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~ October 29, 1982 G TO: Mr. J. W. Johnston FROM: H. E. Osmon SUBJECT: MDD ESTABLISHED BUSINESS STATUS REPORT - WEEK OF OCTOBER 25-29, 1982 ESTABLISHED BRAND RESEARCH 1. WINSTON • Completed plans for the WINSTON Revised Packaging Image Study and the WINSTON Eagle Symbol Test Market Research. Results of the Package Image Study will provide the Brand Team with a qualitative evaluation of the revised WINSTON packaging prior to a go/no-go decision regarding national introduction. This project will be initiated the week of November 10. Open inventory for the WINSTON Eagle Symbol Cigarette Tipping Test market is currently scheduled for January 3, 1983. This test market will assess the in-market sales performance of the WINSTON Eagle Symbol cigarette tipping. In addition, a quantitative in-market analysis of pre/post-purchase franchise perceptions and attitudes toward the eagle symbol on WINSTON packaging and tipping will be included in this test. • Reported results from a quantitative headline screening test conducted for the WINSTON Hispanic campaign. This study was requested following a preliminary series of Hispanic focus groups which resulted in a decision to search for an alternative headline to "America's Best." Previous qualitative research suggested that there is resistance among Hispanics regarding the use of the word "Best" (i.e., indicating direct comparison to other products) in conjunction with the word "America" (which tended to be confusing as to geographical reference).

Mr. J. W. Johnston October 29, 1982 Page 2 Ten headlines were developed by Conill Advertising (an Hispanic ad agency) and include the following: Unico en Su Clase - Unique In Its Class Lo Tune Todo - It Has It Al l No Hay Nada Mejor - There Is Nothing Better El Mejor de Americas - America's Best Calidad Distincta - Distinct Quality Super-Calidad - Super Quality Calidad Inequalable - Unequaled Quality Calidad Maxima - Maximum Quality Calidad Unica - Unique Quality Unica En America - Unique In America The "Unique In Its Class" headline received the strongest support among Hispanic non-menthol smokers in total, among total WINSTON smokers, among total competitive smokers and among all Hispanic subgroups, except Puerto Ricans. Puerto Ricans rated this headline as their third choice. The Puerto Ricans were most strongly attracted to the Spanish version of "America's Best." "It Has It All" (the current WINSTON Hispanic headline) and "There Is Nothing Better" were the second most appealing headline among all Hispanic subgroups. The three most popular headlines, "Unique In Its Class," "It Has It All" and "There Is Nothing Better" all appear to communicate the appropriate product/user imagery associated with WINSTON's positioning. 2. SALEM • Issued final results from the Kool Ultra 100 Competitive Product Test. The purpose of this test was to assess whether Kool Ultra is a better product for comparison to SALEM Uultr Lights 100 than Merit Ultra Lights 100. SALEM Ultra Lights 100 (product scheduled for retail availability 11/82) was rated superior to Kool Ultra 100 among all three of its action standard smoker groups: 18-34 year old females low tar menthol competitive smokers, 18-34 year old female SALEM Lights 100 smokers and total SALEM Ultra Lights 100 smokers.

Mr. J. W. Johnston October 29, 1982 Page 3 OVERALL % 70+ RATINGS Female Compt. LTM Smokers Aged 18-34 Female SALEM Lts. 100 Smokers Aged 18-34 Total SALEM Ultra Lights 100 Smokers SALEM Ultra Lts. 100 (3393-C) 54 58 73 Kool Ultra 100 T T T (3504-A) 45 42 42 • Issued a report of SALEM Slim Lights national performance through the week of October 11. Cumulative shipments year-to-date (through the week of October 11) are 1,744 MM units. Weekly shipments over the most recent four week period have fluctuated greatly due to the latest price increase. Share of market for SALEM Slim Lights is still holding around a .30-.35% level. Latest 4-Week Performance Actual Shipments Share of Market * (MM Units) (X) Week Beginning: 9/20 68 .39 9/27 57 .45 10/4 29 .26 10/11 25 .37 * Preliminary Estimate Consumer measures at 38 weeks following introduction show increases in brand awareness and ad awareness among menthol female smokers, both overall and by age group. These increases could be due to the brand's media schedule in August/September, which included two broad coverage media -- newspapers for the first time since June and Sunday supplements for the first time since February.

Mr. J. W. Johnston October 29, 1982 Page 4 - Trial and purchase levels have been stable over the past eight weeks. Approximately 55% of Slim Lights' business is being drawn from SALEM Family, most notably SALEM Lights (both styles) and SALEM Ultra Lights 100's. The largest source of business for Slim Lights outside of the SALEM Family is the Stylish segment, primarily due to draw from Virginia Slims Lights (M). Other segments contributing to Slim Lights development are the Concerned and Moderation segments. 3. VANTAGE • Issued the second VANTAGE Ultra Lights Non-Menthol national tracking report, including Parent VANTAGE Menthol 100 also for the first time. Performance was summarized through October 15. VANTAGE Ultra Lights Menthol 85 and 100 continue to sell at approximately .1 share combined. Total shipments over the first 18 weeks have averaged .25. Given high existing inventory levels, the actual sustaining selling rate is estimated between .1 and .2%. (NOTE: Shipments for the week of October 18, not included in the Tracking Report, indicate that RJR shipments are recovering from the October 4 price increase playback, with VANTAGE Ultra Lights Menthol showing the highest volume level since its initial load. Last week's shipments were .6% of RJR, for an estimated .2 industry share.) Awareness of VANTAGE Ultra Lights Menthol increased significantly during its second month of advertising (from 13% to 18% among menthol smokers), but remains lower than that for other recent spinoffs. Parent VANTAGE Menthol 100 has averaged a .22 during its first eight weeks and seems to still be paying back for the initial load. Awareness, trial, and purchase of the new style during its first month is higher than that seen for VANTAGE Ultra Lights Menthol as well as for other line extensions. 4. MORE • Issued Topline results of the MORE Lights Drive Period Tracking Research - Postwave.

Mr. J. W. Johnston October 29, 1982 Page 5 This study was conducted to measure MORE Lights' responsiveness to the drive period activities in terms of awareness, trial and purchase, including out-of-home's ability to increase awareness of MORE Lights' beige point of difference relative to MORE 120's. The findings are: The drive period activities, specifically the out-of-home advertis- ing, were effective in increasing awareness levels during the actual drive period, but the levels were not sustained after the drive period concluded and the advertising was removed. The out-of-home advertising, with its emphasis on MORE Lights' beige color, did not appear to increase awareness of a difference between MORE Lights 100's and MORE 120's. The MORE Lights coupon, which was dropped immediately following the drive period, did not result in increases in trial or purchase levels for the brand. This may be due to the coupon event having occurred after the drive period, when awareness levels had begun to decline. Therefore, some consideration should be given to the timing of future coupon events earlier so that heightened brand awareness and trial generating activities work together. 5. STP • Presented revised brand family positioning, copy strategy and recommended commercial storyboards for R.J. GOLD to JWJ and HJL. Approval was requested to produce the three storyboards in photomatic form. Next steps include qualitative and quantitative assessments of emotional reaction, communications and intrusiveness. • Participated in a Brand Team review of revised TIMBERLINE creative. The recommended commercials, presented in storyboard form, will be reviewed with Executive Management prior to photomatic evaluation. CONSUMER RESEARCH 1. Consumer Tracking • Issued analysis addressing Kool's trend. Both sales and consumer measures indicate Kool's softening is consistent with its long term trend. The short stability evidenced in 1981 was due to heavy media and promotional efforts behind the Ultra and Lights sytles and the new campaign. Kool's declines are caused by substantial losses among 18-24 year olds. Within this age group, Kool is losing smokers to Virile brands, Newport and Virginia Slims.

Mr. J. W. Johnston October 29, 1982 Page 6 • Reported results of the Northwind Menthol Awareness, Trial and Purchase Study conducted 12 weeks after test market introduction. The consumer data showed that although Northwind's advertising and promotional activity generated high levels of awareness, trial and purchase levels were low. 2. Advertising and Promotion Research • In order to focus on advertising effectiveness information, the presentation format of 00H and newspaper communications results has been revamped. The new approach was well received by Brand Management and Brand Research and the recommendation has been made to maintain this approach. 3. Product Research • Results of both the CC Menthol and CC Non-Menthol Product Guidance Tests were presented to Brand R&D. In each study, three alternative prototypes were tested against a "control" prototype that was previously tested in a concept/product test and is concurrently being consumer acceptance tested. The purpose of both studies was to give R&D guidance for product refinements in the event that results of consumer acceptance testing show that further development work is needed on CC. One of the alternative CC NM prototypes appears to have equal potential compared to the control prototype. While it did not achieve R&D's goal of reduced harshness, bitterness and a better aftertaste, it had a more natural taste and more tobacco taste than the control. More natural taste also appeared to be a key consumer perception in the performance of the CC Menthol products. One of the CC Menthol prototypes achieved the goal of increased smoothness versus the control and also more natural taste and less harshness. It was at parity with the control on menthol taste, bittereness and aftertaste, however. • Presented topline results of the VANTAGE Ultra Lights NM 100 Product Guidance Test. Four VANTAGE Ultra Lights prototypes were tested against current VANTAGE Ultra Lights and against Merit Ultra NM 100. All of the prototypes achieved R&D development goals of less harshness versus Merit Ultra, and were at parity on burn rate. However, they were still deficient on strength, tobacco taste and filter firmness. One prototype was rated superior to the current product and to the other prototypes, although all were parity with Merit Ultra 100.

Mr. J. W. Johnston October 29, 1982 Page 7 • Regular weekly office hours at R&D were initiated for the three members of the Product Guidance Group who work directly with R&D. These hours were initiated to further increase interaction with R&D and to more efficiently serve R&D end users. MARKETING SCIENCES AND INFORMATION SERVICES 1. Forecasting • Presented to JWJ and MLO a summary of findings concerning analysis of the NBER study of price elasticities. This same presentation was also given to HJL, GWM, and DGF. • Issued individualized brand books to each Brand Manager and Brand Research Manager covering the details of the 1983 Operating Plan, with changes through October 22. Met with Intercontinental Consultants in Baltimore to discuss their plans to create a database that would allow us access to up to six months of style level weekly shipments to retail for a number of wholesalers throughout the country. • Discussed Operational Forecasting with RJR-MacDonald Sales and Marketing Management personnel. Discussion concentrated on forecasting methods, computer models and sources of information. MacDonald currently prepares their Manufacturing Forecast from "usage" estimates made by Field Sales personnel. They do not have a forecasting software package on their computer system. By contrast, we use a forecasting package to develop trends, and then adjust the trend projections to include future promotional activities. The types of promotional activities we have used, the way we measure their impact on shipments and our sources of information on future promotions were discussed in detail. • Visited Tampa and Detroit for the 12-pack test market to meet with local RJR field sales personnel and vendors to discuss the test and develop the vending machine sample. Field work on this project is scheduled to begin November 29. 2. MDS • Met with the Merchandising Department and finalized the testing format for the tobacco portion of Little Rock Safeway Carton Merchandising Study.

Mr. J. W. Johnston October 29, 1982 Page 8 3. Competitive Activities Philip Morris • Received letters sent to direct accounts by Philip Morris which discussed their special rebate purchase offer. w Lorillard % • Routed an article from Adweek discussing the development of the B&H Deluxe Ultra Lights pac age. • We have been expecting an expansion of Satin from their test areas of Milwaukee and Denver. However, information has been received from Mr. John Thompson, Queens Division Manager, that Lorillard had four cases (240 cartons) of Satin sent to a jobber in Queens, stamped and picked up by AHF, a marketing research firm in New York City. This amount of product suggests a consumer product test. If so, and if this test takes six to eight weeks to complete, we may see a 1983 expansion of Satin rather than the anticipated 1982 expansion. We will continue to monitor this closely. payment to $30 per month for a 120 pack counter display. • Received information indicating that Lorillard has increased their Marketing Development Department HEO/kd cc: Mr. G. H. Long Mr. M. L. Orlowsky ~ Mr. L. W. Hall, Jr. Mr. E. J. Fackelman Ms. E. N. Monahan Mr. J. R. Moore Mr. G. Novak Mr. K. J. Keiser Mr. C. R. Hill