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POSITIO~ P~PER ~,ON~INUED ]HCREASES IN CONSUHER CONCERHS OVER $14OK]HG AND HEALTH AND THE P~RKET]HG EAPHA$]S PLACED BEH]HD THE CATEGORY BY RJR ANDOTHER /4ANUFACTURERS HILL SI.~STANTIALLY ZeCREASE THE DEHAND FOR LOW #TAR# CIGARETTES. THE CATEGORY IS EXPECTED TO GROW IN SHARE FROR 15,5~ IN .1976 TO 25,4Z IN 1979, COHPANY SALES AND PROFITS ~]LL DEPEND UPON OUR AB[LITY TO ACHIEVE AN EVER INCREASING SHARE OF THIS GROYfTH CATEGORY, 0NGO]NG, ~ ANALYSES AND FORECAST,

"CONSUHER'S DESIRE FOR SATISFACTION ~N THE PRODUCT AND THE PRODUCT'S ]I4AGE, ~ONSUHERS HILL ~ECOHE ]NCREASINGLY D]SCRIHINATING DUE TO FURTHER'IP2ROVEHENTS IN OUR STANOARD OF LIVING A~ INCREASING SOPHISTICATION,I WHAT ]~ILL BE ITS ]HPLICAT|ON'~ [JNLESS THE COHPANY ADEQUATELY DEFINES AND UNDERSTANDS SNOKERS~ DESIRES AND TRENDS IN ~rHESE DESIRES, AND UNLESS NE DEVELOP/R~FINE PRODUCTS A~ ~VERTISIN6 CO~Y - SUPERIOR TO COHPETITION - TO SATISFY T~ESE DESIRESj NE ULTIHATELY NILL GO OUT OF ~US]NESSo OtlGO I ECONOHIC FORECASTS,, YANKELOVICH MONITOR,, ANALYSIS OF PREVIOUS MARKETING DEC]S|ONS IN THE CIGARETTE |NDUSTRY., IN-HOUSE MARKETING PLANNING SEHINARS/WORI~SHOPS,

POSITION PAPER RJR's t~EAKNESS VS, PHILIP I~RRIS, RELATIVE TO NAT]ONAL SHARE OF RARKET, AHONG YOUNGER ADULTS, URBAHIT~S AND mNE~ VALUESm SHOKERS~ ~," " PHILIP FIORRIS t~fiLL cowr]NUE TO EXERT HARKETIHG PRESSURES AGAINST POPULATION SUBGROUPS THAT REPRESENT THE BEST CHANCE FOR FUTURE 6ROHTit, ,;c,:. " PHILIP ~RRI~ H[LL CONTINUE TO CLOSE THE GAP ~EEN OUR S~RE OF ~RKET AND THEIR~5 UNLESS ~E ACH]EVE GREATER GRO~tTH A~NG THE SUBGROUPS, " EXISTING, STUDIES, YANE~OVICH MONITOR~' BUSINESS ANALYSES AND CENSUS INFOR~4ATIONo

POSITRON PAPER POSSIBLE LOSS OF MEDIA EFFECTIVENESS PER DOLLAR SPENT DUE TO AN I~ALANCE IN BOTH COHPANY AND ]NDUSTRY~S SUPPLY VS,-DEMAND AND/ORCOST I~CREASES. -- ~S CO~PETITWE PRESSURES INCREASE, ~ND AS ALL ADVERTISERS RAKE GREATER AN9 GREATER MEDIA DE~-~NDS IN AN ALREAI)Y INFLATIOt~RY ENVIRONMENT~ OUR MEDIA COSTS HAY INCREASE DRAMATICAllY IN ORDER TO MAINTAIN /~I)VERTISING EFFECTIVENESS, ~i~AI:"W~'i'~ B~ ITS IMPt.lCATION? ]}EC['IN~S ~N PROFITS DUE TO SUBSTANT~AI'I~Y HIGHER COSTS', SOME OF THESE PRESSURES EXIST TODAY~ BUT F~Y ACCELERATE IN THE NEAR FUTURE, RECORDS OF CIGARETTE INDUSTRY ADVERTISING EXPENDITURESw OUR ONN FUTURE PLANS~ MAGAZINE PUBLISHERS ASSOCIATION~ AND ARTICLES FROM TRADE JOURNALS,

PO$1TIOfl PAPER KEY_LS. F._E " UNCERTAINW OVER "~HE RELATIVE EFFECTIVENESS AND EFFICIENCIES OF VARIOUS PROMOTION AND MERCHANDISING TECiffiIQUES IN ACHIEVING MARKETING OBJECTIVES.- CON~U~ER PROHOTION AND RETAIL MERCHANDISING TECHNIQUES HILL BEFORE INCREASINGLY IMPORTANT FACTORS IN THE CIGARETTE rlARKETING P~OCESS. THE DEGREE TO HHICH HE UHDERSTAND ~HE COST EFFECTIVENESS OF THESE TECHNIQUES IflPACTS ON OUR ABILITY TO:ACHIEVE MARKETING GOALS AT A REASONABLE, COST. EXISTING, WITH ACCELERATING POTENTiA~ FOR GREATER IHPACT. CURRENT AND ANTICIPATED EXPENDIT~JRES IN SALES PROMOTION AND MERCHANDISING,

PAPER NEED FOR FULL DISTRIBUTION AND DISPLAY OF EXISTING ANTICIPATED RJR BRANDS IN AL~ APPROPRIATE OUTLETS, " TNE INDUSTRY WI~ CONTZNUE TO INTRODUCE NEW SRANDS TO FURTHER SEGI4ENT THE EXISTING H/~RKET. MEANWHILE/ RETAILERS ARE DEVELOPING GREATER SOPHISTICATION IN DETERRININ6 THE PROFITABILITY OF ITEMS CARRIED IN INVENTORY. "" 3: ~paT WILL BE Its IMPLICATIO/IL? It wI~ BE IHCREASINGLY DIFFI'CU~T For RJR TO O~TAIH DI~TRIBUTION AND DISPLAY OF ITS NEW/MARGINAL BRANDS~ THUS DIMINISHING OUR CHANCES OF ACHIEVING OUR BUSINESS 61~JECTIVES, EXISTING/ AND WILL LIKELY ACCELERATE IN THE HEAR TERM, ANALYSES OF INDUSTRY TRENDS~ OUR 01qN FUTURE PLANS~ ESTiI.~TES ON THE ADVENT AND IMPACT OF UPC AND EXPERIENCEOF OUR SALES FORCE,

POSITZOti PAPER 1. NE~--D TO RAX]I'IIZE USEOI~ SALES FORCE 14ANPOt'~ER, ~RRIS'"XCHIEVlNS SALES FORCE ~NPOWER PARIW: HITH US COU~ S~ERELY "DIRIHISH OUR ~VANTAGE OVER THB4 IN THIS AREA' THE POTEN:I'~A~oF THE LOSS OF OUR ."~DVANTAGE COULO REsuLT IN SUBSTANTIALLY HIGHER MANPOHER REQUIREMENTS AND COSTS$ OR~ ALTERNATIVE~,' OUR ADVANTAGE HILL IN FACT "BE DIMIN]SHEO, AND ACCELERATING, 1976.

POSITIOH PAI'ER EEY ISSUE It "2, " NEED FOR HIGHEST PRoFIc]ENCY NITH]~ I~[ARKETIN6, THE RAPID ACCELE|~J~TION AND DIFFUSI0ti:~)F CHANGES IN CONSUMER TASTES AND I]FESTYLES, ]NCREASING CONPET[T|VE PRESSURES AND AN UN~ERTA]N ECON(}R]C.O.UTLOOK H]LL CREATE EVEN HORE COHPLEX i4ARKETPLACE.COND]T|ONS, WHAT ~]LL 8E |TS ]HpI~ZCATION? . : CB/~NGE CREATES OPPORTUN[T]ES FOR HEU" .ORGANIZED, I'tARA~ED AND STAFFED HAR,~ETERS.~ RESUI~TS THOSE THAT AREN'T,' .. PROFESSIONALLY IN BUSINESS DECLINES WHEN WILL IT "HAPPEN? ONGO]NG, °° YANKELOVIClt MONITOR, SEGMENTATION STUDIES, ' ACTIONS, ECONOMIC FORECASTS AND STUDIES~ CORPET I T] VE

INFORIdATION, I~EED FOR NORE, BETTER AND FASTER ......... ;.." - ". .~RKETPLACE.. INCREASING IN COMPLEXITY AS NOTED ON " PREVIOUS ISSUES, ~AT WILL BE ITS IMPLICATION? WE ~ILL BE UNaBlE TO FORECAST AND UNDERSTAND CHANGING CONDITIONS AND PROPERL~ ADDRESS THEH UNLESS HE PROPERLY DEVELOP A~B UTILIZE OUR ]NFOR~IATION RESOURCES," WHEN W~'LI~ "IT HAPP~ 0NGO]NG, SAME AS PREVIOUS ISSUES DEALING WITH COMPLEXITY AND CHANGING CONDITIONS,

POTENTIAL EROSION OF COHPANY PROFIT HARGIN DUE TO UNFAVOR/~LE RATIO OF NIGN-TO~LOWER COST ]BRANDS. -OUR HIGHER COST ]~RARDS HII'L TEND TO RETAIN THEIR COST STRUCTURE AND CONTINUE TO (~UT PERFOR]4 OUR LOI~ER COST ITEHS, t~IAT ~ILL 8E ITS ]FtPL|CAT]OH? THE COMPANY WI~ HAV~ tO ~CCEPT LONER-THAN-STANOAR9 HAeG[NS OR ]'H~REASE PRICES AT A GREATER RATE AND~OR MORE FREQUENTLY THAN CURRENTLY PLANNED, o WHEN WILL IT HAPPENS. EARLY ~980'S WITH POTENT|AL TO OCCUR SOONER, • SHARE FORECASTS AND FINANCIAL AN/iLYs~S,

POSITIOI~I PAPER o 1, ~E I'~Y ~[SAiLOCAT~ OUR HARKET]HG RESOUR~ES~ UNCERTA|NTY OVER REI~ATIVE EFFECTIVERESS OF VARIOUS LEVELS OF N)VERTIS[NG AND PROROTION EXPENDITURES, FUNDS ARD HANPONER 3. -I~;= .[L, .OT ~E ~,'~= ~:0 ~XI.~ZE OUR ~RKET.=O EeFeCTIVENESS. ROUT.iNE INVOLVERENT IN Y~RKETIHG DECISION r~KING ON ADVERTISING AND PROHOTION SPENDING, .

.K_~.Y ]~.SIIRS OF R. J, RK~IOI,U.~ TOSACC.O, COMI'ANY Ex~ernall~ O_~lented 1. Conn,o,acr llcalth Concdrns - lnc~sasod health concerns abou~ clgaro~¢e smok£n2 .~rom '~oCh smokers and non-smokers. 2. Social Acce~c~blltc' .~he cigarette smoker are bn£n2 damned by the government, l~o" SCron~,er Enforcement of ,Lays Prohlb£"~tnV, Sales of ~o Teenn~,ors -13. Recession in 1973-1979 and ~n 1983-1985 media and crusqdlng n~n-smokora. 3. carbon-)lono'xido - ~ld'espread.consumer publicity about harmful 'e~fec~s o~ .carbon monoxide an~ ocher ~ases in c£8arecces. Z=prove~ent £n Health Technology ~£th Implications for the. Tobacco Induscr~ 5. Technical Breakcbroush to ~id Person to "~u£t" More 6, KndorsemenC of **S~fe*' C£garetCe - A zo~o **~8~" ciKarecte very lay nicotine nod semen or a syn~hecLc cLsare~8 etc.) is endorsed by the U. S. CovernmenC or medical ~:o~8 as bei~ a "sage" or "r~sk ~ree" pro~ucC, Industry Trend Toward Lov-'Tar". Ci~n~t~ee - CL~are~es havin8 14 a~s. "~a=~' and lees become ~he 1a=Ses~ volume category. the industry. 8. Covernmen~ Ban on,Hi~h-"Ta~" Ci~ar~e~ - Gradua~e~ ~1~a~e~e Tax (3ased "* on T ; N Levels) -~'Threac a ne~ Federal exc~se tax based on "car" and nicotine levels. ~rLce E~asClclty of Ct~arettes "'~. " C?~eLit~on from Forc~n Ha~k~cers ~4. Slovdo~n ~n the Growth Rate of Smoking. Ag~ Popul.atlnn

• 17. )~) nckn v|ll Bun|.ena Females the Smok|n~ i'opuJnLIon Adult Smokers Under 25 ~111 Shova Haler Shift i~ Brand Yreference Menthol nnd Rxtrn Lon~ but This Grovth ~Jll bo Conccn~r=ced ~n Ili-fi's Become a Here ImportonC S~,.~.ment oE thn Ci~,n~ette CentJoue to Become n Here Zmpert.:snc Portion of 21. RJR nnd Philip Horris v£11 have Almost 70Z of the Domestic Ctsarctce Harkcc b~ 1985, ~,i "'22." ~ev Brsnds rill Continue to be Introduced at an TncrenstnS • " ..Rata ." .. . "" Lifest~les~and : .23. Values viii Continue to Chan~e v~th the' Con~inued Brunkdo~n Of Trad£t£onal~sm and Growth ¥ocusn~ on Self-Real£zation • 24. Resurgence of Conspicuous Consumption an~ a ConC~nuinS Trend to Time and Convenience in Produces and Services ~nrkeClnF Restraints - Zncreasins threat o~ greacu~ Kovern~ental ~po~ed cescricttons, on cigarette ndverC~atng, promo~ion; and:, Znbeling . Advertisin8 Space is Gro~in| Zncrensin81v 'LtmiLed vs. Demand ~hereby BuducinS lmpact per Exposure .. Media Costs rill" Increase Here Rsptdl~ than the Genernl. ~nflntion RaCe 28. Crovth in Htsh Volune ~'ecurtcy Type C~arecte Herchandtstn~ • =~ 29, ProllferaClon of Case ~tzus to "fleet Inventor~ ~c~u£remenC~ ,Sophisticated ~ctatl/~olessle Inventory nod Snl~s Equipment land Information 3i,"'Llg~ett Ha~ Cease All Nerchandlsln~ and Pro~oc~unnl Acclvlcies .32. Decline Jn Vending Sales per Hnchlne and Increased Co~¢ of. Hew Equlpmcnt with Here Columns O'utlecs vl~h Tncreused Central Location . eJq (Conti1~t*e(] on nnxt paQO) -~

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the health concerns {e. g., lower 'tar,, reduced gas).with an attendant decline .in demand for cigarettes which do not do so. • --" (e-+. g., .h~. gher 'tar', full or middle flavor) opportunity. ~pt~on as a res~ of fewer new ~mokers and/or more qui~ters - Zt ~aopen? • " "" ~ ~'w con at~ ace a -pace int ~e 1980's...._. ~ cons~dr studiesl current and forecasted ci e~te catego~ +~ .... .. ~fo~nce; gov~r~ent and media press release~22trends in "~ " . ~dustry new brnnd direction, ~dvertising, promotion; anti- . .... ~k~ng propaganda distributed via schools, h~alth organizations ++ .." and public interes~ groups.., con~i~ upward trend in health

~'..~mbllc smoklng~ ~lo~Id Health-Conference report stating their • primary aim is to denigrate cigarette smoking and ~he smoker~ .'.Tobacco Institute roleases; government and media press releases; ~tl-smoking propeganda distributed via schools and oubli= • "interest groups.., confi.-m contl~uod trend towardSreStrictive .l~glslatio~ and denigration of c~garette smo~er~ . .'. .7

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~NTI-SMOKYtlC~ TECIII.]0LOG.Y" ~rcnd/Issuo Event ..There could bee ~echnolo~Icnl breakthrough, elthcr a drug or cli~ical~:prmcedure, that willaid people in' quitting smoking, more easily. What Will ~appen? . .-. .There currently aze~many over-the-co~nter drugs, "mechanical devices, etCo which a~e pro~ted as being effoctive in reducing or stopping ~noking. This trend ~ - ~ .:..~:,.~~ will continue and; :on Judgment, it is felt many • : ~ .~.~ • klnufaoturers are devoting research and development efforts against such products. ,k~nat Will Be Its Impa~t/Impllcat~on? "- . . While data are. not available on the percentage of'the smoking population who would llke to reduce or quit, it is "bel.leved, on ~ud~ment, to be relatlvely large. While • • many persons quit without difficulty, there are others- . who do not. A technologic~l breakthrough, heavily a.dvertlsed and promoted, would have a major negative • - "~mpact on cons .umptlon. . .: . ~. - . 4o . When Will It Happen? . .. .. As it is assumed companies are working on such a product, ~t could happen at any time. $. sources : " " ,/• MedJ.a pres~ releases, adv~rtJ.s:l.ng for anti-sm.o~ing pr6duCt:S, cl~nics, etc. .. . . : .. ..

~NDOI:gEHF.ffT O~ "SAFF." CIGAItETTF. • synch~tic c£gsreCte (HSH, etc.) Is endorsed.by the U. S, Government or nedical.grdups as being s "safe" or "risk free" product. . • • ~ 2... Whh't Will Happen,? - H~J~r vorldvide public~ty generated ~eachlng all smokers.. ' -.~garette smokln~ say increase s£Kn£f£caoCly. ~.~ • ~'Zmmenae government pressure on "~tgerette makers co drast~ealZy reduce ~ter" of all c£garecCes possibly accompan£ed by reo~rictlve tax legtelat£on and/or bans on h£gh "tar" - Immediate consumer demand'for such products ~efors major :- .! " manufacturers able co com~erc£alize the produccs.~ Compecic£v~ enCr~ss from segmsoCS not sow £u tobacco bus~neas, - DrsmaCic'declihe in volume o£ h£Kh "~a~" brands sccompau£ed by s£gnificant s~$ng to super lay. "~ar" brands. Cacsscropbie industry volume losses probably rill no- occur long-term because o~ avalleb£1~y o~ super 1o- "tar" brands o~ ~he ~arkec. . Very low prob.sbili~y before 1985. $. Sources of koal~aes/Forecasts/~nttonale " All publLshed data Co date from Antics speaks to "s~r" Co, ~moko low ~tar." Dr. Gor~ and ethers'have scared there no "safe" cisarette as anythLng inhaI~d is dnn~erous. Ned~ca~ at~tlstiCs on zero "tar" and/or synthetic cigarettes viii take years to obtain. Even then, thcre rill be continued'controversy over evidence.

• ~ -..:- ~" W~-fi brands will account for ~46÷% of t~tal ~nd~stry • " " " Sales.by 1985o.. .'"'. ".-.'- ~ill ly " ' d try • "" " Hi-f£ .... ..... ": . "be the on growth category "in "the in us • • -~ Market restructures i~elf as hi-fi grOwth expected across a11"c~tegor!es--kin~ si~e/100's, ~enthol/non- • 0 menthol, "full flavo~" percept~cn hi-fi b .. ds, "hea!tb" perception sDper-low .'tar' brands. . . -.~, Great opportunity for new brands--(of 40+%:SOM o£ hi-fi"s. by-1985 nearly two-thirds wi~l be from brands not on the market in 1975). -. I~wered 'tar' levels on established brands is essential "to continue to satSsfy consumer nc~ds and maintain brand vitality. ..--,. '.. ~' Sh~£t to lower 'tar' levels creates dec i in smoking satisfaction which could rctard unit growth of industry. • ~4aximiznt~on of taste/satisfaction in ic~ 'tar' cigarettes is greatest R&D challenge.

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GO.VE~.*-IJ':~=JT DA:J, O;J lIIC]i- 'TAJ~' CYCAP]-:'rTES

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PRICE Trend~Io--ue/Evont C~St of clgar~ttes m-~y b~ elastic, either on an absolute basis or relative to general inflatio= rate. 2.. t~at will,happen?- "Increased costs of product to consumer as a ~esult of b~gher manufaoturor*s cost, retail, margins, tax burden ~r a combina~on of these will •continue to increase consumer .~,_. price of clgarettos, possibly at a greater rate than :~.;.general inflatlon rate. : 3. Wb~£Wi11 Be Its Impact/ImplIcat~o,? -. ~urrent smokers/new smokers will be forced/kept out of • ~he.market on pure economic reasons. ~.~C6rporate profltmarglns will be jeopardized to remain within inelastic range or, .. - Absolute sales/profit will fall below l~ng-term goals. 5'. Sources ." " Wall Street Transoript, Discussions. General Economic Forec'~_s.ts, Internal

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KEY_ ISSUE POSITIO;I P.^PER TREND~" IS$UI~/ OR EVENT ]_T)ENTIF]ED/I3ESCRIT',ED. &N EXTENDED PERIOD OF RESTIVELY SUBNO~t.~L ECONOHIC GROWTtl IS ExPECTEg. Ag9ITIO~ALLY~ THE ECONO~4Y HILL BE S~JECT TO pER]OD].C RECESS~D~AR~ CO~D[T~OHS ]~ THE F~URE, ~A+~? ~E GROHTH ]N REAL GNP IS EXPECTED T~ ~E RECESSION N[~ EXP~DED ]~F~T]ON ZS EXPECTED IN 1978-~9, • ~ED OR HISTORY~ A RECESSION [N lg8~-~5 IS A~SO L]KELY~ • 3, AT HII~L BE ITS ...IHPACT,/ P, PLIC.A~:~'ON.? ECONOI~.I(~ PRESSU.RES O~ ~ COHSU~RS HILL ACC~E~TE IN 1978-79 COW, POUNDED SY THE " L]KELIHOOg,gF SHARPER INCREASES IN C] GARETTE PRICES, I~D~TRY 6RO~ COU~ BE DEPRESS~D~ •PUTTING HORE PRESSURES TO "" INCREASE RJR SHARE TO 6A[N VOLUHE, ]NCREASED CONCERH OVER • " COS~ COU~ RESUL~ ]N E~PHAS]S ~]~ VALUE~ CENTS~F, AND~ LD~ER .PRICED B~NDS~ ,~ .~ WHEN HILL IT HAPPEN? 1979 AND 1983-85. SOUI~CE~"OF •ENV!ROHI'IENT.AI. ANAL¥,~ES/FOP, ECA-~TS ANI~. RAT] ONAI_~E. SlFFa" OAKLEY, ~RKS ]NCo

KEY I SSIIE P0S ! T ] 0~'J PAPF.R YEARS O1.])), 2',-~IHAT HILL HAPPI~N? 'TRF.N~~OR ~VENT.~DENTiFIED/DE~CBIBE~o SLOND~IN IN ~IE GROHTH RATE OF SROKING AGE POPULATIOrt (18+ SHOKING AGE POPULATION HILL GROW /~euALLY FRO~ 1975 TO 1985 CO~4PARED WITH 1,8~ ~{tlUAL ~ROt'RH DUR|N6 THE PRIOR 10 YEARS, HI'IAT .I~L ~ ITS ],HPACT/IM~L|CATtO~? H|LL RESULT IN A LO~ER GROWrH RATE FOR iNDUSTRY SALES THAN Se~ ~ 1965-75/ HILL i:r NAP~JEN? ACCELERATE FROH 1980 TO 1985. SMOKIN6 " AGE POPULATION HILL Geo~'f 1,7~ ANNUALLY FRGH 1975 TO 1980 TO 1:3Z ANNUALLY FROR 1980 TO t985. SOURCE~ O~ ENVIRONI4ENTAL .ANALYSES/FORECASTS AN~RATIO~ALE, ~,S, GOVERN~NT~ DEPARTMENT OF CO~.~ERCE~ CENSUS BUREAU,

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POPULAT[OH AGE 50 - 39 HILL GROY! DRAI'~ATICALLY ~ETHEEH .19.75 ~o 1985;'. POPULATION HILL GROt! DR~J4AT]CALLY IN THE 30 - 59 AGE GROUP ~(UP 112~) NITH SRALLER GROtfrH (+2~) FIVE YEARS "E~THER SIDE OF ~.AGE.GROUP, YOUNGER AND O~ER CATEGORIES HILL SHOt'i LI~E TO NO 6RO~H DURING THE PERIOD, HNAT HILL BE ]TS #I4PAC~/]HPL]CATION? S~S [N ~E[R ~0~S SHOU~ P~Y A HORE ['RPORTA~ ROLE IN ,~K~ING P~S. PEER GROUP PRESSURE IS AT A H]NIMUH IN THIS ~ -,.-F.OR-14ORE RA~|ONAL REASOI',~S, AND THE H,'-FI/100~4 CATEGORY" ~l CH PERFOR~.S WELL IN THIS GROUP, HILL CONTINUE ~O SHOt1 "DRARAT]C ~;ROI'fTH; TH]~ FAST i;ROt,'lIN~ AGE SEG~%ENT-UHERE R JR CURRENT Y HAS A POSITION OF STRENGTH.~ HILL OFFER OPPORTUNITY FOR FUTURE ~ROHTH FOR THE COHPANY, CONVERSELY ~ROTECTING OUR SHARE THIS AGE GROUP IS CRITICAL, " ,-.~." -" ¢ " i,;: i~HEN HIE'L IT HAPPE .'. POPULATION 2S " 3~t H~'LL ~NCRE^SE ~ET~'~EEN lg75 --.].980 AND ss : AGE'C~EGORY~ GRE~TER E~PHASIS HILL SE ON SELECTION ~V S~S " U,S, ]3UREAU OF THE CENSUS,

18 - 2q 25.- 29 so- 35 - 39 qo - L.,q 14,0X 16,3% 9,4 9,1 10.3 8,9 10.7 93 45- qg g,.4 . 50+ TOTAL $K~KINGA~E'~0PULATYOR • ' ~960 - 1985 DrSTRIBUTION,~Y AGE 8,6 9,5 8.3 7,9 '8,9 ., 7,6 91o 18,5I .. 16,4% + ,8,~ 11.,9 12,1 +21,4.g • 10,7 11,4.+37,7X 8.8 10,2 " • +~8,~3X 7,3 "8,3 . +25,8X ., ! • 8,0 " 6,9 6.8 lO0,OX 100,p%. lO010X 100.0% -.. 100,0I +15,11 ';~LL LE00$ •

South C~ntral ~untain. 'aclfic ~970 ~ 1975 1980 32,0~1~ 34,502 35,855 90,556 9~,736 101,040 103,784 "113#449 122,042 38,156 43,274 .46,854 84,451 105,8461 111,293 30,525 40,935 49,028 44,261 53,800 ;:. ~55,988 18,823 24,56I .' 23eg62 .~_En~Zand 11,873 ~_Atlantic 37,271 • >'~orth Central . 40,368 ~ ~orth Central 16~367 South Atlantic 30,772 E. South Central 12,823 W. South Central. 19,397 Mounta£n 8,345 Pacific "1975 "1980 12~195 12,953 37,263 40,082 40,979 44e004 16,690 17,064 33,715 35,606 13,544 15,240 20,855 20,760 9,644 9,351 "'~8,234 '~ ~ENSUS ~G~ON N.eW En~l -~nd HI~ Atlantic E. North Central H. Horth CcntrJ1 South ~t1~ntic E. South Central ~. ~outh Central (.~ou ~ ta i n "OTAL g. S. • T97O • 975 " • 1980 2,699.5 2,828.5 2,76~.I 2,429.7 2,542.4 •2,520.8 2,570.9 2,768.5 2,773.4 2,331.3 2,592.8 2,745.8 2,744.4 3,139.4 3,125.7 2,3~0.5 3,022.4 3,443.0 2,281.8 2,579.7 2,696.9 2,255.6 2,5,16. fl 2,551.8 • 2,4~)'/.3 2,(,09.7 2 .~9.9 : " Avg. Annual Growth 198_.! 35,876 + .4 103,070 + .9 124,687 +1.0 ~0,005 117,980 +i.1 56,581 +3.8 60,683 +1.3 25,133 + .2 "77",091 ~ .5 Avg. Annual~ "-" • 13,52~ +I.I'"'.,:C"' 41,651 +1.2 45;809 17,539 + o5~ 38,281 +1.4.~. 14,958 +1.0 21,746 + .4 9,917 + .3 • "~ ~1.0 . Growtli' 2,652.0 - .i" 2,474.6 2,721.9 - .2 2,851.i +l.0 3,782.7 " +2.5 2,790.5 + 2,534.3 .O

.--~. ~"C~gSE OF 0~R G~EATER PRESENCE IN THE MARKETPLACE BUT "COMPETITION WILL 9ECORE MORE FIERCE ~N OWN TRADITIONAL STRONG AREAS CREATING A MAJOR THREAT~ -" THESE ARE THE LAST AREAS WHERE SELF-SERVICE EX~S TO ANY L~RG~ EXTENT, RAPI~ METROPOLITAN GROWI'H MAY CA~'.U~ ACCELERATED DECLINE iN SELF-SERVICE OPPORTUNITIES, LOWER AVERAGESHIPPING .... AND WAREHOUSE COSTS AS PERCENT OF TOTAL COSTS HAY ALSO RESULT,. "" • ~ -? WILL CONTINUE THROUGH 1985. ~. PUBLISIIED ECONOHIC SURVEYS BY U. S. AND STATE GOVERR- MENTS, OUTSIDE PROFESSIONAL CONSULTANTS, AND ~;RD ANALYSES SIIOIV HRD ANALY:.IS OF STATE TAX DATA SllO~'/S I'ER CAPITA CON,,UHI TION

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.1. ~REN.~ i~st.~ OR Evr..T • -BLACKS HILL BECO~ A ~RE I~ORTN~ SEG~e;~T OF THE C;~RE;TE ~s~ HESS. . ~1~ ~I~L I~FP~N? ~LACK POP~TION OF S~O~]NG :.GE FASTER ~t TOTAL POPU~TION~ ~D KOOL~S HOLD OH PREFERENCES - o oe u )w: ~E ~.~ OF 18+ POPU~T]ON ~9 ACCOST FOR 1i - ~ OF HI~I~ R ~E~ ~ YEARS ~9 ~EN 9EC~INE~ HISTORY SUGGESTS ~O~ B~D H~LL'EHER~ AS e~E g~D~ FOR B~CKS -- ....." INCREASED OPPORTUHIW FOR • ~ ~e~ ~]eess~ PARTJCU~LY ]H LONGER AND ~N~OL CI~E~ES:: ~E eReA~Otet OF KOOLeS PEER GROUP ~ ~OR FOR ~O~ER DR~D TO E~NTUALLY 9~tl I~TE ~E ~CK -~T~ "REOUIRES LEARNING Pines ~OUT ~CK SHOKERS ~£SI RES. • • ~CKS ARE A ~RGER PERCENT OF THE POPUlAtiON ]H THE K~Y nJe ~RKETING AREAS OF .HETRO ~D TIlE FAST GROWING SOUTH, • ~, ~ll~H H)LI. IT ~PP~N? THROUGII 1935. co~T]~u~s AN EXISTING UIS. GOVEfCNI'ti'.NT, DEPARTH~NT OF COP%H£P, CE, I3IIP~EAU OF CEIlS'US POPULATIOI! PI~OJECTION$. RUR PIrCD I t.ACh~ ' AH~HTS.

~O,Pill AT]O~I 18+ - BLACK VS:" I,~IITE POPULATION .111,5 120 . , ^NNU^L G~OWTU + l;'6X + 1;'6g DISTRIBUTION 90,~% 90:1% 89V7X ~9,2: ' 88JI _) ~ "POPULATION 11 ~9 " 1~.'2 :LS.'0 .. ". ANNUAL G.RO~H ' + 2,2X + 2";7Z -' : DISTRIBUTION 9:6X 9;'9I : .lO';3Z % • 16,'9 18.7 + 2~5Z + ~.1% 10;8X 11,3X .-. $1IARE OF I~RKET CIIARGE FROM PRIOR YEAR KOOL'S SHARE OF BLA. C.K K, ARKET 1972 ' ~974 " 1975" : 1976 "X I X 19.8 21,5 2(hO : +1,7 +2~5 +

~ACK ~ OF TOTAL POPI~L.,~TIO.9. - DISTRII~UTION • NOR~EAST EHC . t~ac ESC" t~$C- : . PA~] FI C TOTAL U, S, ~o:6 9~6 2o:9 20:]. 2":2. 1.1,1

I~'EY ISSUE pOSITlOil PAPER 11 ~IREND, ISSUE~ OR EVEHT ]DENTIFIED/DESCRII;E~, " FEHALES HILL CONTINUE.TO BECOI4E A 14ORE II4PORTANT PORTIOH OF TIlE SHOKING POPULATION, t~IAT~IL~ HAPP~? FEHALES HI'~ IpC~EASE FROH ~6Z OF ALL SHOKERS 1975 ~o qSg BY 1980 -- AN OPPORTUNITY, THIS RESULTSFROH AN • EXPECTED SLOWER DECLINE IN INCIDENCE A~NG ~MA~ES COMPARED TO ~'~" HHAT IqIl'l" RE ITS IHPACT/IMPL]CATION? ~i.~ ~ANTS AND DESIRES OF FEMALES HILL HAVE TO BE CONSIDERED MORE AND MORE IN /~ARKETING ACTIONS, At'SO~" INCREASED E~IPHASIS ON THE ; .. CHANGING ROLES OF HOI~EN- BEYOND "~HAT- OF HIFEI HOHEMAKER~ AND ---" " MOTHER HILL ~ONTI.NUEo" q~'. HHEN HILL IT HAPPEN? CURRENT TREND, -- _.~.,._.,,OURC,=:.., o ~ ..... : • .J ; SOURCES INCLUDE CONSUHER DATA AND VARIOUS STUDIES ON INCIDEh'CE, RATIONALE ASSU~.~S THAT INCIDENCE AHONG HOI~IEH HILl' CdNTINUE ITS TREND OF DECLINING AT J~ SLO~qER RATE COHPARED T(~ THE DECLINE AI~ONG HALES, •

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:' ~E~: ]~SIJE POSITIO~ P~PEr - ,TRENI~a ISSUE/ OR'EVENT |I3ENTIF]ED/DESCRIP, E~3, ADULT SMOKERS U;;DER 25 ~IILL SHOal A f'tAJOR StllFT IN'DRAND PREFERENCE, t~'IAT t~IIL.L..HAPPEtI? THE DECLINE [N 14ARL~ORO'S SHARE OF UNitER 25 S~|OKERS HILL ~;ONTiNUE OPENING THIS SEGI.IENT (~F THE I'IARKET FOR ~.NO'I'NER DOt4]NANT BRAND TO EMERGE FROt4 "PEER GROUP PRESSURES'~ A RECENTLY INTRODUCED. OR YET TO BE ]'NTRODU~ED BRAND WILL SHOW " " $1J~STA.NTIAL SHARE 6ROt'RH IN "I'HE UNDER 25 I~L~I~KE'I;'~ HHAT_NILL BE IT~ ]I'IPACT/I:HPL'I'CAYION? "i'HE COMPANY I~RKETING A BRAND HEET]NG UNDER 25 YEAR OI~O".M)ULT - "t~ANTS AND DESIRES NII~L DOHINATE SHARE• OF HARKET GBO~RTH, RE(~U[RES THAT tie PAY CLOSE ATTENTION TO THIS RARI~ET ]i~ OUR NEW BRAND " .'PLP#~N]NG AND CAREFLILI.Y TRACK THE I'N-HARI<ET ACCEPTANCE BY SMOKERS U.D~R 25 OF WE. BRANDS .~T. POT~.T~^L ~o PEHETRA~.THIS ~R~ET sEGHENT: ' " "'" "P " ~, HHEN t'Ht:t: IT HAPPEN? THE OPPORTUNITY,IS NON, SHOULD CONTINUE THROUGH THE V~LU~E GROWTH

KEY ,,iSSUE P0SITIOII PAPER • "]~ . TREND, iSSUE, OR EVENT IDENTIFIE.D/DESCRII]EO. MEI~THOL AN9 EXIRA LONG CIGARETTES ~'~|LL CO~tTINUE TO GROt'I, BUT f THIS GRO~fTH WILL BE CONCEP.TRATED IH THE III-FI CATEGORY, ~ATWILL HAPPEt!? IN,1985, THE HENYHOL CATEGORY ~ILL ACCOUNT • " FO~ )2,~% O~ THE MARKET~'A GAIN OF ~':7 SHARE =OII~T$ OVER 1975, THIS GROWTH'IS DUE TO AN INCREASE IN HI-FI MENTHOLS OF 10.8 SHARE POINTS (2,8~ - 1~,6~) WHILE FULL AND MIDDLE FLAVOR 14ENTHOLS DECLINE IN SHARE, • EXTRA LONG CIGARETTES (i0~]+) WILL GAIN ~':2 SHARE PqINTS, OF.THI~ GAIN COMES FROM 100Y~',~ HI-FI'S, " ~,-.HHAT WI..LL BE ITS IMPACT/IMPLICATION? .FIAJOR NEW BRAND EMPHASIS WILL HAVE TO CONCENTRATE ON BOTH THESE CATEGORIES, PHILIP MORRIS,' OR MAJOR COMPET~TION~ ~ILL IN ALL PROBABILITY BE " ..----..~--..-~ENTERING THESE HARKETS t'#ITH ~OTH A HI-FI MENTHOL ONLY PRODUCT~ CURRENT TREND,~ ALL ANALYSIS OF PAST AND CURRENT BRAIID AND CATEGORY PERFORMANCE, RATIOI~ALE IS BASED ON EXPECTED GRD'~IT}I iN TIlE III-FI CATEGORY RESULTING FROM INCREASES lN TI-IE liEALTII CONTI.~OVEI~SY AND RJR NEll PRODUCT PLANS,

TOTAL MEIITHOL HI'FI MENTHOL ~;IIARE OF IIARKET 27,8 ~, 6 . .32,5 2;8 8,9 1T,,6 .TOTAL ].001~¢!" 2th9 ~,.0 3tl;'1-'" m-F= 100~÷ ,9 5~1 11~1

~]~E~ID, iSSUE. OR FV~IIT RJR AND PIIILIP RORRIS HILL HAVE AU4OST ~.0~ OE.THE CIGARETTE ~RKET ~Y 1985',' 2, REYNO~S Arid PItILIP HOR~IS HILL SHOH SHARE ~ROHTH ~ET~IEEN N~N AND ~ AT THE EXPENSE OF THE OTHER COHP~[ES, RJR t/ILL CONTROL 38,0~ OF THE ~I~ET IX 1985 COHPARED TO PHILIP HORR]S' o:6z - " " NNAT NILL BE ITS I~IPACT/IMPLTCATION? THIS GROWTH AND CONTROLOVER SUCH A SIGNIFICANT PORTION OF THE |N])USTRY COULD RESULT IN: .. "'' . :r • " • LIGGETT FINALLY GOING OUT OF 3USINESS - HITH ITS BRANDS BEING OISCOcLTINUED OR SOLO Tp.ANOTHER HANUFACTURER~ • T~E THREAT OF ANTI-TRUST ACTION AGAINST RJR, • SHALLER COHPANIES HAG UT.ILIZE DESPERATION TACTICS TO HOLD ONTO-THEIR BUSINESS, THIS COULD INCLUDE PRICE CUTTING~ CAPITALIZATION ON ASPECTS:OF THE HEALTH ISSUE ~]THOUT REGARD FOR THE ]~bUSTRY~ AND D]HINISHING ' SUPPORT FOR THE INDUSTRY AGAINST CIGARETTE TAXESj . ANTI-CIGARETTE FORCES AND ANTI-TRUST ACTIONS, HHE~ I~ILL IT HAPPEN? CURRENTLY ONLY RJR AND PHILIP HORRIS ~RE SHON]~G SHARE GRONTHo THIS TREND HILL CONTINUE, SOURCES INCLUDE AN EXANINATION OF CURRENT AND PAST NEW ~RAND AND CO/4PANY PERFORmaNCE ~V]TH E~PECTATIONS OF FUTURE NE~ ~RAND ]NTRDDUCTIOHSo RAT]0NALE IS ~ASED ON A~]LITY OF T~O COFIPAtIIES TO GAIN SIIARE OF F~ARKET A~ID TO ~:~._.C~:P~j~JJIJ._Y_ INTRODUCE NEt~ BRAHDS IN TIIE FUTURE AS TIIEY IIAVE IN TIIE PAST.

"p. RORRI $ • ARER ! LOR ! LL~RD L~ 55,0~- • 2~.6 17.5 .13,7 7,6 28,tl ]5,8 10.6" 6,~. 2,9 ~,0~ 30,6 lth8 9,5 -5.,-2-... • 1;'9

.J NEW BRANDS t/ILL CONTIHUE TO DE IIITP, ODUCED AT. AN INCP, EASING RATE, WIIAT ~IILL HAPPEN,9 THE N~I~ER OF ERAND ITemS IN NAT,IO:IAL DISTRIBUTION, CUR~E~'fLY EU~ffRS ~ CO~ARED. TO ~ TE~ YEARS AGO, T~IS ~I~LL ACCELERATE [R Tile F~URE, ~OTH RJR AN~ PHILIP 14ORRIS ~IIL~ ~E DEPEI~DENT OH ~EH ~NDS TO ACHIEVE RAJOR SHARE. GR~t~H, OTHER CQf~PANIES WILL BE FORC~ TO [NTRODUCE NEt'I ~RAt~DS [N AN ATTEHPT TO ~]NTAIN THEIR POSITIONS, ~E ~JOR]TY. 0F THESE ~I]LL ~E ]N THE HI-FI CATEGORY t~lCH N~LL HAVE ~0~ OF THE ~RKET SY ~985~" WHAT WILL BE TTS THPACT/THPLTCATION? " THIS INCREASE I~ THE NUMBER OF BRAND ITEHS WILL REAN~ CURR :NT PH"SIC ABLE TO.HANDLE HANY HORE NEI~ BRANDS IN PHYSICAL CURRENT PHYSICAL DISTRIBUTION .SYSTEI4S t'lll'L NOT CAPACITY OR HERCHA.NDlSlNG EFFECTIVENESS, SRALLER'SHARE BRAt~DS ~tllL ~ECOME HORE PREDORINEHT'," COHPUTERIZED CONTROL SYSTEHS tVILL HEAN SLOI~ SELLERS HILL PROB~ HAVE DIFFICULTY IN ~INTAINI~G DISTRIB~ION, REGIONAL BRANDS t'~ILL PRO~A~LY BECOHE HORE PREVALENT A~S-t'IITH STRENGTH IN "SOTS5 AREAS LOSE..< "DISTRIB~ION IN THEIR IVEAKER AREAS,:-~" IT HILL B~ DIFFICULT FOR NEI'~ B~ANDS TO- I~EDIATE SIGNIFICANT SHARE LEVELS, THERE "ILL BE ~UCH HEAVIER COMPETITION FOR 'MEDIA LEVELS OF REACII AND FREQUENCY, WI!EN I~ILL_IT HAPPEH~ TREND IN PROGRESS, ANALYSIS OF IIISTORICAL AND CURRENT BIEN i~RANI) IN~'~OI)UCIIONS,

1, TREND~ LIFESTYLES AND VALUES tglLL CORTIItUE' TO CIIANGE WITII Tile COtlTIRUED .BREAKDO~;'I OF TRADITIONALISM NID GRO~'/Tll FOCUSE~ OH SELF- RE&L i ZAT l 2, ~tAT Nll~L.. HA~PEN~ ~OR TRENDS CONTINUZNG OR EMERGING INCLUDE: A, ~orE EI~PHASIS ~i.l ~E BASIC ASPECTS OF PHYSICAL HELL-BEING ~H~LTIb VIGDR~ A STATIC or EVEN DECLINING CONCERN tVITH THE COSMETIC OR APPE~A~ICE-ONLY ASPECTS, YOUTH WILL CONTI~IUE ITS TRADITIONAL COI~ITFtEHT TO APPEARANCE ENHAI'ICEI.~IT~ OLDE~ PEOPLE WILL FOCUS~ON HEALTii~ FI~NESS~ AND LEgS ON PURELY . COStETI C, "B~ CO~]TMENT TO URIQ~)" INDiVIdUAL SELF-EXPRESSION t'lI~ :CONTINUE TO 6ROYl, OVERT SYI.~OLS OF NONCONFORMIW t'IILL ~E LESS NECESSARY, PERSONAL EXPRESSION WILL BECOI, tE LESS RISKY. ~RE OF A BA~NCE BETt/EEN ~0 ONE IS ~D HOVI ONE SHOU~ ADJUST TO O~SI DE REALITIES, C, CONTINUED F~URE EROSIO~I OF THE II.]PORTANCE oF ~NEY AND PDSSESS]OHS PER SE, ~RGE PROPORTIO~tS OF.YO~ ~Y E~RACE A .60ALLESS VALUES SYSTEM, D~ 'CONTINUED DRIVE TOWARD SELF-FULFILLMENT WHICH CONTRIBUTES TO ~E EROSION IN THE IMPORTANCE OF ~ffiNEY AND POSSESSIONS ' PER SE, PERSONAL ~ACHIEVEM~NT AND SELF IVORTH NILL "BE SOUGHT '" "" ~"]N THE t~ORK SITUATION, -CONTINUED ~IEAKEN.ING OF C~SSICAL FAMI~ISM ON T~DITIONALLY .DEFINED SEX AND SIBLING ROLES, INCREASES IN HUNGER FOR THE-NATURALS" THE REAb~ ~E ~ENUINEI THE~TI C~- AT LEAS~NEAR=~R~ ....... ," .~-7 INCREASING DEEF1PHASIS OF SYSTEM/ORDER IN L.I~S~LES WITH EAS.ING UP-OF SCHEDULES~ TII~E)ABLES FOR LIVI~IG ONE'S DAILY LIFEw klHILE SEEKING VArIETY~ CHANG.E~ AND EXCITE~I~NT, THese trenDS OULD suo est: to ocus on REAL ( .PORTANT) Product JUST AnOTllER t-lAY OF GIVING Tile SAI-tE THING,, C| cOnCENTRATION ON REAL OR LASTING VALUE AND APPEARANCE, NOT, JUST TRENDY OR FL;GHTY FASIiION, CONSUBERS t'IILL SEEK EVEN 14DR~ PRODUCTS ~VI[I~ REAL VALUE ARD "MEANING TO OrlE'S G~LF AS A PROJECTI{)r~ OF ONE'S REAL SELF, INCREt, SI:D [/-I~'IlASIS O~l III[AI.TII Iqlt.L PLAY A HAJOR ROLE IN I~ORE RAI } I)IIAI. I~UYIII(; }~I;IIAVI OR,

3"." • /~,. HHEN HiLL IT HAPPEN? TO CONTIHUE, ~E POSITIOI! PAPER TREND, ISS{IE,, OR EVE!.'I]'..|DEI.'iTIFIED/I)ESCRIBED, RESURGE~ICE OF COHSP|CUOUS COIISUI"IPT|OH AI'ID A CONTIHUING TREND TO TIHE AIID CONVEI'!|EI~E IN PRODUCTS ARD SERVICES, |~.HAT t/ILL HAP~E~!? ~NCREASEI) It.ITEREST ]N..STATUS SYIT3OLS THAT ~EPARATE THE "i~'~VES" FRO!4 THE •'HAVE NOTS" SUCH AS THE EXPENSIVE CAR. OR FUR 'COAT - AH OPPORTU~IITY, CONSUi4ERS ~ RECEPTIVITY T(~ COHVEHIEH.CE "IN PRODUCTS AHD SERV!CES CONTINUES .TO ]~E STRONG, CO~SUFIERS iVILL BE HORE .SELECTIVE IN RESPONSE TO CONVEHIENCE-ORIEtlTED PRODUCTS "- THE SAVINGS IN TIH~ .... ; - i~EING THE KEY !BENEFIT.SOUGHT - AN OPPORTUNITY, .WHAT ~ILL ]BE I~ IR~ACT/I~4PI~|CATION,9 OPPORTUNITY FOR A LUXURY I~RAHD, PR0~ABLY AT A HIGHER PRICE ~IITH STRO~iG UPSCALE IHAGE, ~URREN~ ]BRANDS ~ITH AN UPSCALE TARGET MARKET SHOULD CONSIDER CLASS" DIFFERENTIATION, ~OHVEN I ENCE '! H PACKAG I NG .AHD HERCHAND ! S ! H G HI LL ]~ECOM~ t4ORE IHPORTANT IN !4AP~RET|NG PLANNIHG, . THE CONVENIEHCE ACHIEVED RUST OFFER A REAL BENEFIT, PARTICULARLY TIHE. SAVINGS, J~.V INCREASE |HPORTANCE OF SELF-SERVICE ~RCHANDIS]NG, PARTICULARLY FOR OUR ]BRANDS NOI~-SELF-SERVICE OUTLETS, INCREASED IMPORTAHCE OF COI~,VENIE~:T CURRENT AND NEH OUTLETS FOR CIGARETTES SUCH AS. CONVENIENCE STORES, SERVICE STATIOHS, OFFICE ]IUILDING S~A~DS, AND t~IHERE PEOPLE SPEND THEIR LEISURE TIME, ~:" .S(~URCES OF ENV!ROI','HENT...~L" ANA~YSES/FORECICSTS AI~D RATI.ON~L..~'~" YANKELOVICII 140NITOR OF SOCIAL VALUES, PUBL]SIIED ARTICLES, CIIANGIHG ROLE OF VIOl'tEN (I,E,~ CONTINUED HIGH INCIDENCE OF HOi~IEN V~ORKING OUTSIDE TIlE

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HIGH VOLURE OUTLETS GRONING IN TOTAL ~IZE AND SELLING OF CIGARETTES LIRITED TO ONE CENT~L LOCATION I/ITHIN TIlE STORE,- THESE LOCATIONS NILL BE SECURI~ TYPE L~TIONSl • SELF-SERVICE 9ECLINI~G IN I~PORTANCE, ~ GROCERY QUTLETS l/ILL INCREASE TO ~0-50~ SQUARE FEET IN OVERALL SIZE, TOTAL IN-STORE SPACE DEVOTED TO ~IGARETTES NILL PROBABLY'INCREASEBUT. NILE BE |H A SINGLE SECURITY LOCATION, DUE TO INCREASED PRODUCT VALUE, CIGARETTE VISABIL]TY TO EVERY CONSUMER I/ILL ]~E MINIMIZED, "" WHAT ~ILL lIE ITS ~MPACT/]HPLICAT|ONS? ._.. _ AS SELF-SERVICE DECLINES THERE NILL.BE LESS OPPORTUNITY FOR IN-STORE..IM_PU.LSE SALES, IN EA~I~.-STORES-]~FFORT:'{d DECREASE .. INVENTORIES THE TREND N]LL BE TONARDS ,';ELLING ~GARETTES FRON ONE HAJOR LOCATION NITHIN THE STORE',• TH'IS :ONE LO~:ATION ~ILL PRODABLY HAVE GREATER TOTAL SALES THAN ANY PRESENT KNOWN LOCATION, T~DAY HANY OUTLETS SELL CIGARETTES IN THE GROCERY, DRUG~ VARIETY, LIQUOR, AND SHOKE SHOPS; COLLECTIVELY, THESE LOCATIONS HITIIIN A STORE NILL SELL A GREATER NUI'tIIER OF CIGARETTES TIIAN TIIE ONE CENTF(ALIZED LOCATION, IT IS ESSE.NTIAL TIIAT CENTRALIZED LOCATIONS OFFER OUR PRODUCT TllE''IIIGIIEST VISAIHLIT.Y, IN-STORE ADVERTISII.IG IVILL PLAY A LARGE ROLE IN '-," CRI!A'F ling " " ' , Co,t_,tl.lt.h AtVARENI:SS AND IHPL.q.~E PUI.;CIIASES F/ILL I NCI~L'A.~ E

-:" TREND IS STARTING NO~'~ AND WILL GRO~ RAPIDLY A~ NEW .STORES ARE BUILT OR REI~ODFLEDo -- BY 1985 THE TREND SHOULD BE COI4PLETED, SOURCF.~ OE ENVIROtlI4ENTAL ANALYsE~/FOREC~ST$ AND ~- . • - PERSONAL INTERVIEWS WITH INDUSTRY LEADERS - ])ISCUSS~ONS WITH SALES - SURVE~ OF LITERATURE - PERSONAL OBSERVATIONS

_CI6ARETTE' CASE COI FI(;,I]PJ TIOrI/SLZF_ CI1NI6ES 1:' TREND, ISSUE, OR EVEHT |DENTIFIED/DESCR~BED, EASE CONFIGURATIONS; AND SIZES RAY REOUIRE CIIANGES IN : ORDER TO RAINTAIN FUTURE D]STRIDUTIOH, • (]) A GREATER NUHBER bF BRANDS t/ILL BE SOLD NATIOHALLY, HOHEVER, IT'IS POSSIBL~: THAT EACH LOCATION HILL ~RRY .A LESSER VAR]EW OF ~NDS--THOSE SKEHED • " TOHAR~S SPECIFIC D~4OG~PHICS~ " "' (2) UNION PRESSURE TO LINIT HAXIHU~ CASE HEIGHT OF ":--; ALL PRODUCTS~ ~~'CENTR~LIZED ~ARE~OUSES THAT ILL HANDLE A GREATER ~: . .... NU~ER OF "IT'S ~D HILL COVER ~RGER GEOGRAPHICAL. AR~S, " .(~) SOPHISTICATED INVENTORY SYSTEHS THAT HILL HiNiHIZE ;.. ".'....;-:::~ES~R~ THE SYSTEHS-H-~-LE.:ALLON FOR;Y~E PLACE- RENT OF INDIVIDUAL BRANDS ON A SELECTED THE ~RANDS HAY NO LONGER COUNT ON NATIONAL DISTRIBUTION UNLESS PROPER OUANT]T]ES ARE AVA]LA~LE FOR INVENTORIES AND FAST PRODUCT TURN OVER, ~AN~ OF TIlE ., S~LLER SHARE ]TEHS lllI.L ~lOT )~E DISTR]]~UTED TO TIlE RETAIL TRADE IN EVERY OUTLE.T, TilEREr:ORE TIlE SHALI.ER- 511ARE i

OUR DIRECT ACCOUNTS TO "I~AXII4IZE PRODUCT DI.STRIDUTION HITII Til~. MOST EFFICIENT INVEIITORY LEVEL RESULTING IN L|N]TED INVESTMENT, 11 WREN ~ILL IT'HaPPEN? START IN EARLY 1980'S N]TH RAPID ACCELERATION AS NEW • PRODUCTS ARE INTRODUCED, SOURCES OF ENVIRO~HENTAL AN^~YSES/FORECASTS AND RATIONALE, - PERSONAL ]NTERVIEWS WITH INDUSTRY LEADERS - ~ ANALYSIS -, - SURVEY OF LITERATURE ,. INPUT FROM THE ~[ARKET]NG AND SALES DEPARTHENTS

- ~..OPlll STI £.ATJ~J~,'IV :J[TORY F.-OIII P~E~IT SOPHISTICATED INVENTORY EQUIPMENT THAT HILL ALLOH BOTH RETAIL AND WAREHOUSES TO ACCOI~tODATE NEH ITEMS AND COVER ": • "6R.F-AT~R GEOGRAPHICAL AREAS, "2," ~ WAREHOUSES WILL REQUIRE HECHANI~.ATION DUE TO INCREASED LABOR COSTS, USE OF SCANNING EQ~IPHENT (I, E,, UPC).WILL ACCELERATE FOR IMPROVEb INVENTORY CONTROL, !T ls EQUIPHENT ~II£L PROVIDE ]NFORI~TION OFD~4OGRAPH;CS "~ ~" ..... "C~-:~FOR HIGHEST PRODUCT SALES, "ACTING AS.A PARAMETER ~HIS .EQUIPMENT I~I~L ALLOI~ FOR PRODUCT PLACEMENT IN HIGH POTENTIAL '"OUTLETS ONLY, ' " ~, ~IIIAT ~;~iI:L BE .ITS IHPACT/|t~PLICATION. ,,ETAI'L STORES WILL ONLY CARRY ]TEI,IS THAT HAVE THE GREATEST SALES POTENTIAL. o - CASE CONFIG'URATIONS t'/ILL BE DEP(ZNDENT UPON WAREHOUSE HANDLING AND PECULIARITIES OF' SPECIALIZED INVENTORY . CONTROL: - I~AREllOUSE t'tILL NO LONGER DETERHINE' TIlE A, CCEPTANCE OF TIIE ITEI'I AS EACH RETAIL OUTLET ~VILL DICTATE ITS NEEDS, " I~l-'l'! BR/~NI)S AND S/.IALLER SIIARE ITEHs HAY ONLY EXPECT SI'-.I.E CI'ED I'} I STR I IIUI'! ON,

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COI'IPETITIYF. MF.KCJ!6.~I)I S I r~c,, Arll~ PR~I.IOT 0r EVERT IDENTIFIED/DESCRIB~.~D_~ Li6GETT CEASE~ ALL MERCHANDISING AND PROMOTIONAL ACTIVITIES,. ! 2, ~T.J~IJ._~EEI~ THERE WILL BE A POINT IN TIME NHEN IT ~ILL NOT BE.FINANCIALLY FEASIBLE T~ PROMOTE AND MERCHANDISE LI6GET:T'S ~OBACCO PRODUCTS, PROGRAm, S MAY BE DISCONTINUED ON A BRAND'Ka, SlS OR THERE COULD ~E A CESSATION OF ALL ACTIVITIES, ' - ~" WHAT WILL BE ITS IMPACT/IMPLICATIONS? A voiB WILL BE LEFT IN YARIOUS PAYMENT/PLACEMENT PROGRAHS (SHELF,- VENDINg, PEPJ4ANENT COUNTER) WITI;i FUTURE NEW BRAND INTRODUCTIONS, . "~"TI~ixJ"'SPACE WILl:. BE SOUGHT BV O'~HER TOBACCO COMPANIES. tl, WHEN WILL IT HAPPEN? ANNUAL DECLINE OF LIGGETT'S TOBACCO "-;--------Pbnnllt'T~ H.A.~ BEEN ,tl SHARE OF MARKET, IF-THIS DECLINE CONTINUES, TH IR COMPANY S01'I I~ILL BE. IN T 2,. ANGE BY .1980, THEIR COMPANY POLICY WILL DICTATE WIIEN A~D WHAT" • .. ACTIVITIES WILL BE DISCONTINU'ED, ~, ~Q_.~N~.~E NTAL ~ANA LY S F. S IFo R F.~ ~L.RAT LO,'~A_LF~. " 'I[[L.~.LS RFF~T,.IISC._~, PG, iltl, 7~16, SEPTEHBER 20, 1976, "ToDAcco INDUSTRY, "

POSl.T.J_OI| PAPE_R CIGARETTE $^LE$ - VEHI)IIIG OUTLETS, t". TREND, ISSUE~ OR EVENT IDENTIFIED/DESCRIBED, PACK SALES ARE DECREASING PER VENDIH~ OUTLET AND TIIERE HILL BE FEWER NUHBERS OF VEtiDI'HG LOCATIONS, AND COSTS OF REPI~ACEHE.N~ EQUIPHENT ARE INCREASINg," "~ ~'fI'I~Y WI~ HAPPEN? REDUCED PROFZTS THROUGH VENDING LOCATIONS DUE TO DECREASED PACK SALES, HIGH COST OF REPLACEMENT EQUIPHENT HILL PROB}LBLY CONTINUE THE DECLINE OF VENDING LOCATIOHS, FURTHER LOWERING VENDING~S IHPORTAN~ TO THE C|GARETTE 9USINESS. ~," ~HAT ~/[LL ~E |TS IHPACT/IHPLICATiONS? ADDITIONAL COLUI.1NS FOR SALE OF NEH PRODUCTS HILL BE LIHITED," COSTS OR NEW. .GENERATION EQUIPHENT WILL COnTInUE TO INCREASE, HENCE ,VENDORS ARE RELUCTANT .~O. ~DHER P~ICE~ T~_~ATCN~VER=~HE=_~_".. ~~':~OUNTER ~A~-~LE~, ~E~BY -~CR~AS I N~ ~HE- OF PACK SALES PER VENDING LOCATION, • - ~ IT HAPPEN? IF PRESENT ~REND~ CONTINUE AND VENDORS INCREASE HINOR INDUSTRY PRICE HIKES T~, THEIR INCR£~iENTALS OF ~¢~ PACK SALES WILL DECLINE PER LOCATION AN~ TIIE ~ YEARLY DECLINE WILL BE ACCELERATED TIIROUGII 19 D, THERE IS NO P~ESEIIT INDICATION TIIAT NEt'! GENEI~ATION EOUII~HEN'F IVITII A GREATER NUI'tDER OF COLUNNS t'/ILL BE" IN A HAJORITY OF LOCATIOn, S --~ n'Y 1985, " "

-. VENDING T~r4~s H^n^zlr~E, eCEICSUS 0F TH~ |NDUSTRY~ JUNE, 1976, - PERSONAL INTERVIEWS ~[TH ZNDUSTR~ LF.ADER$, ;- SALES ~EPARTHENT~ AND PERSONAL OBSERVAT~GNS, 1976,

~NADEQUATE AVAI~DILITY OF SPACE ON CARTON MERCI|ANDISERS Trend/Issue~Event 'RJR currently has twentyclgare~te items and is likely to introduce ten or fifteen more. Item~ in the ~ext five years. What Will Happen? Because our carton fixtures have only twelve to twenty rows all our cigarette items cannot be properly displayed. What Will Be Its Impact/Implication? The availability of each of our cigarettes may not have ~dequate display space to accommodate consumerdemand in certain retail outlets. .4. When Will It -Happen? ..... Problem eme~gecl in ~he early 1970's and W.~.~'I 5. Sources_______~ Field sales surveys.

~rend]~ssuel~vent ~lthough on a 1]m~tc~ scale at th~s time, the grocecy industry continues expanding the use of • O~C scanning e~u~pm~nt in the~ stores. "What ~11 Happen? ._ When scanning equipment ~s ~nstalled retailers generally remove product displays at check stands. Thlsincludes cigarette packsge merchandisers. 3. What Will Be Its Imoact/Implication? r ~hen display space is not available for cigarettes st the check stand retailers either install clga- ~ rette vending machines or central~zed package fix- tures... "" .. Our surveys show that optimum sales are achieved when cigarettes (pack sales) are d~sDlsyed at or : ,on individual check.out counters. The use of scanning equipment results" in chains ..... store. As a result it is probable'that w~ will lose distribution on some of ~ul- brands "~n some ~stores. -- Trend is exacted to continue at minimal accelera- store

1. Trend/It s sue/Ev,.;n t ' Yhreot of lncrcasc~ storo clerk union~zat£on of store clerks a~ retail level. 2..~nat ~ill Happen? • increased membership in retail store clerks union. 3. W~.at WAll Be Its Impact/Impl~cation? When ~ore store clerks ar~ unionized and as more restrictive .clauses which negate manu~ facturers reps from stocking shelves and/or rotating product, fleld sales w111 have to ~pend more time in stores seeking out clerks to perform these duties.. When Will..It Happen? ~. . ..__ ~rend will cont~nu~ to accelerate into the 1980's. • _ ............... ~-~ ........ Sources = ~ . "Field Sales Management. . ~ " Retail Store Maz~agemcnt

~BAC~O DIST!III]~POR MO~IOPOI,].RATIOr] Trend~Issue~Brunt There is incroased activity by large tobacco distributors Forcing out some distributors. What Will Happen? Decrease in t~e number o£ tobacco ~hol~sale~s in ~ glven'market servicing retailers. .. What Will Be Its'Impsct/Implicatlon? With fewer tobacco wholessle~s, retaiiers will. be at the merc~ of remaining distributors re .service, price and possibly restricted product There is evidence at t~is time t~st an association eonsistfng o£ large wholesalers located in strategic markets throughout the U.S., is putting pressure on .smaller manufscturers, i.e. candy companies, re- garbing which brands they will carry, which new items they will purchase as a group, etc." When Will It Rappen? ~.~ Trend will continue to accelerate into th~ 1980'~L ~JR Sales and Credit ~o:~ngemont.

"3. • COHPETITIVE HANPOWER Trcnd/Isgue/Event Threat of Philip Morris achieving" manpower ..p~rity with RJR in fleld sales. ~" What Will Happen? Currently, Philip Morris has a sales force numbering 1,200 people (RJR - 2,000). They plan to ad~ from 400 to 600 people in the very n~ar future. ' Whet Wil.l Be Ite. Impsct/Im~licstion? Presently Philip Morris contacts lO0,000 re- "~ tall outlets - RJR - 360,000. This increase ~n manpower will allow Philip Morris to cover the same number of accounts as RJR, consequently our competitive edge over Philip Morris will disintegrate measurably. .When Will It Hapgen? ' ~llp Morris beg~n"reviewing their need'~or manpower in the summer of 1976. Our bes~~ " ~stimate is that they will begin adding to their sales force late 1976 and during 1977. "RJR Field Sales M~nagement. ""...

INADEQUATE TRUNK SPACE ON AUTOS m Trend/Xssue6Event .. Auto manufacturers are being forced to reduce slse of auto due to governmont regulatlons on efficiency and pollution control. .What ~ill Rappen? As "the s'|z~ of autos a're reduced trunk space will be reduced proportlonately. .What Will Be Its Impact/Imol~c,ation? Smaller trunk space will not allow field saleS. to carry needed inventories of merchandise re- sul~4ng in more frequent trips to jobbers. Auto mancfacturers specifications.

PR[0RITY SUiv~A~y OF KEY ISSOES/IHP/~CT [HPLICATIONSz 1978 - 1987 HARKETIltG DEPARTI~F.NT BeY Issues ~.. SIGNIFICAHr IHPROYEHENT iN V~TAGE'S LOW PROFIT MARG|N. 2. GRO~TH OF HI-F! ~,ATEGORY. OCCURRENC~ 90Z OPPORTUNITY/ (+ OR EGTIHATED |MPACT |MPLICATIONS • 8Z BEFORE T~ ~G|N V$'~ 20Z ¢O~ATE B~s POSES PROaL~, " SOS FILTER ZS ~OR ~OSE OF " SCS FILTER TECHNO~BY NOT EgUIPPEO TO BRING .' CO~T~ N[TH[N CORPORATE ~ Fu~ F~VOR ~[T~HER~ TO H['F[ ~R~ ~T~T[NB ON H['F[ ~N~ OFFER VOL~ ~ GRO~H OPPOR~N[T[EB FOR ~TEGOEV ~R~H dU~T[F[E~ A~GRE$~[VE, OFFENSIVE ~K~IN~ $T~TEGY FOR V~AGE, EARLIEST OCCURRENCE ON-GOING

PRIORITY SUR~.RY OF KEY ISSUE~,~ I~LICATIO~S) 1978 " 1987 _ KEY ISSUES CONTINUED INTRODUCTION OF NEH HI'FI 3RANDS, PATE OF VANTAGE. OCCURRENCE PRO~ARILITY! OPPORTUNITY~ THREAT (+ OR ESTIMATED IMPACT |MPLZCATIOH§ ~,, INTO AND OEPLETE TRADITIONAL |OURCEE OF INESS FOR VANTAGE. V~E 18 VULNER~LE TO ¢~PETITIVE ENT~IES HI~ ~EE~T[VE N~ E~ POSlTIONIN~ NI~DIL~E V~AGE'S TR~ITI~L PR~ISE~ ~E~ TO EXPLORE HENa ~RE C~ETIT[VE ~6IT[ON- [N6E AND COPY NEED TO ~[NTA[N PER~$IVENE~$/UN[~NE~ OF V~T~E PO$IT[ONINB. ....................... " ~P,,~ GNDNING~ ~UT NEH ERAHD ENTRIES ARE ATTPACTINS VANTAGE'S TRADITIONAL SOURCES OF DU$1NESE (eu~ e~voe • NEED TO ATTRACT NEI4 SOURCES OF BUSINESS TO HAINTAIN ~ItONTH (l,E** NEH II~OKERE, YOUNSER EARLIEST O~CURRENCF ON'GOING ON-BOING

DECLINING GROWTH RATE O~ VAL~TAGE,' (CONTINtJED) 5, ~HOKERS' GROH|NG HEALTH CONCERN: A, 'T~° GAS PRIORITY !~U~R OF • " OCCURRENCE PROI~Ag ! L 7 TY • 90~ KEY ]s~J~s/]~ACT ]~L]CATi0NSi P~AP, KET [NG DEPA~P, EHT 1978,- 1987 OPPORTUNITY/ THREAT ' '(+ oR -)* 4. • NEED TO EXPLORE HONE .CONPETITIVE POSITIONINOS/ STRATEBIES TO ASSURE VANTAGE CONTINUES TO ATTRACT EXISTIHO SOURCES OF BUSINESS. ~ NEED TO PROTECT EX|STINS FRANCHISE FROH COH- PETITION. ..................... V~{I"AGE CURRENTLY HELL-POSITIONED A6 Ll~i~ 'TARe BRAND, ~l~y NEED TO LONER ~TAR ~GE/ACCE~TE T~ ~NER N~ERS, ~Y NE~ TO ~VERTlSE ~ N~ERS. V~T~ CURRENTLY NOT C~ITIVE. FACT~ ~ERt8 ~GEST ~Y CR~ GAS ISSUE ~Y NEED TO L~ER GAS LE~LS. ~y NE~ TO ~ORESS ~S ISSUE ~N AD~RTI81NG, EARLIEST 0N-GO|NO 1977

• PRIORITY SUMMARY OF KEY ISSUES/iMPACT IMPLICATI~St MARKETING I)F..PART~Elfr 1978 - 1987 SMOKERS' NEEDS FOR TASTE/SATISFACTION IN A ClG.~RETTE, 7, CONSUMER DEMANDS TRENOZNQ TOWARD "MUCH LOWER IK 'TAR*#* ~CCURRENCE PROBABILITY 90% 70% OPPORTUNITY/ THREAT (+ OR -)*. ÷ ~LIEST • NEe~ TO CONSTANTLY MONITOR CONSU~IER TAQTF~ ON-6OINQ SAT|$FACTION TRENDS, • ~OVEMENT TO L|GHTER/MII.DER TASTE NEEDS MAY R~" QUIRE E~END MODIF~CATION$, • VANT~ TASTE/SAT|$FACT|ON-DE~IVERY MUST CONSISTENT WITH MtOKERSe ~ eTAR~ • TASTE/SATISFACTION CO/@tUNICAT|ON IN ADVERTISING I~UQT ~E IMPROVED, e VAI~TAGE eeece|ve~ As "QOV~W~T LOWER ~N 'T.~' ONoQOIN~ • VANTAGE 8Se~ ~T~U~' LEVELS CU~ENT~Y HAdON COM~ET|TION~ e ~AY REQUIRE eTARe RF,~UCTION. ¶ MAY REQUIRE coPY EMPHASIE OF LOWER NI~V~ER$,

PRIORITY SUtg~ARY 0F KEY ISS~S/]J~AC'T ]I~LICATIONSz. RU~-'TING DEPARTW.NT 1978 - 1987 8. CONSUMER PENCEPTIONS OF V~TAGE SRARD AND PRODUCT~ Ao RESEARCH INDICATION THAT VAflTABE HAS LOH FAHILIARITY (~SX), LOH AHARENESS OF ~NTHOL (EOZ), LOH AVARE~ESS OF 200'S (~0~). ~o VANTAG~ PRODUCT CURRENTLY ERJOY~ NO COMPETITIVE ADVANTAGE, OCCURRENCE PRO~AB/LITY 5~ OPPORTUNITY/ THREAT (+ OR NEH HI-F| BRANDS HILL INCREASE COHPET|TIOH FOR CONSUMER ATTENTION~ • NEED TO CHANGE ADVERTI$ING EXECUT|ON ._ EHPHASlS ON V~'A~E AS SOLUTION TO PRODLEH) ~EED TO EXPLORE NEM COPY STRATEGIES COP~4UNICAT- lR~ ~.'$ UN~OUE BEHEFIT$ At/D ITS BRA/~ STYLE AVAIL,ABILIT|E$~ ....................................... i ........ NEED TO ACHIEVE AT LEAST PARITY HITH CON- PETITION~" ~EED TO DEVELOP AND TEST BLEND II4PROVEHERT$. ~IAY NEED TO GHAN~EADVERTI$|H~ TO CREATE ~ON" PET|TIVE 0N-~O|NG

1978 ' 1987 K~Y |SSUES PREFERE~CE FOR CU~ENT VAI'4TA6E FILTE" AHONG EXISTING FRANCHI~EJ LIKELY PREFERENCE FOR CONVENTIONAL FILTER AHOflG COHPETITIVE ~IOKERS, ACCELERATED GROHTH IN RESOURCE ALLOCATION UEHINO HI-FI SP-J~D$, i0CDURRENCE 70¢ 70~ OP;~'RTUNITY/ THREAT (+ oR ESTIHATED |MPACT [MPLICATIONS ~I.Ay NEED TO ¢HAN~ETOCONVENT[ONAL FILTER TO ' REDUCE COST8, C~G~V~ COU~O POSE AIIKTO CURRENT FRANCHISE, C~GEOVER COU~A~ ~O~ITIVE S~KERS (FU~ F~R AND NEB TO EXPLORE CONVENTIO~L FILTER WITH FI~ER C~RA~EAISTICS. VA~AGE s~e oF CATEGORY SPEND;N6 ~ECLIHING. ' ~y NE~ TO INCR~E 8P~DIN8 $~RT FOR V~A~. SPE~INS INCR~SES CO~ING~ UPON PROFITA" O~ERTAIN~ OVER OPT[~ SP~IEB ~/ EFFE~IVE~ESS OF IN~R~ EEB FOR ~RE ~O~E (l,l,~ ~PE~IEG TEST~), EARLIEST ON-60|NG ~;ESL

II CIGARETTES, 11, HI-F| CAT~GORY PENETRATION OF NEW DEHOGRAPMIC GROUPG (I.E,s UNDER 25 AGE GROUP), 12, CONTINUED DECLINE IN ADVERTISING RECALL IMPACT, ~CCURRENCE PROBABILITY I~LICATIONSI 197~ - 19~7 OPPORTUNITY/ THREAT (+,~B + ESTIMATED IMPACT IMPLICATIONS • CATEGORY LEADERSHIP HAY REQUIRE ERAND ENTRIES' IR ALL GROHING CATEGORY.SUB-SEGmENTS, • ~AY IND|CATE OPPORTUNITIES TO EVALUATE/LAUNCH LINE EXTEN|IOR|* • ~A¥ NEED TO EXPLORE HEN DEMOGRAPHIC SEGI4EHTA- TION STRATEgY/NEW RESOURCE ALLOCAT|ON. • ~AY NEED TO HODIFY COPY, ~AY SUGGEST NEW PACKAG|HG STYLES (|,E,~ ~OX). i ~EED TO |HCREASE RECAL~ LEYEL$, ~AY RE~UIRE NEH EXECUT|OHAL FORRAT$, ~AY HEED TO EXPLORE Nb~ COPY STRATEGY DEVELOP- ~T. EARLIEST ON-SOIN~ ON-GOING •

PRIORITY SUIVtAAY OF KEY ISStlES/IHPACT IHPLICATIONS; HARKETINO OEPARTHEItT 1978 - 1987 K~Y |SSVES " • CHANGING OEHOGRAPHIC CO~POSITION OF THE U, S, POPULAT|ON, A, 6ROI~TH IN SOUTHISOUTHWESTI~IDo NEST/RURAL AREAS, S, GROI,CrH OF BLACK HA~KET SEGMENT, c, GRO~r. oF 25-~9 AGE SEGMENTS (1975"1985), OCCURRENCE PRO~ABZLITY OP PORTUN I TY/ THREAT (+ OR -).* ~$TIffiAT~D IHPACT IMPLICATIONS • VOLUHE OPPORTUNITIES SHIFTING ANAY FROM METRO- AREAS, • ~AY REGUIRE NEN GEOGPAPHIC SEGHENTATiON/NEN RESOURCE ALLOCATION~ • ~AY NEED TO DIRECT GAEATER SHARE OF MARKETING RESOURCES TO BLACK AUDIENCES/SHOI~RS, • ~AY NEED SPECIAL DRAND STY~E/PROHOTIONAL PRO- GRAMS FOR ~LACKMARKET, iNEED TODAY TO ATTRACT A MAJOR SEGMENT OF TOHORRO~. NEED TO PLACE EMPHASIS AGAINST 25-35 YEAR AGE GROUP FOR NEXT 3 YEARS. • NEED TO MAINTAIN LOYALTY AS SMOKERS MOVE T~ROUGN POPULATION AGE eGla~BLE EARLIEST OCCURRENCE ON-GOING ON'GO|NG. 0N-GOING