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.
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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).
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up-scale, frilly, and out-of-date.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
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
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.
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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.
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
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).
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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