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CONFIDENTIAL Marketing Research Report• BID#$9--32702 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Seotember 12, 1989 M: MR. W. S. LINDQUIST HISPANIC OONSUMER TRACKING JAN.-JUNE, 1989 UPDATE Copies to: Mr. E. J. Fackelman Mr. J. D. Weber Mr. L. B. Smith Mr. T. C. Harris Mr. BIC A. J. Hutchinson FRUM: J. V. BELLIS PUBLISHED BY THE MARKETING RESEARCH DEPARTMENT R.J. REYNOLDS TOBACCO USA, WINSTON-SALEM, N.C. 27102 RJRT Fam 6752 - Rev. 7/88 It

I MANAGEMENT SUMMARY I PURPOSE: This reports late`st consumer tracking results (Jan.-June, 1989) among Hispanic smokers in the lead markets, with emphasis on CAMEL's performance among target 18-24 Hispanic smokers. The Hispanic Initiative was launched in the lead markets during October, 1988. OBJECTIVES: The goals of the Hispanic consumer tracking are threefold: • To monitor 18+ and 18-24 Hispanic smoker trends nationally and in key regions (smoking incidence, category use, age/sex profiles, language used, etc.). • To monitor the penetration of the Hispanic Initiative (especially among 18-24 Hispanic smokers) in lead and expansion markets (awareness of advertising, promotions, festivals, etc.). • To monitor the performance of the Hispanic Initiative in lead and expansion markets, and especially the impact of the Initiative in improving CAMEL's usage and share among 18-24 Hispanic smokers. The penetration and performance results are reported on a rolling two quarter basis. FINDINGS: • Among target 18-24 Hispanic smokers, CAMEL trial and purchase levels have shown steady improvement since program DTS in all lead markets except Miami (where purchase levels are flat). In Miami, CAMEL purchase levels are improving among 25+ Hispanic smokers; however, this is the only lead market where CAMEL usage gains among 25+ smokers seems to be outpacing that among the 18-24 target. • CAMEL advertising and promotion awareness levels also show improved trend among target 18-24 smokers in all lead markets. Concurrently, Marlboro's ad awareness among target smokers in most lead markets has been softening. This has resulted in CAMEL achieving comparable advertising awareness to Marlboro in several lead markets. With respect to promotion awareness, CAMEL has significantly higher levels in all lead markets than does Marlboro due to Marlboro's much lower level of promotion activity. Of the lead markets, San Antonio and Houston have achieved the highest promotion awareness levels for CAMEL among target 18-24 smokers. • CAMEL's share of 18-24 Hispanic smokers is shoving signs of growth in all lead markets as of second quarter, 1989. However, third quarter, 1989 results are needed to confirm whether this target share growth has begun. .

IMPLICATIONS: • In markets where CAMEL is less developed among target 18-24 Hispanic L smokers (as in Miami), it will be more difficult to achieve increased target usage of CAMEL. (Of the lead markets, Miami has the weakest CAMEL aeve opmenfamong target 18-24 smokers and has shown less sales improvoment for CAMEL than the other lead markets.) • In the lead markets, CAMEL advertising has the momentum for increasing presence among target smokers, while Marlboro advertising lacks this momentum. CAMEL needs to maintain this level and quality of ad spending in the lead markets, and should ensure that similar spending rates and media plans are employed in expansion markets. NEXT STEPS: Consumer tracking results for the next rolling quarter period (April - September, 1989) will be issued late October. These results will provide an update on lead market performance and will also serve as the initial post read on the Southwest expansion (Balance of California, Balance of Texas and AR/NM/COL) which was DTS April, 1989. -

DETAILED FINDINGS: I. CAMEL Trial/Purchase Among'18-24-NM Hispanic smokers, CAMEL trial and purchase levels have shown steady improvement in all lead markets except Miami (where trial is trending up, but not purchase). These gains are most noticeable (and are significant) in L. A. and Houston. Miami's lagging purchase levels relative to the other lead markets is consistent with sales results -- CAMEL has experienced less share.growth in younger adult outlets in Miami than in the other lead markets. The slower consumer and sales growth for CAMEL in Miami may trace to the slower start in pack-action promotion penetration that CAMEL received in Miami and/or to CAMEL being less developed among YAHS in Miami than in the other lead markets. The following contrasts trial and purchase levels in L.A. to that in Miami. CAMEL Brand Aware 18-24 NM Smokers Pre Post 1 Post 2 1988 (10/88-3/89) (1/89-6/89) Ever Tried CAMEL T U) - (X) (X) L. A. 60.2 66.4 71.7 Miami Ever Purchased CAMEL 51.1 52.9 55.0 L. A. 31.9 34.4 37.9 Miami 21.0 22.2 22.1 CAMEL trial and purchase levels among 25+ NM Hispanic smokers are also improving in L. A. and Houston, but less than among 18-24 smokers. This suggests that, as desired, the Hispanic Initiative is having its greatest impact on target 18-24 Hispanic smokers in these markets, but that the reach of the program is not limited to the target. In Miami, CAMEL trial and especially purchase levels appear to be showing greater growth among 25+ Hispanic smokers than among the target. This suggests that the sales growth that CAMEL has realized in Miami (both from pack and carton outlets) has been driven by 25+ Hispanic smokers, not by the target. Unlike Miami, the sales growth achieved by CAMEL in San Antonio seems to have been driven by the 18-24 target. This is because CAMEL trail and purchase levels show little or no growth among 25+ smokers in San Antonio, while trial and purchase among the target show a positive trend.

II. CAMEL Advertising/Promotion Awareness In support of the improving trial and purchase levels for CAMEL in lead markets, CAMEL advertising and promotion awareness also shows positive trends in all lead markets among target 18-24 Hispanic smokers. Where CAMEL ad awareness was lower than that for Marlboro in all lead markets prior to the start of the Hispanic Initiative, CAMEL ad awareness is now comparable to that for Marlboro in L.A. and Miami, and is gaining on Marlboro in Houston and San Antonio. Further, Marlboro ad awareness appears to have a declining trend in most lead markets -- another indication that CAMEL, not Marlboro, has the momentum/vitality in terms of advertising presence. Miami is a good example: CAMEL Brand Aware 18-24 NM Smokers Pre Post 1 Post 2 1988 (10/88-3/89) (1/89-6/89) Ad Aware In Miami (X) (z) (X) CAMEL 59.0 I 66.7 72.5 ~ Marlboro 74.9 73.7 70.4 CAMEL promotion awareness among target smokers is also on an improving trend in all lead markets, and especially in Houston due to a recent boost in awareness for premiums/free gifts. Generally, CAMEL promotion awareness among the target is now at a 30% level in Houston and San Antonio, and at a 20% level in L. A. and Miami. In terms of sources of awareness, billboards are by far the dominant source of target ad awareness for both CAMEL and Marlboro. Of the secondary sources of ad awareness, in-store displays seem to generate greater presence for CAMEL among the target than magazine or newspaper ads, while catering trucks have contributed little -- only 1% of target smokers claiming awareness of CAMEL or Marlboro advertising in L. A., mentioned catering trucks as the source. As the key sources of promotion awareness, cents off coupons, BSGSF and free gifts have contributed equally in L. A. and Miami, while BSGSF seems to have generated somewhat greater attention than coupons or free gifts in S. A. and Houston. i

III. Share of Smokers Latest tracking results-(for first half, 1989) suggest that CAMEL Ex. • Regular share among 18-24 Hispanic smokers may be starting to grow. These improved (but not significantly higher) share levels are evident for CAMEL Ex. Rtrgular-tn all lead markets except Houston, where CAMEL Regular share (not Ex. Regular) is showing improvement among target smokers. April - September tracking results (to be reported late October) will confirm whether this share of smoker growth among target has started. CAMEL Ex Regular Share of 18-24 Smokers Pre Post 1 Post 2 1988 (10/88-3/89) (1/89-6/89) Los Angeles 2.0 1.7 2.9 San Antonio 0.9 0.7 1.9 Houston 1.0 0.8 1.1 Miami 0.4 0.6 1.0 0 O ~ O

JAN. - JUNE UPDATE SHARE OF SMOKERS Total CAMEL 18-24 SOS Pre Post Post 2 1988 (10/88-3/89) (1/89-6/89) Los Angeles 2.3 3.6 San Antonio 11.01 0.7 2.3 Houston 11.11 1.1 2.7 Miami 10.41 0.6 1.0 * Corrected based on final tabs. CAMEL Ex Regular 18-24 SOS Pre Post 1 Post 2 1988 (10/88-3/89) (1/89-6/89) Los Angeles 2.0 1.7 2.9 San Antonio 0.9 0.7 1.9 Houston 1.0 0.8 1.1 Miami 0.4 0.6 1.0

JAN. - JUNE UPDATE It CAMEL Ex Regular 18-20 SOS Pre Post 1 Post 2 1988 (10/88-3/89) (1/89-6/89) Los Angeles 2.4 1.7 4.7 San Antonio .7 1.0 2.7 Houston .7 - 1.0 Miami - .7 1.1 WINSTON SOS 18+ Pre 1988 Post (10/88-3/89) Post 2 (1/89-6/89) Los Angeles 5.6 4.5 4.8 San Antonio 17.2 17.6 20.4 Houston 15.7 14.1 13.9 Miami 14.5 14.2 14.4

JAN. - JUNE UPDATE TRIAL L CAMEL Trial Among Aware NM 18-24 Smokers Pre 1988 Post 1 (10/88-3/89) Post 2 (1/89-6/89) Los Angeles (Ever) 60.2 66.4 71.7 (Recent) 18.4 21.6 27.0 San Antonio (Ever) 59.4 60.4 62.0 (Recent) 16.3 18.7 27.3 Houston (Ever) 54.4 57.1 66.0 (Recent) 13.5 16.1 22.7 Miami (Ever) 51.1 52.9 55.0 (Recent) 15.4 16.3 16.1

JAN. - JUNE UPDATE TRIAL t CAMEL Trial Among Aware NM 18+ Smokers Pre 1988. Post 1 (10/88-3/89) Post 2 (1/89-6/89) Los Angeles (Ever) 59.0 61.4 64.2 (Recent) 15.4 18.3 20.4 San Antonio (Ever) 67.0 67.0 63.8 (Recent) 14.9 12.6 16.4 Houston (Ever) 60.1 60.4 58.8 (Recent) 10.7 12.9 15.3 Miami (Ever) 59.7 62.0 65.7 (Recent) 8.4 8.7 10.7