Tobacco Documents Online

i PHILIP MORRIS U.S.A. 120 PARK AVENUE, NEW YORK, N.Y. 10017-5592 TELEPHONE (212) 880-5000 Apri125, 1994 Ms. Nancy Ryan VP, Assistant Media Director Leo Burnett 35 W. Wacker Drive Chicago, IL 60601 Dear Nancy: 0 This responds to your request for details on the Selective Binding programs we have been working on, and welcomes the agency' s input and involvement as we move forward on this critical project. Background: Selective Binding as a micro-marketing media tool has been in development at PM since last May. We began the exploration following a department review with Jim Morgan during which this technology was discussed. The reasoning was simple: - the ability to selectively bind publications had been available for the last 10 years and more and more groups were promoting its use in their "added value" presentations. - the concept had been tested successfully for the last 5 years notably by Seagrams and by several of the major automobile companies. - it was time for PM to step up to the plate: with our clearly defined target market, there was a real opportunity to find ways to speak to smokers in an increasingly hostile editorial environment. - finally, it was necessary that we prepare for the future.... while print may be the last advertising frontier to be lost, the time had come to gain experience in this arena, so we can be ready in the event that tobacco marketing efforts become limited to smokers only. The Process: Initially, we limited our discussions to Time Inc., since they are our primary business partners and the best equipped (with the largest database) to do the job. Early conversations with them (and subsequently with other companies) indicated that both sides had concerns about exposure: the publications' seeing this as a potential loss in revenue long term (since out of pocket expense is lower), and PM worried that if we demonstrate that we CAN limit advertising to known smokers, in the future, we may be forced to do just that. MARLBORO BENSON & HEDGES MERIT VIRGINIA SLIMS PARLIAMENT LIGHTS PLAYERS SARATOGA CAMBRIDGE ALPINE MULTIFILTER

Nancy Ryan April25, 1994_ Page two 0 The process continued nonetheless as follows: 1) Confidentiality agreements were drawn up and signed by each company. 2) Database sizes, locations and methods of merger were discussed by the respective IS groups and a determination of what was to be matched agreed upon. 3) Database mergers took place (a 2-3 week process). In the case of Time Inc., the merger was conducted in Tampa (their facility) since Time was the only company whose database is larger than PM' s. Other mergers occurred in Richmond, which insures greater security for our names. 4) Once complete, the matches were reviewed and pricing and conditions were discussed. It is important to note that step 3 of this process must be repeated virtually each time a project is done since databases are constantly changing, and matches must be "refreshed" every few months to be as accurate as possible. Over the last 6 months, we have entered into confidentiality agreements with 4 other companies (Times-Mirror, Hachette, Meredith, Newsweek) and are at various stages of involvement with them. (See attached exhibits, detailing status by group.) Projects to date: 1993 As you are aware, the first attempt to use this technology was a test conducted with Time Inc. publications last December. Three brands (Marlboro, Virginia Slims and Merit) ran in each of three magazines (Sports Illustrated, People, and Time - respectively) over a 3 week period. PM used Leo Burnett' s DiaLogue service to do phone follow-ups to: a) determine if the correct copy appeared in the selected issues, and b) confirm that the readers selected were indeed smokers. The results showed that the test was technically successful: the ability of Time to deliver the right copy in the right issues was virtually perfect, though confirming those individuals as smokers was much more difficult. We realized that while a match conducted on household was necessary to insure the largest merger, the subscriber is often not the smoker but the "pass-along" reader. Additionally, our own database is undergoing purging and unqualified names may well be among the batch. Nevertheless, while this must be recognized as a weakness in the process, database improvements are underway and we must work through these challenges. Forperspective, 3 years ago, selective binding had been investigated and dropped because mergers were deemed too low to implement. Matches today are twice what they were then. 1994 Currently, the only active project is the catalog drop for Marlboro Country Store, scheduled for June (see detailed exhibit, attached). Attempts to use it for a Basic promotion in February failed since the geography was too small for a successful match. On the other hand, it is being considered for use in October with the Merit Awards Program.

s • • Nancy Ryan Apri125, 1994 Page three These applications have been limited to delivering copy/ inserts to subscribers who are smokers but clearly, there are other interesting uses that could be explored, namely: * customizing creative by known smoker preference * splitting circulation by subscriber "modeling" and adapting creative demographically * creating special offers or campaigns specifically for smokers * copy-splitting with other PM products on the "remnant" circulation * delivering special programs to target markets (i. e. military) The PM Direct Group is also looking into using selective binding as an alternate means to deliver offers, given its relative efficiency versus mailed pieces. Limitations and Weaknesses While selective binding is not a perfect solution, as one of the largest print advertisers, PM certainly needs to be out there, trying it on for size. Three challenges face us as we move forward... these need to be confronted and worked through: Pricin.2: Simply put, selective binding if used alone is an inefficient media choice, albeit a smaller out of pocket expense.. . However, for inserts or used to copy split, it can be very attractive and a smart way to focus media efforts. As we gain experience, and as more players are in the game, costs naturally will be driven down, and we should expect to have such discussions as part of' 95 negotiations. Dazabase Maxches: As mentioned earlier, our own database is undergoing purging and unqualified names are a problem when matches are done. In setting up research to follow a drop (as we did in December and are planning to do for MCS), we can track results and determine how quickly progress is being made here. Selective binding projects needn't be limited to our own database mergers and we should discuss the idea of modeling a publication' s subscribers for a future use. Low Reach: Selective Binding will never be a mass reach opportunity nor a bargain store offer. But for our business, at this stage of limited media options and intense political scrutiny, it is the right idea at the right time. The risk is low, the out of pocket expense limited, and unlike interactive media, we don' t have to loop through a legal maze to get there. Next Steps: As far as operations on this goes, Rita Schneider has been designated the project leader and she will provide interface with Database (currently, Jeanne Eibon), Market Research and Richmond IS from this end as needed. Each media manager will work with brand and the agency as usual in determining if selective binding should be considered for their plans. Keep in mind that matches and pricing change with each project and figures quoted in this memo can be viewed only as directional indicators.

• • Nancy Ryan April25, 1994 Page four It is important to note that given legal implication, this project continues to be confidential in nature and involvement should be limited to those who need to know. As I said earlier, we welcome the agency' s perspective and involvement at this stage, especially regarding applications and pricing. Let' s discuss how we can most effectively proceed from this stage. Diane Cimine Manager, Media cc: I. Broeman R. Camisa K. Galeotti J. Hanrahan - LB B. Roper R. Schneider R. Simons J. VanderPutten