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Youth and Marketing

[Dakota Research Proposal] Attachment

Date: 1990
Length: 3 pages
507520525-507520527
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Abstract

Report on Dakota cigarettes. States younger adult female smokers "will be attracted to Dakota because it provides them with smooth tobacco taste while reinforcing their aspirations and self-image." Provides reasoning for Dakota's success, compatibility with RJR's plans, financial risks associated with new product, market projections, and a timetable.

Fields

Notes

Original document code was 3858.

Company
R.J. Reynolds Tobacco Co.
Major Subject
Advertising and Marketing
Brand
Target Market
Female
YAS
Minor Subject
Advertising and Marketing -research --testing
Advertising and Marketing -strategy
Advertising and Marketing -target market --female
Advertising and Marketing -target market --YAS
Brand -image
Brand -preference
Brand -selection
Cigarette -brand image
Product -development
Brand
Camel (RJR)
Dakota (RJR)
Marlboro (PM)
Winston (RJR)

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Page 1: tam24d00
Attachment I. Nature of Proposal Project VF ("DAKOTA") has been developed to generate incremental volume for RJRT by increasing the Company's share among younger adult female smokers. These target smokers will be attracted to Dakota because it provides them with smooth tobacco taste while reinforcing their aspirations and self-image. This proposal requests approval to introduce Dakota into test market in Houston representing 1.50% of U.S. population. This test marketing will be used to more closely evaluate consumer appeal of the proposition (share-of- market, source of business) and marketing plan elements while preparing for national expansion scheduled for April 1, 1991. DAKOTA will be available in Full Flavor and Full Flavor Light box styles. This proposition has proven appeal among 18-24 "virile brand" female smokers, particularly FF/FFLT King smokers. Marketing expenditures for the DAKOTA test market for Marketing Year I will be $13.7MM ($11MM in 1990, and $2.7MM in 1991). II. Rationale Even though 50% of younger adult female smokers smoke Marlboro, it does not fully deliver to this target's imagery wants. At the same time, the other so-called "female" brands are perceived as too up-scale, frilly, and out-of-date. DAKOTA offers target smokers the only relevant brand available to younger adult female smokers. It provides them with smooth tobacco taste and high quality while reinforcing their aspirations and self-image. Research (measuring the impact of advertising, packaging and product) indicates that RJR can attract competitive smokers to this proposition and thereby generate incremental volume with the introduction of DAKOTA. Share estimates are projected to be five share points of female younger adult smokers, with a share of market forecast for Marketing Year 1 of .51 with annual growth of .38 in Marketing Years 1 through 3 and .19 annually, thereafter. III. Compatibility with Plans The introduction of VF supports RJRT's long-term objectives related to volume, share and earnings through its appeal to younger adult female smokers. IV. Alternatives Considered Consideration has been given to growing RJRT's younger adult female share by increasing support on existing brands. However, with the exception of CAMEL, no other RJR full-price brand has demonstrated appeal/potential among younger adult female non-menthol smokers. While CAMEL has grown somewhat among this target group, this growth has been limited.
Page 2: tam24d00
2 It is Marketings' opinion that broadening CAMEL's target to include females will minimize the Brands' impact among 18-24 males, and result in the deceleration of CAMEL's 18-24 male growth trend. The introduction of DAKOTA will enable RJRT to gain significant younger adult female smoker share, without hampering younger adult male smoker strides achieved on and projected for CAMEL. V. Risk/Other The Financial risk to RJRT associated with this specific request is the cost of an unsuccessful test market. If the results of the test market do not meet our expectations, the brand will be re-evaluated and possibly retested, with national introduction delayed. Should the test market be successful, additional production complexes would be required to meet the projected volumes. The ROI calculation includes the estimated cost associated with $54MM of capital expenditures and the related cash flow impact for ten years. These estimated costs were provided by Production Engineering based on volume projections included in-this AR: (if-inti~oduced nationally, a capital AR will be required). A Marketing Contingency Factor of 30% has been applied to the contribution margin (net of cannibalization) to provide for the unknown response by competitors to the introduction of DAKOTA. The Operating Earnings impact during the test market is ($317M) as reflected in Schedule I. Utilizing this contingency, the ROI is projected to be 28.4% (Schedule II). Without the contingency, the ROI is 47.1% (Schedule IV). VI. Results of Proposal The DAKOTA Test Market is projected to generate 31.0MM units in 1990 and 6.3MM in 1991 with a net volume of 34.4MM units equally split between both brand styles. (Net volume is based on a 10% RJR cannibalization rate, primarily WINSTON and CAMEL, excluding pipeline volume). • Growth Assumptions Given the positive research results to date, DAKOTA is expected to grow to a .51% share of market for Marketing Year 1. The brand is expected to increase by .38 share points annually in Marketing Years 1 through 3 (1991, 1992, 1993) and will increase by .19 share points annually, thereafter. As detailed in Schedule I, the operating earnings impact resulting from test market is estimated at ($10,562M) and ($2,604M) in 1990 and 1991, respectively. The projected volume associated with the DAKOTA introduction is not included in the 1990 Operating Plan. This results in an incremental 1990 Brand Contribution of $620M, Net of Cannibalization and Marketing Contingency (Schedule III). Assuming a April 1991 national introduction, the return investment is estimated at 28.4% (see Schedule II for ROI calculations).
Page 3: tam24d00
3 VII. Key Timing Activity Date w/o Manufacturing start-up 1/29/90 Begin Sales sell-in 2/5/90 First delivery to Direct Accounts 3/5/90 Down-the street 4/2/90 Earliest possible national expansion 4/1/91

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