Tobacco Documents Online

f t~ ~Md~"/~ 4 Tobacco Company JAMES W. JOHNSTON Chairman and Chief Executive Officer June 20, 1991 Ms. Patricia Lipton Executive Director State of Wisconsin Investment Board P. O. Box 7842 Madison, WI 53707 Dear Ms. Lipton: Winston-Salem, N.C. 27102 919-741-7925 This responds to your letter of May 17, 1991, addressed to•: Mr. L. V. Gerstner. I would like to thank the State of Wisconsin Investment Board for the confidence exhibited in RJR Nabisco, Inc. through your $100 million participation in the leveraged buyout. The ability of the Company to reduce its debt from $28 billion to $17 billion and its debt/equity ratio from 20:1 to 3:1 in only two years suggests that your confidence was not misplaced. Your letter raised a number of issues that I would like to address. You said it was SWIB's expectation that RJR would strictly adhere to the industry's Cigarette Advertising Code and hoped that RJR would assume a leadership position in this program. R. J. Reynolds was a key participant in the development of the Cigarette.Advertising Code established in 1964 and restated in 1982. We were also instrumental in the development of the Code of Sampling Practices established in 1981 and amended in 1983. In 1990, RJR contributed significantly to the development of additional voluntary restrictions on cigarette advertising and promotion adopted by the industry in 1990. I have attached for your review the complete Cigarette Advertising and Promotion Code as revised, and I can assure you that R. J. Reynolds Tobacco Company adheres strictly to the provisions of this Code. "We work for smokers." RECEIVED JUN 25'91 FL E, Of

Ms. Patricia Lipton Page 2 June 20, 1991 You suggested that RJR not make tobacco available to minors. I want to make it clear that RJR does not provide either cigarette samples or premiums to underage persons. It has long been our position that minors should not smoke, and in the early 1980's we ran advertising publicly stating that position (copy attached). As you may not know, RJR does not sell cigarettes directly to smokers. Our sales are to wholesalers or large retailers who, in turn, sell to smokers. Our customers are, of course, required to comply with all applicable state minimum-age-for-purchase laws, and we support and encourage compliance. In 1990, RJR and the other cigarette manufacturers, working with The Tobacco Institute, announced a number of new initiatives designed to reduce smoking among underage persons. Among other things, this includes making signage available for retailers to post in their stores indicating the minimum age law of their state, and industry support for laws establishing 18 as the minimum age in states with lower ages or with no minimum-age. A package explaining those programs is enclosed. , You recommended that we cease all advertising and promotion that "might sway individuals unable to decide carefully for themselves (the merits of the health risk arguments)." Your recommendation appears to be based on the assumption that the purpose of cigarette advertising is to promote smoking among non-smokers and that it is having that effect. This assumption is not correct. our advertising is not designed to persuade, nor in our opinion is it capable of persuading, non-smokers to become smokers. Cigarette advertising and promotion efforts are directed specifically to adults who currently smoke and are designed to retain our brands' current smokers and encourage smokers of competitive brands to switch to our brands. Please understand that this is not tobacco company rhetoric. It is true of any company that operates in a "mature" product category. In the case of a "new" product category, people are not familiar with the product type, and advertising for brands in such a category serves to inform people about the attributes of the new category of products and promotes demand for the category as well as the particular brand. Recent examples of new categories are compact discs and cellular phones. As awareness of the product category spreads, advertising matters less and less in stimulating basic demand for the product type. Awareness of the category becomes essentially universal, and eventually the incidence of use flattens and remains generally consistent at some level. Such categories are considered "mature."

Ms. Patricia Lipton Page 3 June 20, 1991 Cigarettes, which have been in use for over 100 years, represent such a category. Consumers no longer need advertising to appreciate the existence of categories such as soft drinks, potato chips, mustard, hot dogs, or cigarettes. The aim and effect of advertising in such "mature" categories is to promote a particular brand, not to promote the product category. Cigarettes represent a mature product category virtually everywhere in the world, and wherever we advertise cigarettes we do so to persuade people who already smoke to switch to our brands and persuade smokers of our brands not to switch to competitive brands. If cigarette advertising was a significant factor in smoking, one would expect to find a consistent pattern of declines in cigarette consumption in those countries that ban or severely restrict advertising and increases in consumption (or smaller declines) in those countries that do not. A review of consumption data shows that not to be the case. The details of this point, as well as a larger discussion of the impact of advertising on tobacco consumption, are included in the enclosed article by Michael Waterson published in the 1990 International Journal of Advertising. To summarize our position, we believe we have a right to compete against the other manufacturers, foreign and domestic, for the existing cigarette business in any country in the world where cigarettes are legally sold. I want to assure you that we do not and will not attempt to gain business from underage persons or from adults who are not current smokers, and that we strictly adhere to all the local laws that govern how cigarettes are to be promoted and sold in the markets in which we operate. Sincerely, I* Le/tMko s W. bcc: hlz. Louis V. Gerstner, Jr. Mr. Thomas C. Griscom Mr. Wayne W. Juchatz Mr. H. E. Osmon ./