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-CONFIDENTIAL Marketing Research Report MDD__ #_86-12_106 TO: Mr. S. R. Strawsburg Mr. L. J. Inman YOUNGER ADULT BLACK COMPETITIVE PRODUCT TEST ON FF MENTHOL 85MM STYLES Copies To: Mr. L. W. Hall, Jr. Mr. Mr. Ms. Ms. Mr. Ms. Mr. -MDIC A. J. M. L. M. L. R. R. V. L. L. H. B. J. Cox Bellis Still Bender Heflin Barrow Harden FROM: E. M. Paul PUBLISHED BY THE MARKETING DEVELOPMENT DEPARTMENT R.J. REYNOLDS TOBACCO COMPANY, WINSTON-SALEM, N.C. 27102 0 . J 60 RJRT Form 6752 • 7/80

YOUNGER.ADULT BLACK COMPETITIVE PRODUCT TEST ON PF MENTHOL 85MM STYLE$__ (MDD #86-12106) - - ' - NAGEMENT SUMMAR PURPOSE To assess the product performance of SALEM King relative to Kool King and Newport King among representative 18-34 black smokers, as well as to identify leverageable product strengths for SALEM King that will support the new positioning. BACKGROUND Black smokers are crucial to the performance of all menthol brands as the vast majority of blacks smoke a menthol product. However, SALEM's product perform- ance has never been assessed among blacks because the competitive product testing system is based on general market smokers (only 10% or less of which are likely to be black). Further, restage efforts are currently in progress to reposition SALEM as the "industry standard of smoking refreshment." Product line erce tp ions among target 18-34 general market and black smokers (from the 1985 SDS) support this new positioning. Likewise, competitive product test results among 18-34 eneral market smokers provide support for the new positioning. However, since SALEM's product acceptance among blacks is an unknown, it is not possible to determine whether product performance among this smoker group supports the new positioning. Accordingly, a customized product test was conducted among 18-34 black smokers which tested SALEM King relative to Kool and Newport King. The intent of this research was to assess SALEM King's product performaneP among blacks and to identify leverageable product strengths in support of the new positioning--as opposed to changing product characteristics specifically for black market smokers. The study focused on the key FF 85 styles since this menthol category has larger share than any other menthol category among blacks. Further, all of the black respondents in the study resided in inner-city areas of large black metro's owing to the fact that the majority of black smokers live in large urban centers. CONCLUSIONS/IMPLICATIONS • SALEM King's product performance among 18-34 black smokers does provide some support for the new positioning that SALEM is embarking on. Among both black franchise and competitive smokers, SALEM King was generally superior to Kool and Newport King in delivering coolness, menthol taste, and smoothness, while there were no consistent attribute deficiencies for SALEM King. These attribute advantages represent leverageable product strengths that support the new positioning. • However,, relative to general market smokers, SALEM King's product perform- ance among black smokers appears to be less supportive of the new family positioning. SALEM King's overall acceptance among 18-34 black smokers was less favorable than its current acceptance among 18-34 general market smokers, despite the positive attribute results among black smokers. Where SALEM King has parity overall acceptance to Newport King among general market competitive smokers, it was inferior to Newport King among black competitive smokers. Among black franchise smokers, SALEM King was also unable to achieve the superior acceptance to Newport King that it enjoys among general market franchise smokers.

YOUNGER.ADULT BLACK COMPETITIVE PRODUCT TEST ON FF MENTHOL 85MM STYLES _ _ (MDD #86-12106) - - " - BACKGROUND " Black--amokefs are crucial to the performance of all menthol brands as the vast majority of-blacks smoke a menthol product. However, SALEM's product perform- ance has never been assessed among blacks because the competitive product testing system is based on general market smokers (only 10X or less of which are likely to be black). Further, restage efforts are currently in progress to reposition SALEM as the "industry standard of smoking refreshment." Product line perceptions among target 18-34 general market and black smokers from the 1985 SDS) support this new positioning. Likewise, competitive product test results among 18-34 general market smokers provide support for the new positioning. However, since SALEM's product acceptance among blacks is an unknown, it is not possible to determine whether product performance among this smoker group supports the new positioning. Accordingly, a customized product test was conducted among 18-34 black smokers which tested SALEM King relative to Kool and Newport King. The intent of this research was to assess SALEM King's product performance among blacks and to identify leverageable product strengths in support of the new positioning--as opposed to changing product characteristics specifically for black market smokers. The study focused on the key FF 85 styles since this menthol cate- gory has larger share than any other menthol category among blacks. Further, all of the black respondents in the study resided in inner-city areas of large black metro's owing to the fact that the majority of black smokers live in large urban centers. OBJECTIVES The key objectives of this research were to: • Assess the product performance of SALEM King relative to Kool King and Newport King among representative 18-34 black smokers. • Identify leverageable product strengths for SALEM King among 18-34 black smokers (as opposed to changing product characteristics specifically for black market smokers). METHODOLOGY Like NFO, each of the three test products was tested monadically using a blind, two pack sample of each product. However, because of the need to conduct the study among inner-city blacks, all recruitment, placement, and product rating collection was done via personal interviewing. The study was conducted across five black major metro's: Atlanta, Baltimore, Birmingham, Chicago, and Philadelphia. Within each metro, respondents were intercepted and screened at two recruiting locations (a housing development and an inner-city "strip" shopping center). To qualify, respondents were required to have a pack of a qualifying brand (either SALEM, Kool, or Newport King) on their person. Further, respondents had to be willing to give up the pack they had with them in order to encourage immediate use of the test

METHODOLOGY ( CONT. ) _ - - " , -- - -- product. - Tn-a-standard blind two-pack -tonfiguration, one of the three test products was then placed. After smoking the test product, respondents were asked jto"fijl out a self-administered questionnaire and return it to the place- ment location within three days of placement. Upon return to the placement location, an interviewer reviewed every rating with the respondent (if the self-administered questionnaire was completed), or administerd a questionnaire (if the self-administered questionnaire was not returned). The actual questionnaire used was similar to the NFO questionnaire except for the scale used to rate attributes. A four-point attribute scale (with description of each point) was employed instead of the normal seven point, bi-polar scale. Pilot testing for this study indicated that the simplified four point scale was more easily understood by these respondents than the seven point, bi-polar scale. There were no changes to the overall acceptance scale, and as in NFO testing, ideal attribute ratings were collected along with test product ratings. SAMPLE COMPOSITION The three test products were tested among a total of 1,356 black FF 85mm menthol smokers 18-34 years old. As illustrated below, the sample was evenly distributed with approximately 450 smokers per franchise/test product and 150 smokers per cell. 18-34 Black Smokers Of: Styles Tested SALEM King Kool King Newport King Total Smokers SALEM King 158 142 148 448 Kool King 144 166 160 470 Newport King 149 146 143 438 451 454 451 1356 Additionally, the sample in each cell was evenly distributed by age (18-24 versus 25-34), sex, and city. In terms of sample representation, approxi- mately 70% of respondents had a high school education or less, and an annual income of less than $9,000, while only 40% were employed full time. CONCLUSIONS/IMPLICATIONS • SALEM King's product performance among 18-34 black smokers does provide some support for the new positioning that SALEM will embark on as part of the family restage. This support is evident from SALEM King's attribute performance among black smokers which is superior to that for Kool or Newport King. In particular, both black franchise and competitive smokers perceive SALEM King to be closer to the ideal than Kool or Newport King on coolness, menthol taste, menthol/tobacco balance, and smoothness. The only attribute deficiency for SALEM King was among Newport King smokers who found SALEM King to be less strong than Newport or Kool King. .o • 0 %A

CONCLUSIONS/IMPLICATIONS (CONT.) • Relative'to eneral market smokers, SALEM King's product performance among b ac smo ers appears to ess supportive of the new family positioning. Despite SALEM King's positive attribute performance among black smokers, overall acceptance ratings for SALEM King are less favorable in the black market-Ehan in the general market. Where SALEM King achieves parity acceptance to Newport King among 18-34 general market competitive smokers, Newport King achieves superior acceptance to SALEM King among 18-34 black competitive smokers. Also, where SALEM King is superior to Newport King among general market franchise smokers, SALEM King receives parity accept- ance to Newport King among black franchise smokers. Relative to Kool King, SALEM King is superior among blac ranc se smokers and is only inferior to Kool King among black Kool smokers. The pattern for SALEM King to have less favorable acceptance ratings than attribute ratings among black smokers may in part be due to respondent recognition of the test product based on the overall delivery signature (i.e. this is my brand/this is not my brand). This phenomenon seems more apparent in this study than in NFO testing because in this study each product was tested and was able to be analyzed among each brand smoker group -- in NFO testing acceptance ratings are usually analyzed among total competitive smokers. • The improvement direction that SALEM King needs among 18-34 general market smokers should also serve to improve its performance among 18-34 black market smokers. DETAILED FINDINGS Overall Acceptance Ratings Based on overall acceptance ratings, SALEM King is at parity with Newport King and achleves superiority to Kool King among 18-34 black franchise smokers. However, among both Koo1 and Newport smokers, Newport King is rated superior to SALEM King, while only among Kool smokers is Kool King rated superior to SALEM King. OVERALL %70+ RATINGS 18-34 Black Smokers Of: SALEM Kool Newport King King King SALEM Test Product 65.2 59.2 58.8 A I Kool Test Product 56.3 68.7 61.3 Newport Test Product 65.1 69.2 65.0 <--_j <--- Significant difference (at 80% confidence level) with arrow pointing towards product(s) with advantage.

DETAILED F-INDINGS (CONT.) - - Overall Ac ptanceItatings (Cont.) ' When e~camicWd by age (18-24 versus 25-34), Kool and Newport smokers_show the same patterns in product acceptance ratings as their total 18-34 ratings indicate.` However, among SALEM King smokers, SALEN's overall parity rating to Newport King appears to be driven by superiority to Newport King among 25-34 franchise smokers that is offset by inferiority to Newport King among 18-24 franchise smokers. OVERALL -X70+ RATINGS BY AGE BREAK SALEM KING SMOKERS Styles Tested 18-34 SALEM King 6^ 2 Kool King 56.3 Newport King 65.1 <-- 18-24 25-34 62.0 68.4 58.8 53.9 b~,__. ,] < 61.7 Significant difference (at 80% confidence level) with arrow towards product(s) with advantage. Ideal Ratings pointing Relative to the ideal wants of SALEM King smokers, the ideal wants of Kool and Newport King smokers tend to be more similar. Specifically, both Kool and Newport King smokers want a product that is stronger and harsher than SALEM King smokers. Note that these findings tend to support overall %70+ ratings as both Kool and Newport smokers rate Kool King and Newport King at parity. IDEAL RATINGS 18-34 Black Smokers Of: Base - Stronger Harsher Cooler Tasting Smoother Tobacco Taste Menthol Taste More Menthol/Tobacco < Significant difference SALEM King (451) 1.97 1. 8 3.15 3.27 2.10 2.71 2.52 (at 80% confidence level). Koo1 King (454) Newport King (451) 1.89 1. 8 3.03 3.26 2.04 2.73 2.55 _j

DETAILED FINDINGS (CONT.) Ideal RattCant:Y In terms-of-ideal wants, there appears to be fewer differences between black market franchise and competitive smokers than (NFO) general market franchise and competi'tive smokers. As is evidenced within the black market, general market competitive smokers also want a product that is stronger and harsher relative to franchise smokers. However, general market competitive smokers also want a product that is cooler and has more menthol and tobacco taste. ATTRIBUTE RATINGS A. SALEM King Smokers Among SALEM King smokers, attribute ratings for the products confirm overall %70+ scores, which indicate that both SALEM King and Newport King are equally superior to Kool King. Relative to Kool King, both SALEM King and Newport King are perceived by SALEM King smokers as having the advantages of less strength, less harsh- ness, more smoothness, less bitter taste, and fresher aftertaste. The only significant difference between Newport King and SALEM King is on smoothness, where Newport King has the advantage. 18-34 BLACK SMOKERS OF SALEM KING SALEM Test Product Newport Test Product Kool Test Product Base - 158 149 144 X70+ 2 165 65 . .1 < 56.3 Stren th 85 11 84 1 0 g . . < 2. 3 Harshness 69 11 621 8 . 1. < 1. 5 Coolness 2.67 ~ 2.58 ` 2.53 Smoothness 2 80 -> 2 62 2 . . < . Tobacco Taste 2.11 t.: 2.21 2.31 Menthol Taste 2.62 2.61 2.55 Menthol/Tobacco Balance 2.33 2.31 2.27 Fresh Aftertaste 2 57 2 67 < 42 2 . . . Bitter T t 52 54 11 7 as e . 1. < 5 1. < Significant difference with arrow pointing to product(s) with advantage.

ATTitIBUTE RATINGS (CONT.) B. Newport`King Smoters Among Newport King smokers, attribute ratings for SALEM King relative to Newport King and Kool King are more favorable than 70+ ratings would suggest. Specifically, Newport King smokers rated SALEM King at advantage to the other two brands on having more coolness, less harshness, less tobacco taste, more menthol to tobacco taste, and fresher aftertaste. Newport King smokers did perceive one attribute advantage for Newport and Kool King over SALEM King and this was the greater strength that the two other brands provide. 18-34 BLACK SMOKERS OF NEWPORT KING SALEM Test Product Newport Kool Test Test Product Product Base - 148 143 160 X70+ 58.8 -> F5---01 61.3 Stren th 78 > 1 1 2 F T91 g . . - Harshnes 64 < 1 1 77 < 97 s . . 1. Coolness 2 74 < 2 6 > 2 . . . Smoothness 2.81L---' 2.71 CQ Tobacc T st 2 10 < 27 26 12 o a e . . 2. Menthol Taste 2.60 2.52 2.59 M th l/T b B l 47 < 2 3 3 en o o ance acco a . 2. 5 2. 0 Fresh Aft t t 2 61 < 47 2 49 12 er as e . . . Bitter Taste 1.531;-~ \ 1.59 1.76 < Significant difference with arrow pointing to product(s) with an advantage. This pattern of less favorable 70+ ratings relative to attribute ratings is also evident in NFO testing for SALEM King among general market smokers. Among competitive general market smokers, SALEM King has more attribute advantages than Newport King but is at parity on overall acceptance. There are two possible explanations for why SALEM King's 70+ performance among Newport King smokers is less favorable than its attribute performance:

ATTRIBUTE PERFORMANCE (CONT.) - B. Newport--King Smokers (Cont.) •.- Stre+agth may be a much more important product dimension to Newport King smokers than other attriubtes. If this is the case, SALEM King's defli;ciency on strength could be partially or completely offsetting the advantages SALEM King has on other attributes. • Respondent recognition of the overall delivery signature of the test products (i.e. this is my brand/this is not my brand) could be influencing overall acceptance ratings. The design of the Black Smoker Product Test Is probably accentuating this phenomenon since each product was tested and is able to be analyzed among each brand smoker group -- in standard NFO testing, test products are analyzed among the total target competitive group which makes the phenomenon less apparent. C. Kool King Smokers As was evident among Newport King smokers, attribute ratings for SALEM King among Kool King smokers are more favorable than 70+ ratings would suggest. Specifically, Kool King smokers rated SALEM King at parity to the other two brands on most attributes. Where there were attribute differences among Kool King smokers, the differences favored SALEM -- SALEM King was at advantage to the other two brands on menthol/tobacco balance and was also at advantage to Newport King on smoothness and menthol taste. 18-34 BLACK SMOKERS OF KOOL KING SALEM Test Product Newport Test Product Kool Test Product Base s 142 146 166 7:7U+ 59.2 -> ~. 2 ~ Strength 1.80 1.83 1.87 Harshness 1.66 1.69 1.71 Coolness 2.67 2.68 2.67 S th 92 2 < 8 moo ness . 0 12. 2.89 Tobacco Taste 2.14 1..-- 2.16 2.25 M th l T t 78 12 < 56 en o as e . 2. -> 2.67 - Menth l/T b B l 50 2 < 2 T M o o acco a ance . . . Fresh Aftertaste 2. 54 2.56 2.61 Bitter Taste ' 1.57 1.61 1.60 < Significant difference with arrow pointing to product(s) with an advantage.

AT'fItIBUTE PERFORMANCE (CONT.) ---~-- _ C. Kool King Smokers (Cont.) Again,-this pattern of less favorable overall 70+ scores for SALEM King rela"ve to attribute ratings could be due to respondent recognition of the overall delivery signature influencing overall acceptance ratings. CONSISTENCY OF DEVELOPMENT NEEDS (BLACK VERSUS GENERAL MARKET) The improvement direction that has been identified for SALEM King among 18-34 general market smokers should also serve to improve its performance among 18-34 black franchise and competitive smokers. As is the case in the general market: • An tncrrase in Coolness perception is the most important improvement needed among black franchise and competitive smokers. • Menthol taste perceptions also need to increase among black franchise smokers and among the key black competitive group (Newport smokers). • Menthol to tobacco balance needs to increase among black franchise smokers, without moving black competitve smokers from the ideal on this dimension. • No change in strength is recommended since black franchise smokers want less strength and black competitive smokers generally want more strength. SALEM KING TEST PRODUCT R - I RATINGS/BLACK MARKET ATTRIBUTES COOLNESS MENTHOL TASTE MEN/TOB BALANCE STRENGTH NSALEN KING SNOKERB ® ® KOOL KING SMOKERS NEWPORT KING SMIOKERS R - I RATING