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CONFIDENTIAL .STRAT-EGIC RESEARCH REPORT i "THE 1981 BRAND FAMILY SEGMENTATION STUDY" PUBLISHED BY THE MARKETING DEVELOPMENT DEPARTMENT R.J. REYNOLDS TOBACCO COMPANY, WINSTOt' -SALEM, N.C. 27102

TABLE OF CONTENTS TOPIC PAGE I. Introduction , , , , , , , , II. Positive Benefits In A Ho;:tile Environment 4 A. SOcial Interaction, , , , ,', , , , , B. Mood Enhancement C. Time Management D. Oral and Tactile Stimulation , , , , , , , E. Smoking Problems F. Marketing Approaches to Benefits and Problems 6 12 16 19 20 22 III. Brand Family Segments, , , , , , , , , , , , , , , , , 25 A. The Traditional Segment , , , 27 B. The Virile Segment , , a a , 33 C. The Coolness Segment , , 38 D. The Stylish Segment, , , 43 E. The Moderation Segment , 48 F. The Concerned Segment, , 53 IV. Individual Cigarette Brand Analyses, , , , a a , , , , 57 A. The Core and Fringe Concept, , , , , , , , , , , , B. Virile Brand Families, , , , , , , , , , , , , , , C. Coolness Brand Families, D. Stylish Brand Families E. Moderation Brand Families, , , , F. Concerned Brand Families 57 59 66 73 79 84

I. INTRODUCTION This document discusses central findings emerging from a major strategic research study conducted by R. J. Reynolds in 1981. The discussion is deliberately restricted to broad strategic issues facing the Company and its brands. Reflecting the objectives of the research itself, no coverage is provided on day-to-day tactical issues. In approaching its marketing strategy, the Company wished to focus upon the "deeper" reasons currently and potentially underlying brand selections. Accordingly, it studied the relatively abstract and deep seated psychological and social aspects of smoking. A. THE SMOKING ENVIRONMENT In particular, one of the major themes within this document concerns the manner in which smoking fits into the smoker's life. It will be seen that a variety of benefits and problems are perceived by smokers to attend their use of cigarettes.

This theme of smoking benefits and problems is discussed in an initial section, titled "the smoking environment." Subsequent sections return to this theme in explaining various sectors of the market. B. BRAND FAMILY SEGMENTS At the time of this research, the Company had adopted a brand family marketing philosophy, wherein all styles within each brand familypr~ote according to a single unifying brand family benefit. In line with this philosophy, the Company elected to conduct its strategic research totally at the brand family level. Thus, the 1981 strategic research was oriented to brand families, providing no information regarding individual members of brand families. In connection with this research, six "brand family segments" were identified through analysis of brand family switching data. These segments are explored in the second section of this report, from the standpoint of the different benefits they supply to smokers.

C. INDIVIDUAL BRANDS The third section of this report examines individual R. J. Reynolds brand families, and their immediate competitors -- within their respective segments. It attempts to isolate the appeals peculiar to each brand, and to identify opportunities whereby each brand could consolidate and enhance its position. D. NARRATIVE APPROACH The 1981 strategic research provided a wealth of detailed data regarding these topics. The computer tables generated, to date, by the study encompass more than 25 large volumes. Although the detailed data are expected to be of great value to individual brand groups, a full numerically oriented account of these data is not provided in this document. Instead, this report attempts to provide broad conceptual insights.regarding the cigarette market, as revealed by this research. Rather than focus on numerical data, it adopts a narritive style, seeking to introduce the reader to major themes that will be relevant to all cigarette marketing in the 1980's. -3-

II. POSITIVE BENEFITS IN A HOSTILE ENVIRONMENT The overall environment of smoking has become increasingly hostile for today's smoker. Smokers perceive strong social, psychological, and alleged physical problems to be associated with smoking. For example, smoking is believed by some smokers to be an expensive negative habit that.can be bothersome to non-smokers. . Nonetheless, people continue to smoke. They do so because of positive benefits they can derive from their smoking. These positive benefits more than balance the hostile smoking environment. In general, smoking is associated with at least four broad types of benefits: . Smoking aids, and plays a role in shaping the nature of, social interactions Smoking can help the smoker deal with his moods -- enhancing positive experiences, and distracting him from negative experiences -4-

. Smoking has ritual aspacts that become integrated into the smoker's managemen+: of time • Smoking provides powerful tactile and oral gratification To some extent, all smokers derivE all of these benefits in their smoking. However, the relative importances of the benefits vary by smoker groups. -5-

A. SOCIAL INTERACTION The need for social interaction is important to virtually all human beings. We can speculate that smoking has played a key role in social interaction ever since its initial emergence. For example, even the American Indians, who were some of the world's first smokers, are said to have passed the peace pipe to symbolize friendship: as a means of creating alliances and social bonds. In current U.S. society, smoking continues to be relevant to many social interactions. 1. Social Interaction~Among Younger Adults Smoking is frequently used in situations when people are trying to make friends, to look mature, to look more attractive, to look "cooler,u and to feel more comfortable around others. These aspects of social interaction are especially prevalent among younger adult smokers. Smoking helps the younger adult to fit into a social group of peers, and to win acceptance in this group. Younger adults tend to smoke -6-

. "because my friends do" and because "smoking helps me feel more comfortable around other people." The high peer status of younger adult smokers stems, in the main, from its function as an act of rebellion. Most younger adults had been admonished by their parents not to smoke when they were younger. Smoking thus breaks taboos established by parents and, as such, is one of the acts of selfasse'rtion that typify the transition to adulthood. ' It creates a sense of maturity, an independence, to which many younger adults aspire. In breaking taboos and rebelling against authority, younger adult smokers tend to be regarded as "tougher." The stereotyped smoker is virtually universally regarded as "cooler" than his p.:ers, as a member of the "in-group" to which all younger adults would like to belong. Smoking is thus a functional act, enabling the smoker to feel a desirable identity, and expressing his identity to others.

%1W A11 of these aspects of smoking provide the younger adult smoker with a highly desired benefit -- that of fitting into a group. Although cigarettes with clearly defined user images may be more appropriate than others to the younger adult's goal of fitting into a group, nonetheless'their role among these smokers is to facilitate group membership, not to project an image in its own right. This explains, for example, why very different brands such as Marlboro, Newport, and Virginia Slims all have high appeal to younger adults. They tap somewhat different social groups, but each can help the smoker fit in and be accepted. 2. Social Interaction Among Older Smokers As smokers grow older, the importance of smoking as a means to gain acceptance declines. However, one aspect of social interaction -- the creation of social confidence -- remains important. For example, even among older smokers, a majority still agree that "they feel more comfortable around other people with a cigarette." Older smokers continue t.o derive benefit from their -8- ti'' 'v ~~,'yy ..:A, . . . ~ , ' . ,. . .. ._ _ _. . _. ._..~.__.... .. ... ._ . . . .. . ~ . . ~ _~... .,