Tobacco Documents Online

UNITED KINGDOM THREE YEAR PLAN 1989-1991 OVERVIEW AND MAIN OBJECTIVES Review of Performance against 1987 Plan The 1987 Plan for the UK set cautiously ambitious objectives for 1988 and beyond, primarily to achieve some volume growth and reduce Area Income losses. Despite implemetation of most of the marketing strategies contained in the plan, these objectives were only partially achieved in 1988, as volume will fall short of OB by 805 mio (14.7%), primarily due to the shortfall of Raffles KS, launched in January 1988 with an OB target of 650 mio and likely achievement of 290 mio only. Small volume shortfalls against OB will occur for Marlboro Red, but both Marlboro Lights and Raffles 100s will fall short of OB by some 10%. As a consequence of these shortfalls - and despite better price increases achieved in 1988 than planned, plus cut backs in Marketing spend, Area Income will end this year at around a loss of $(15.9 mio) against the OB of $(11.4 mio); negative currency movements caused $1.7 mio of this shortfall. On a more positive note, certain aspects of the 1987 plan were either met or exceeded b 3.2- - Total Industry volume will be - 95.5 Xio in 1988, some A better than forecast; primarily due to the cumulative impact of duty increases of zero in 1987 and in inflation (at a low 3.4%) in 1988. in 1988: this was line with All planned activities in the Sales area were implemented i.e. - establishment of a viable Trade Marketing programme, establishment of an effective National Accounts team, consolidation of the salesforce into one unit, starting to develop a complete customer database; these represent a solid base for further achievement in the current plan period. The plan to shift more Direct Sales via the national wholesale trade to respond to more frequent and smaller drop sizes required by retailers - has been tested successfully through the use of Palmer & Harvey to service the MGL acount (5% of all PM sales),; in the current Plan period, further progress along this route will be made. Raffles 100s SVC has been reduced by $2.10/000, and will yield savings of $5.0 mio in 1989; this is a major step forward. Note: ? = numbers from John White °\2.5 `+--. 89CLICTOSZ

-2- A plan to reposition the Raffles brand more firmly on image has been developed and approved; a new advertising campaign, developed to support the re-positioning, will be launched in December 1988. The Marlboro brand plan has been thoroughly reviewed, re-focused and simplified and will be put into execution in January 1989. Competitive Environment The UK Industry represents 19% of total EEC Region volume, and generates Industry operating income of some $500 mio p.a.; both Gallaher and Imperial are estimated to be earning in excess of C150 mio in 1988; while Rothmans' 1988 earnings are said to be -€15 Mio on a share base of 9%; this contrasts with their operating losses three years ago when their share was 12$.(?) The market place is highly profitable for the leading players. Gallaher are clearly pursuing a growth strategy, with continued investment in three brands (B & H, Silk Cut, Berkeley) which are the three leading brands in the market place. In October 1988, Gallaher led Imperial by 2.6 share points. Imperial are clearly pursuing a different route, with the emphasis put on maximising earnings against a declining share. Rothmans were following the same route as Imperial, with the accent on operating efficiencies until recently, when Black Cat was launched (100mm low-price brand) and achieved 0.6% share in five months, and with new campaigns for both Dunhill and Rothmans. Main Objectives It is clear that, given UK Industry earnings, significant penetration of the UK market could bring PM disproportionate financial benefits compared to increased penetration of other EEC markets, and this must remain the ultimate reason for our continued presence in the UK. However, it would be unrealistic to forecast significant growth for PM in this market place given the track record to date; only when it can be clearly demonstrated that the existing business can be brought to breakeven with modest volume growth, would it be appropriate to present a plan to penetrate the market on a significantly larger scale. E>9CLT EI05Z t r

-3- This plan is therefore short-term to achieve a significant reduction in the Area loss within the three year period, with modest volume growth, realistic levels of Marketing investment, and only one new brand launch - a free standing Virginia LTN to occupy a position in the growing LTN segment dominated by Silk Cut. Excluding the new brand, compound annual growth in the Plan period, will be 3%; the new brand will add 350 mio by 1991, raising c.a.g. to 4.8%. Area Income will improve from $(15.9) in 1988 to:- 1989 $(7.8) 1990 $(5.2) 1991 $(1.2) The reduction in Area losses in 1989 arises as follows: Raffles SVC reduction $5.0 (new blend implemented Dec 1988) Oth SVC d ti $2 5 ons er re uc . Pricing $6.0 (Mar 1988 = $0.9) (Sep 1989 = $4.5) (Oct 1989 = $0.6) Volume Growth (margin) $1.9 DMB + PA $4 7 s . Overheads - Direct $2.0 New Brand launch $2.4 Currency/Other $1.8 Total Area Income Change $8.1 The principal brand strategies in the Plan period can be summarised as follows:- Marlboro Maintain Red volume and prevent further declines; focus on Marlboro Lights to achieve growth; change the Marketing mix to upweight promotional activity and downweight advertising; re-price Marlboro family to the same level as B & H in steps (financial impact not included in plan for the sake of prudency). OLELICI0S7

-4- Raffles Reposition Raffles more firmly on image through striking and innovative advertising and an integrated promotional programme; expand the geographic franchise to achieve a genuine national presence; re-price Raffles towards the mainstream segment as market share increases (for prudency, this has not been included in the Plan). New Brand Enter the Virginia LTN segment with a free-standing brand (probably Philip Morris Super Lights) to present a modern and fashionable alternative to Silk Cut. Probable launch date - Sept 1989. PM Super Lights will be tested in two blends - existing blend ("Hunterised") and a VirJ(ginia blend under development by R & D. BRAND STRATEGIES AND ACTION PLANS Marlboro * Current Status: In the South, where people are willing to associate with overt "badges" in general, Marlboro's proposition represents the positive aspects of America, Internationalism, motorsport and travel. Outside the South, the brand proposition works in specific locations, amongst key smoker groups. At certain times/occasions (e.g. Saturday night at the pubs/discos etc. ) With the growing health controversy, Silk Cut's "healthy", stylish and clean graphics feel has become fashionable for those who want "less". Research shows that Silk Cut has now become Marlboro's key competitor. Marlboro Lights potential has not yet been realised in the UK. ILCLICTOSZ,

-5- * The Plan in 1989: - The brand strategy during 1989 will be promotions led in order to achieve relevant and direct communications with the consumer. This activity will be supported by a permanent POS proaramme directed towards key Independent retail outlets carefully selected to offer volume potential coupled with the appropriate image. Advertising will major on Marlboro Lights in order to establish greater product awareness. In media terms we will use a greater weight of lifestyle and special interest publications. Together with a selective outdoor presence in order to maintain brand awareness. Geographically, we will continue with our Key Town strategy, and pay more attention to fine-tuning the mix in the relative environments. Red Soft Pack (KS) will be re-introduced, principally to open up a new dimension for press advertising with a younger and more fashionable tone; distribution will be selective in high quality Independent outlets only. In summary, our plans will remain flexible, adaptable and young in order to move the brand forward in terms of new smokers, volume and share. * Action Plan - Promotions National phone-in promotion 1st quarter, linked to pack purchase - pre-Budget volume sell-in, post Budget pull through. 2nd half year in-pack promotion, generating additional volume pre-October Manufacturer's price increase, and running through to year end/early 1990. Tailor-made account promotions to support national promotions in Marlboro's key trade sectors, with selected key accounts, principally Multiple CTN groups, Garages, Licensed Trade outlets, Convenience Store Groups, and selected Multiple Grocers e.g. Sainsbury's. - Communicate brand proposition and promotions to Marlboro target group smokers via the national leisure groups who dominate the leisure environment. All promotional activity will reflect brand imagery.

-6- * Action Plan - Merchandising Development of range of high-quality permanent POS merchandise providing a valuable service function to the retailer. Temporary POS for promotional support only. Development of a retailer package for top quality outlets in locations identified as having Marlboro high traffic flow/potential. Exclusive visibility in strategic non-tobacco retailing outlets frequented by potential Marlboro consumers. * Action Plan - Advertising - Further develop the "Heritage" advertising, building on knowledge gained in 1988. - Spend to focus on Marlboro Lights variant in order to establish greater product awareness. - Increase differentiation between Red and Lights executions to give each a clearer, separate identity within the "Heritage" context. Increased advertising presence in style, special interests and arts magazines C/W 1988: 23 Publications Over 50% coverage of ABC1C2 Men 18-34 years at a frequency of 8.6 OTS Heavyweight supersite posters in London making the brand "big" and ensuring comparable visibility with competition * Summary - The 1989 Plan has been deliberately re-focused and greatly simplified compared to 1988 where too much low-impact promotional activity took place; emphasis on advertising will be down-weighted but improved in quality and relevance to the target market. Correct execution of the Plan will stabilise, and hopefully grow, Marlboro Red and will ~L~LT~:tp~Z significantly lift the awareness level for Marlboro Lights which currently has a young but small consumer franchise.

-7- During the year, Marlboro prices will be raised judiciously to parity with B & H, the market leader. Raffles * Current Status: - Raffles 100s has a solid consumer franchise in the South but is weak in its area of greatest sales potential - urban areas of the North, Midlands and West. The brand has displayed resilience, as share has been maintained despite competitive launches (L & B 100s, JPS 100s, XL, and recently Black Cat) but is still handicapped by the lack of a firm consumer image. Existing smokers appreciate the packaging, but potential smokers have no firm reason to adopt the brand, and see it's existing price position as re-inforcing an increasingly cheap and pretentious proposition. The launch of KS has not achieved a viable rate of sale. The next twelve months will be critical if the brand is not to slide even further towards a price positioning. A significant step forward has been achieved in 1988 with the SVC reduction, arising from the blend change, which substantially increased the contribution from the brand. The principal task in the Plan period is to systematically increase the image content of the franchise, raise awareness levels, and thereby increase share and volume for both variants. To achieve this objective, the brand will be re-positioned to the consumer as a quality mainstream cigarette, capable of rivaling the market leaders in terms of consumer perception, attractively priced; key to this is the development of original and striking advertising, with a competitive weight of spend within certain geographical areas; the weight of spend will therefore again be heaviest in the South and the selected non-South conurbations which represent the greatest short-term potential. As this strategy succeeds, the geographic reach will be extended until Raffles achieves national status and awareness ; increases in relative price will be taken, when appropriate, with the ultimate aim of moving price to a level of 5P below that of B & H (as opposed to 11P currently); the financial impact of this strategy is not included in the Plan. fl_ELtEI05Z When the current variants are showing sustainable growth, an LTN line extension of Raffles will be introduced; it is probable that this will take place in late 1990 or early 1991, when the re-positioning of the brand can be demonstrably seen as successful.

_8- * The Plan in 1989: Strategy The strategy in 1989 will be to commence the re-positioning of Raffles as a quality, image-driven brand to reinforce existing smoker loyalty, and to offer an alternative to non-Raffles smokers who are not attracted to B & H; in competitive terms, the growth of the Raffles franchise will come from current smokers of Superkings, JPS, Dunhill and Rothmans,; to achieve this a clear competitive statement about the brand needs to be communicated through advertising, which in turn needs to be original and striking. The development of the campaign "It breaks the Golden Rule" has taken place with these requirements as givens. To support the advertising-led relaunch, two major promotions will take place in 1989, the first being tactical, simple, media and POS led in March, and the second being a pack insert promotion on a large scale in the late summer. Both the advertising and promotional resources, will be backed by extensive tailor-made promotions with the major national accounts. * Action Plan - Introduce a new advertising campaign communicating a clear, motivating brand image in February 1989. Merchandise this campaign through promotional activity designed both to retain loyalty during blend change and to build trial. - Maintain strength in the South, while continuing and extending Northern/Central region conurbation strategy to include significant towns around existing target areas and adding South Wales conurbation. - Develop business in areas of strength with a concerted merchandising programme, utilising permanent and semi-permanent merchandising items. - Specifically, in 1989, the Plan provides: GLCLIEIOSZ

-9- National * National colour press using high impact premium and unusual positions achieving competitive weights in selected leading titles. * Promotional activity in the first quarter designed to retain loyalty during the blend change and to stimulate trial with a unique offer. * In-pack promotional activity during the second half designed to build volume, increase trial and loyalty while enhancing the advertising proposition. * Highly targeted Direct Mail programme to stimulate trial amongst high potential Raffles smokers utilising brand smoked, demographic and lifestyle data. * Trade Marketing programmes to increase distribution and offtake in under-developed Trade sectors, while building volume purchase in sectors of strength. South * In addition to National programmes the brand's strength in the South will be built by: 5 months of heavyweight outdoor activity Merchandising programme in high profile locations designed to increase brand visibility and impact, utilising permanent and semi-permanent items with functional value to the retail outlet. 9LcLrF ioSZ Target Conurbations * Activity will be upweighted in these target development areas with: - 5 months heavyweight outdoor presence - Targeted switch selling programme conducted by team of permanently contracted promotional personnel - Upweighted permanent merchandising programme designed to secure at least 200 prime locations in each of the six target conurbations.

-10- * The Plan in 1990 and 1991 Further develop business by extending the target conurbations areas to include Clydeside (Scotland) and cities surrounding the conurbation areas. Seek to improve brand profitability by taking relative price increase against competition, as the brand's image strength is enhanced. Introduce Raffles Low Tar, timed to provide the maximum benefit to the overall brand family, to extend the franchise and add extra momentum and volume to the brand's growth. * New Brand Development - Two new brands will be developed in 1989 - a LTN proposition and a cheap Virginia proposition using the Bond Street name and packaging which is already available and with a target SVC in line with Lambert & Butler KS. This brand will not be launched but will be kept "on the shelf" available for launch in the event that low-price competition makes this desirable. The LTN proposition will be developed to take advantage of the recent growth in the LTN segment, driven principally by Silk Cut and Berkeley Superkings Mild (low-price brand). Recent research has shown that Silk Cut is synomous with low tar and it provides a distinct product and image identity; its product values are that it is low-tar, smooth, with acceptable strength; its user values, however, previously trendy and individualist, have become classless and ordinary and its image values are apparently contradictory - both minimal/subtle and luxurious/sophisticated. The same research showed that some LTN consumers would appreciate a sharply defined brand, in contrast to Silk Cut's growing ubiquity and the line-extended variants of other brands which take their image from the parent brand. In 1989 we shall specifically research Philip Morris Super Lights to see whether this proposition will appeal to existing and potential LTN smokers, with a view to launching either the existing blend or a Virginia version, in late summer; the aim would be to appeal to the more-fashion conscious fringe of the Silk Cut franchise and to provide an acceptable alternative to full-flavour smokers who want a LTN alternative. The brand would be positioned as a mainstream price, image led proposition. LLCLTEtOSZ