian-American population, 33% vs. 27.9% for women. Education Level of education is the greatest demographic difference between Asian and white Americans. The proportion of Asian-Americans who completed 4 or more years of college was 39% in 1991, compared with only 22% of whites. 16% of Asian Americans completed 5 or more years of college, compare with 9% of whites. There was no significant difference between the two groups in terms of high school completion, both around 80%. Vietn amese-Amer ican s h ave th e lowest r ate of college completion of th e major Asian groups; this rate is even lower than that of the white population. Foreign-born Asian-Americans are slightly better educated than US-born Asian-Americans. Occu aD tion Asian Americans generally work in white-collar positions. The percent of Asian-American men in managerial and professional specialty occupations is h igh er th an th e per cen t of wh ite men in th ese fields - 33% vs. 27%. Alternately, Asian-American men are less likely than white men to be involved in laborer or farming jobs. Exhibit 3 offers a breakdown of occupation s amon g Asian -Amer ican men an d wh ite Amer ican men. A higher proportion of Asian-American men than women were employed in th e tr adition al wh ite-collar profession s- 33% vs. 26%. 'Ih er e is n o sign ifican t difference in the distribution of jobs among Asian-American women and wh ite women. 5

Income Asian -Amer ican s h ave a h igh er median h ouseh old in come th an wh ite Americans for three categories of households as follows: Married Couples Asian -Amer ican .................$46,500 Wh ite .............................$40,330 Female Househ older. No Spouse Asian -Amer ican ..................$22,590 Wh ite ..............................$19,530 Male Householder. No Spouse Asian Amer ican ..................$41,740 Wh ite ..............................$30,570 The main reason for this difference is that more white families had no wage earners (14% vs. 10%), generally because the white population is older. Asian- Americans are more likely to have three or more earners in each household. However, individual and per capita incomes are lower among Asian-American men an d women th an amon g wh ites. In 1991, th e per capita in come was estimated to be $13,774 for the Asian-American population, $15,118 for the total population, and $15,444 for the white population. Part of this discrepancy is due to slightly larger family sizes among Asian-Americans. However, more of this is attributable to inequitable salary levels among whites an d Asian -Amer ican s for equal levels of education completion. For example, in 1990 the median income of Asian-American men with 4 years of high school was only 79% of the median earnings of comparable white male high school graduates. The updated 1991 census information shows that this percentage has risen to 85%. Qie explanation for this discrepancy is the "glass ceiling" th eor y th at Asian -Amer ican s per ceive th at sen ior man agemen t position s ar e r eser ved for th e wh ite population, wh ile th ey will on ly r each middle man agemen t. In creased assimilation sh ould ch an ge th is. See exh ibit 4 for median in comes by race, sex, an d education al attain men t. Living Arrangements Asian -Amer ican s h ave demon str ated a str on g commitmen t to family. Th ey consider family tobe an economic and social support system. There are more family households - including unmarried, adult children, widowed gr an dp ar en ts, an d exten ded family member s- th an n on -family h ouseh olds - singles only. The Asian-American family structure is also more stable than that of white Americans, with 90% of Asian-American children under 18 years living at home versus 83% of white children. Compared to the total population, Asian-Americans live in a smaller number of lar ger families, an d th e effect of th is is seen in th e per capita in come statistics. The average number of people per household are 2.6 (White), 3.0 (African- American), 3.6 (Asian-American) and 3.7 (Hispanic). Language Information on language was only available from 1980 Census data. Moreover, it is self-reported and subjective terms such as "speaks well in relation to X' are used. Consequently, as the population becomes more fluent as a wh ole, th is r elative ter m will n ot ch an ge an d an actual in cr ease in proficiency is expected to be under-reported. Nonetheless, language is still con sider ed a good in dicator of cultur al assimilation. 6

In 1980, 30% of Asian-Americans spoke English exclusively at home. A majority of Asian-Americans (56%) reported using English exclusively or speaking it very well. Within each ethnic group, the percent reporting speaking English "very well" varied as follows: 75% of Jap an ese-Amer ican s 74% of Asian -In dian s 70% of Filipin o-Amer ican s 51% of Chinese-American s 45% of Korean-Americans 44% of Th ai-Amer ican s 26% of Vietn amese-Amer ican s 10% of Laotian -Amer ican s The use of English also varied by region. In both Los Angeles-San Diego and San Fr an cisco-Sacr amen to, th e use of Fn glish was sligh tly un der th e n ation al aver age. In New Yor k, th e use of Fn glish was sign ifican tly less common th an it was nationally (45% vs. 56%). 'Ihis is partly explained by New York's higher portion of Chinese-Americans who are among the ethnic groups most likely to retain some use of their original language and who have an established and active Ch in ese culture within New York. Honolulu was the only major Asian-American market in which English was spoken exclusively by most of the Asian-American population, and this is due to a heavy con cen tr ation of Jap an ese-Amer ican s. Asian -Amer ican s in Honolulu are not a min or ity - collectively- so th e"main str eam" media tends to be more geared to the Asian-American population than an ywh ere else in the US. Asian- American Smokers The following is a recap of a report by Yvette Rodriguez, dated Cctober 9, 1992, about Asian and White smokers. The data are based on small sample sizes for Asian-American women and smokers over age 35. Asian-Americans smoke fewer cigarettes than whites on average - 18.5 cigarettes per day vs. 24.2 cigarettes. Asian-American men and the 18-34 year old group buy packs primarily (45.6% and 48.6%) while Asian-American women buy cartons (45.6%). (5garettes are usually purchased in supermarkets/ grocery stores, followed by con ven ien ce stores. As with the general population, Asian-American smokers' tar preference is for flavor low (49.7%) followed by full flavor packings(38.7%). Flavor preference is also the same as the white population, with 74.7% Asian- Amer ican s smoking n on -men th ol cigarettes. 62.2% of Asian -Amer ican female smokers prefer 100's, while 70.8% of Asian-American male smokers and 77.4% of 18-34 year-olds chose king size. Overall, 64.1% of Asian-American smokers prefer king size cigarettes. Benson &Hedges r an ks second beh in d Mar lb or o(for both men and women) among the top brands smokedby this group with a 10.2% smoker share. Winston and Newport are the th ir d and fourth br an ds. Benson & Hedges is also an older br an d among Asian -Amer ican s as it is r an ked secon d amon g smokers aged 35+, but third among smokers aged 18-34. Over the last decade, Benson & Hedges share of this younger age group has eroded (from 8.3% in 1980 to 6.6% in 1992) with Marlboro making the most gains (18.1% to 55.6%). Newport has 7

replaced B&H in this age group as brand #2, moving from 4.2% to 8.2%.. To deter min e the size of this market of Asian -Amer ican adult smokers, one assumption needs to be made because specific information is not yet available; that is, the per cen t of the adult population that smokes. I will assume that it is 30% as with the gen er al public. See Exh ib it 5 for estimates of the size of this market, given that 69.6% of Asian-Americans are 18 years or older (Census Bureau, March 1991). See Exhibit 6 for an estimate of the volume generated by each of the top six Asian-American groups. According to these rough estimates, the top six groups account for over 8.6 billion cigarettes per year. Implications for Marketimg In conclusion, this group is very brand loyal, and it is clustered geographically. Specific marketing and sales programs could be geared to the largest groups within certain clusters. However, there are still some drawbacks to addressing this market directly. 'Ih is is a very difficult population for directed marketing due to its cultural and linguistic diversity. In reality, the Asian-American market is a composition of many micro-markets, each with different values, desires, purchasing patterns, etc. Additionally, this group is becoming more assimilated to the general population with the increase of American-born Asian-Americans, so the need for culture/language-specific marketing may not be as great as many agencies profess. Another drawback is the "myth" about higher incomes. It is true that household incomes are high on average, but individual incomes are low. While it might make a lot of sense to market toothpaste, televisions, and cars to this audience, directed marketing for cigarettes may not pay off. The first group of products are household goods that can be used by all, and the purchase could thereby be justified. However, cigarettes are consumed by individuals, so there might not be as much disposable income available for these pur ch ases. Finally, a relatively low in ciden ce of smoking makes this a less attractive market than the general population. 8.6 billion cigarettes is a significant volume for the top six ethnic groups. However, it is unlikely that all six groups can be reached with a single "Asian-American theme." Consequently, each micro-market may not have enough volume to justify a specific marketing program. While these ch ar acter istics should be kept in mind, they should automatically prevent a more directed marketing effort for this growing minority group. 8

Exhibit 1 Exhibit 2 Breakdown of Asian-American Population by Ethnic Group Ethnic Group Population % of Asian- Americans Chinese 1,645,472 23.8% Filipino 1,406,770 20.4% Japanese 847,562 12.3% Asian Indian 815,447 11.8% Korean 798,849 11.6% Vietnamese 614,547 0.089 % of Total Americans 0.66% 0.57% 0.34% 0.33% 0.32% 0.25% Distribution by Ethnic Group of the Asian-American Population Within Regions of the United States, 1990 Ethnic Group US Northeast Midwest South West Chinese Filipino Japanese Asian Indian Korean Vietnamese 23.8% 33.6% 17.7% 18.7% 23.1 % 20.4% 10.8% 15.0% 14.6% 26.5% 12.3% 5.6% 8.4% 6.1 % 17.2% 11.8% 21.5% 19.4% 17.9% 5.1 % 11.6% 13.7% 14.4% 14.0% 9.5% 7.1 % 4.6% 6.9% 15.4% 8.9%

Exhibit 3 Distribution of Occupations By Race and Sex, March 1991 Occupation White Asian-Am. Asian-Am. White Men Men Women Women Managerial and Professional Technical, Sales, and Administrative Support Service Precision Production, Craft, and Repair Operators, Fabricators, and Laborers Farming, Forestry, and Fishing Exhibit 4 27.4% 33.2% 26.4% 28.5% 20.8% 26.3% 42.8% 44.8% 9.3% 15.6% 16.7% 16.2% 19.4% 9.9% 4.2% 2.1% 18.9% 12.7% 9.4% 7.4% 4.3% 2.3% 0.5% 1.1 % Median Earnings of Full-Time Adult Workers by Race, Sex, and Education, March 1991 Race & Sex No High School 4 Years High School 1-3 Years College 4+ Years College Asian-American, both sexes $15,674 $19,290 $23,970 $34,470 Male $20,364 $21,060 $25,559 $37,550 Female $11,889 $16,920 $21,057 $29,150 White, both sexes $17,197 $22,050 $26,124 $36,130 Male $19,905 $26,530 $31,023 $41,660 Female $12,748 $17,550 $21,018 $29,110 Total Population, both sexes $16,750 $21,334 $25,502 $35,204 Male $19,343 $25,859 $30,406 $40,604 Female $12,612 $16,865 $20,764 $27,428