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• Tobacco Technology Training New Business Development Division AGENDA July 22, 1992 (1) NBD Mission (2) Organization (3) Stages of New Product Development 0 (4) Product Assessment Tools (5) Product Development Process Steps - CHELSEA Example (6) Active NBD projects 7) XB 6 mg XB 1-2 mg XA New Product / Project Identification m ~ ~ N

0 NEW BUSINESS DEVELOPMENT DIVISION MISSION: Develop and implement technology based new cigarettes to meet current or emerging consumer demands. ~ Ln ~ m -j Ln w

• • S New Business Development Division R.A. Lloyd Staff Vice President W.M. Dufour Manager New Brands Implem: XB L.D. Yountz D.J. Wilson D.D. Williams A.L. Robinson O.P. Furin K.M. Womble A.B. Norman Master Scientist/Mgr. New Brands Develop:XA M.L. Raker P.F. Perfetti K.A. Hege J.L. Brooks S.P. Dunlap B.W. Arzonico R.G. Hayworth D.L. Rayner I F.F. Petree Administrative Assist. M.F. Dube Master Scientist New Project Develop. VL90 5L0iS

• STAGES OF PRODUCT DEVELOPMENT Product Form CONCEPT V Idea / Product Assessment No Product I Focus Groups RJR Personnel Marketing, R&D, Sales INITIAL PROTOTYPE DEVELOPMENT Hand Made Prototypes Focus Groups Informal Evaluation SED Evaluation PROTOTYPE DEVELOPMENT II Fab Lab Pilot Plant Product Guidance Tests Concept / Product Tests SED Acceptance Tests PROTOTYPE REFINEMENT Fab Lab Pilot Plant V Focus Groups Product Guidance Tests Concept / Product Tests SED Acceptance Tests PRODUCT DEVELOPMENT 71 V Pilot Plant Product Guidance Tests Production Concept / Product Tests Total Proposition Tests PRODUCT INTRODUCTION • Production Ln ~ m J Ln m ~ v Ln

• Product Assessment Tools Focus Groups: • 10 - 12 Consumers are recruited at a Market Research Facility. • Professional Moderator asks questions and leads discussion about prototypes and attributes. • RJR personnel observe discussion from an adj6ining room behind a one way mirror. Informal Smokina: • Prototypes are provided to 15 - 20 R&D smokers for evaluation. • Ballots can be provided and tallied or smoke sessions can be • initiated. SED Diaanostic. QDA SED Acceptance Test: • 2 packs of each prototype are provided to 50 consumers for in- home use and evaluation. Up to 6 prototypes can be evaluated. • Overall acceptance and attribute ratings are obtained. Quantitative Variable Screening: • 1-2 packs of each prototype are provided to 150 consumers for in- home use and evaluation. • Up to 3 prototypes can be evaluated by same consumers. ~ Ln • Overall acceptance and attribute ratings are obtained. m Ln m ~ ~,

• Product Assessment Tools • • Product Guidance Testing: • 2 packs of prototypes are mailed to 300 consumers. • Overall acceptance is judged on a 100 point scale, and the percent of respondents rating the prototypes > 70 is calculated (%70+). • Attribute ratings are obtained. Concept / Product Testing: • A concept statement is provided to consumers describing the prototype and purchase Interest Is obtained based on product Idea only. • Prototype is provided to respondents who like the concept for evaluation. Purchase Interest Is obtained (Top 2 Box). • Diagnostic product attributes are obtained among respondents who smoke the product. Total Proposition Testina: • Consumers are exposed to new product advertising and existing product advertising at a Marketing Research facility, and new product awareness is measured. • A fake store is set up In several locations with the new product in printed packaging and the top selling brands. • Consumers are allowed to purchase any product in the fake store over a four week period. • Share of Market estimates are obtained for the new brand based on quantity of new product purchased.

PRODUCT DEVELOPMENT PROCESS STEPS • PRODUCT EXAMPLE CHELSEA 0 • Stage of Product Development Date Concept * Consumer Want Identification 1984 * Product Develo ment Re uest Initial Protot e Develo ment * Document Research 1984 - 1985 * Screen Current RJRT Technol 1984 -1985 * Screen Available External Technolo 1984 - 1985 * Conduct/Contract Technol Research 1985 - 1986 * Develop Base Technolo 1986 * Develop Application Technol 1986 - 1987 * Secure HRRC Approval 1988 * Develop Protocepts 1986 - 1987 * Design/Conduct Studies - Internal 1985 - 1987 (Technolo Assessment/Screen) * Qualitative Consumer Test 7/87 - 9/87 Protot pe Develo ment * Develop Prototypes 9 /87 * Quantitative Consumer Test - Blind N/A * Production Feasibilit Assessed 11 /87 * Establish Introduction Timin 11/87 - 6/88 * Conduct Aging Studies - Products 4/88 - 10/88 - Com onents 4/88 - 10/88 • Process Scale-U - Com onents 11/87 - 6/88 • Conduct Toxicological Studies 4 /88 Prototy e Refinement / Product Develo ment * Identified Product Testin or Concept/Product Testin 11/87 - 6/88 * Claims Substantiation Testin 9/88 - 1/89 * Product Costing 11/87 - 6/88 • Prelimina SOM Assessment: - TPT 10/88 - 1/89 - A&A Product Introduction • Secure PRC A proval 1/89 * Process Scale-U - Ci arette 1/89 " Secure PAC Approval 3 /89 * Production Scale-U - Phase III 3/89 " Introduce to Test Market 4/89

• PROJECT XB 6 mg. 'Tar' OBJECTIVE: • Develop 6 mg. 'tar' products which deliver taste and satisfaction equal to FFLT cigarettes. PRODUCT DESCRIPTION: Technologies under evaluation • Blend Processing Variables: Sugars on G7/KDN and Burley constituents, heat treatment of G7/KDN and Burley constituents. . Blend Additive Variables: Heated and Non-Heated Extracts, Organic Acids. . Optimum Draft Evaluation: High Efficiency / Low . Draft Filters, Web Acid Filters. STAGE OF DEVELOPMENT: Prototype Development STATUS: . 6 mg. 'tar' prototype development is continuing. G7 sheets, alternate fiiters, and organic acids are continuing to be assessed. . 1991 PGT prototype, CT 2332 J (G7/KDN + Levulinic Acid) scored the highest % 70+ (47.1) of all Initial XB prototypes. • Research is ongoing to determine If the development of a higher scoring prototype is w VI ~ J (J1 possible utilizing current and new technologies. m Q1 J kO

• PROJECT XB: 1mg & 2mg 'TAR' OBJECTIVE: • Develop 1 & 2mg 'tar' products that deliver the benefit of satisfying ULT taste. [shorter term] • 1 mg equal to 5mg 'tar' cigarettes. [longer term] • 6mg Research: All learning to be applied to 1 /2mg program where applicable. PRODUCT DESCRIPTIONS: Technologies incorporated In current designs TASTE/SATISFACTION 0 • G7-25 with KDN: Reconstituted sheet with Increased nicotine level [KDN extract] and diammonium phosphate. • Smoothness Enhancer/Top Dressings: Combinations of organic acids, aromatic flavor components to improve tobacco taste and smoothness. DRAW • Puffed tobacco: Increased puffed tobacco reduces puff count, Increases yieids/puff, improves ease of draw and increases perceived smoke volume. Incorporation of DIET [G19-1 ] tobacco vs G13 underway. • Optimum Draft Evaluations: Lower assembled cigarette draft [100mm] improves ease of draw with very low 'tar' cigarettes. • • Cigarette Paper Evaluations: Higher porosity paper evaluations underway. Simulate Merit Ultima burn rate and draw characteristics.

I PROJECT XB: 1mg & 2mg 'TAR' TASTE/SMOOTHNESS • Organic acids: Levulinic acid and sorbic acid [applied as potassium sorbate] applied In Burley casing to improve smoothness of lower T/N ratio products. Sorbic acid offers less smoothing effect vs levulinic acid, however, seems to improve tobacco taste. • Turkish extract: Potential tobacco taste enhancement. STAGE OF DEVELOPMENT: Prototype refinement/development XB 1-2mg program has been In active brand status with NOW since mid 1991. Active brand status with VANTAGE established 2/92 concurrent with Merit Ultima Introduction. 10 STATUS:: • Current 2mg 100mm XB superior to NOW 100 among concept acceptors. Inferior to VUL 100, however, has advantages of strength and mildness vs VUL. NOTE: Action standard: Parity to VUL among concept acceptors. Prime prospects: 3-6mg 'tar' ULT smokers, (x) savings. • Merit Ultima Introduction [2/92]: Initiated blind PGT to assess Merit's potential threat to VANTAGE/NOW business and XB potential. • Results: NOW, VANTAGE, XB all superior to Merit Ultima among franchise smokers. • - XB and NOW parity to Merit Ultima among prime prospect [3-6mg 'tar'].