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o Use higher perceived value incentives to reinforce Marlboro's leadershipiposition while rewarding Marlboro smokers and generating competitive trial. (1992) o Build promotion elements to create large, themed events. Major 1992 themes will be Racing and Adventure Team. (1992)) o Leverage Marlboro Menthol's growth among young adult male smokers using,targeted'menthol promotions as well as direct mail. (1992) o Raise top-of-mind awareness among young adult males by executing multi-dimensional blitz marketing programs in "problem" markets where Marlboro's share is in decline and Camel remains a threat. Four markets will be blitzed with Mini-Grand Prix auto racing, retail extensions and local sponsorships. (1992) J o Expand the proprietary Adventure Tream program to diimensionalize the Marlboro "experience" against YAMs followingithe successful '91 test. -/o Conduct monthly co-promoted themed events tied to national professional sporting activities in 8 large sports clubs in metro markets. ('1!992) I7EW' PRODUCTS -/o Launch Marlboro! Medium, 100's, a low tar 100''s entry for adult male smokers, with cork tipping/red package. (1992) LZO Introduce:fiv+e pack carton. Deliver a value package for young adult male smokers. (1992) Test Marlboro Express, a shorter cigarette for value sensitive smokers. ('1993)!

MARLBOROl Marlboro's ability to retain and grow share among current smokers while limiting alternative purchase is a crucial element in achieving the brand's unit volume, and share forecast. Marlboro has historically growniby increasing its share of new smokers entering the marketplace, while maintaining and"growing share among current smokers as they age. Marlboro's performance. initerms of smokers share retention has been impressive; the Brand has grown smoker share amnong,all age groups over the last decade despite the emergence of' price as a dynamic in some consumer minds. However, ate brand purc ~y Marlboro smokers has increased fro x rcent in 1985 p,~rcent in 1990. Basedion current p ation and inciden ~rends, Marlboro will need to accelerate:retention/growth of smoker shares among its current smokers above historical levels while minimizing alternate purchase behavior to attain forecasted volume levels in, the five year plan. The aging of MarIboro's prime smoker base has several strategic impliications for the brand. For example, older smokers tend to be more price sensitive:, purchase more in supermarkets/mass merchandisers, are carton buyers and are more susceptible to switch to lower tar. Currently, 25!-441 year olids represent 57.4% of'Marlboro!s total estimated smokers with a large concentration in:the 25,34 age bracket (!x million smokers representing of Marlboro's total smokers). Marlboro has an 3'7.4'% share of' smokers in the 25-34 age category and'an 23.3% share in the 35-44 age group. A key challenge for Marlboro is develop aa merchandising, promotion and new prodbct strategy which keeps. these smokers in the franchise. Inladdition, MarIboro's lower share in this age group allows the brandlthe opportunity to attract competitive smokers, either through outright conversion or alternate buying. I SSZ'JE Maintaining share among Marlboro's large base of smokers currently between 25 and 44 years old is critical to achievingi Marliboro!s volume forecast over the next five years. To achieve this, Marlboro must successfully respond to changing diemographics and buying patterns for these smokers. STRATEIGY' Marliborolmust increase its retention of smokers~as they age into and within the well developed and vulinerable.competitive 25-44 year old segment. Marlboro will support smokers with MarliborolCountry advertising and reward brandiloyalty with value addled promotions. Marlboro will use offensive promotions to attain incremental volume by attracting competitive smokers. The brandiwill use defensive price promotion only where necessary to reverse declining share trends. In addition, Marlbora wiU: investigate new packaging and' product optjo~s to further- TS~~$~en •: r~ohra.~~~c annPwl aroncr, older smokers. ,/ ~Z'

ACTION PLAN PT 4S PRbMOTID __Xo Extend all mainstream~carton promotions to mega-volume outlets (800+CPW) where opportunities for incremental volume are greatest. (1992) r o Insert two:blind"value-added continuity programs in select carton packings to reward price sensitive Marlboro smokers as a defense against alternate buying. (1992) ./ o Extend all retail carton promotions to military outlets andd maintain couponing at competitive levels. (1992) DIRECT M ',ARKE'PING ,/o Use offensive direct mail programs (quarterly, Medium 100's,. Menthol) to target competitive smokers with high value, image building offers to generate volume andigain conversion. (19,92) o Test defensive price promotion that protects the brand without eroding,equity. (1992-1993) NEW' PRODUCTS Launch Marlboro Medium,100''s, a low tar 100's entry for adult male smokers, with cork tipping/red package. (1992:) o _'*'o Launch 5-pack carton as value alternative for price sensitive smokers. (1992). Launch Marlboro U1!tra Lights as a Lights line extension. (1991) --~o --l"o' Test Marlboro Express as a shorter cigarette:for value sensitive smokers. (1993) Launch Marlboro ExtralLigihts as a Red line extension. (1994)

MARLBORO initiative from branda such as Camel and Winston, which have promoted heavily in convenience stores. In addition, pricee value continues to grow, increasing 12.3% share points to 23.4% compared'to 11.1% in 1988. a 6MM versus the previous six month period. To maintain i momentum, Marlboro~must continue to:fend off competitive Convenience outlets represent Marlboro's most important and best developed trade class. These outlets represent approximately 38% of Marlboro's volume and Marlboro maintains a leadership positionwith 29.6% share. It is imthese outlets that young adult smokers, an important Marlboro demographic group, purchase cigarettes. Marlboro has recently returne © a share growth trend in~convenience stores, increasing shar<-X%on I S'StJM' Marlboro's competitive position in convenience stores has been challenged by both ful!l marg,in, and price value products. To maintain Marlboro's current momentum in the trade class, Marlboro must set itself apart from increasing:retail clutter and heightened price competition. STRATEGY Marlboro will continue its retail promotional support behind pack outlets nationally, with a primary emphasis on convenience outlets. Marlboro must improve its visibility and presence to achieve a "big brand'" status commensurate:with its share. Promotional support will be managed to provide Marlboro sufficient volume opportunities without conditioning smokers to deals, reducing inherent value and committinq to increasing support levels to achieve volume targets. Marlboro's level ofl promoted volume for 19,92 is anticipatediat on below 1991. In addition, Marlboro will also encourage retailer driven special pricing, including two and three pack specials. ACTION PLMN FYETAIIy, PICESENCB;[AVAIIbABILITY ~{S _Z o Evaluate and~impl'ement use of alternate packaging and consumer payment vehicles (i.e., half-carton, credit cards) to encourage Marlboro versus Price Value/deal purchases.. (',19'92-19'96) ' ~~ o Capitalize on increasing use of' retail driven special multi- pack pricing withia permanent 5-pack carton SKU. (1992) ~~ f Develop pack promotion, distribution for non-cycled outlets ~ 0 (less than 100: CPW): which can~be placed by distributors. (1992-1993). Expand promotian opportunities into non-traditional outl'ets. such as video stores and home/auto centers. (1992-1:993)

PROMOTION ~ Execute 7 national pack promotions consisting of 5 value-added and 2 product offers. (1992) ~ f Provide heavy base level of display, quantities to achieve 80% penetration of 100+ CPW pack outlets versus 50$ in,'91. Reserve display quantities will increase promotion breadth and depth; in key opportunity markets. (1992). ~o Execute 2 customizedipromotions in 5 C-gas and 2 C-food national accounts, linking additional merchandising programs where applicable to strengthen presence/visibility in these key chains. (1992)~ -"o' Include aHispanic version, of all '7' national pack promotions to provide ongoing support. (1992) _/0 Execute 2.Asian promotions around! key holidays and 2 Menthol programs in 8 select geographies to leverage growth. (1992) Create special programs to reverse Marlboro share: declines among pack outlets in Texas/Cklahoma. (1992-1993) ./o Utilize self-shippers/distributor assembly for all retail pack promotions tolminimize salesforce labor in execution. (1992) o Provide fieldiwith catalog of customized promotions and P.O.S. materials to better respondto local opportunities/threats. (1992-19193)

PHILIP MORRIS USA 1992-1996 PREMIUM BRANDS OVERVIEW // I The full margin segment of the industry continues to experience significant volume declines at an annualized rate of 9.4%. Full Margin performance is a function of declining incidence and consumption levels combined with a current Price Value unit growth rate of 25%. During the plan period the industry Full Margin decline is projected to be XA. It must be pointed out that the challenges facing our MK-% Premium Brands differ significantly from Marlboro. The variances, beyond franchise rates of decline, can best be explained by three major factors: 1) Unlike Marlboro, our other Premium Brands have been unable to capture entry level smokers and are therefore faced with rapidly aging franchises. 2) These brands are each positioned against a limited industry segment (i.e. 100MM, low tar, female smokers), whereas Marlboro can satisfy almost the entire range of consumer requirements from a flavor, tar level and length perspective. 3) Marlboro's industry leadership position and corporate importance ensures significant retail presence, while our other Premium Brands have limited opportunity/ resources to establish a substantial marketplace presence. During the plan period, PM USA's major task is not just to slow the volume declines of our major Premium Brand franchises (B&H, V.S., Merit and Parliament), but to actually achieve both unit and share increases. By 1996, these brands are targeted to have an aggregate share of X%, equating to a unit increase of 3 versus 1991. This will be accomplished through the Premium Brand Group focusing on five strategic elements: 1) INTRODUCE LINE EXTENSIONS TO BROADEN THE APPEAL/ PARTICIPATION OF THESE BRANDS. Through an annualized investment strategy commencing in 1992, major line extensions will be introduced for our Premium Brands. Neither Merit nor B&H has launched a significant new product for a decade, and Parliament, a strong regional brand, has been limited to three packings for 22 years.

MARLBORO Supermarkets and mega-volume outlets represent a significant opportunity for Marlboro. The brand~has been historically under-represented!inithe supermarket environment, postingian. 19.7% share compared to Marlboro's 26% share overall. Supermarkets will be increasingly important to Marlboro due to anticipated demographic trends. Marlboro's largest demographic group, 25-44 year alds will continue to grow, pushing more of thee bran&'s franchise into the price driven cartonluniverse. older competitive full margin franchises are more susceptible to price d~iscounting, decreased brand loyalty, alternate purchase behavior, and'switching to price value brands. 'Phus, while Marlboro must defend its core business, the brand has aniopportunity for incremental volume through offensive promotions aimed primarily at competitors. ISSIIM Carton outlets, an area of historic under-representation for Marlboro should provide growthlopportunities. A key challenger for the brand is to!provide new, unique means of'packaging, product andipromotion to!differentiate the brand is an environment which will continue to be price sensitive. STRATEGY Leverage Marlboro's.strong heritage with offensive promotion to attract new smokers in the carton environment. Marlboro will investigate new means of packaging to address the price issue while still allowing for multiple purchase options. Where possible, these new configuration will serve as anientree into new merchandising and visibility vehicles for the brand. Defensive carton promotions will be used only where necessary to rewitalize share trends. In addition, we must continue to capture a significant share of smokers trading down from carton purchasers by maintaining strong front-end~merchandisingi presence:. ACTIORPZ~N RETAIL PRESENCE f AVAILALBILITY f Capitalize on the supermarket trend toward non-self-service cigarette merchandising by encouraging the placement of Marlboro service centers to provide leadership visibility.. (1992-1996) -1-o Merchandise a 5-pack carton in! supermarkets to capitalize on, P~ -/0 the trend toward increased front-end pack sales. (1992)1 Introduce a 15/20 pack carton in high volume carton outlets where multiple carton purchase behavior i'.s the norm. (1993) %~ . ~. _ ... . -~,a..

TARGET PROMOTIONAL/ADV'ERTISINIG DOLLARS AGAINST KEY MARKETS. Beginning in 1992, a geographic spending strategy will be the: core of the individual brand plans. Specifically, we will allocate disproportionato resources against key markets to slow our volume declines and increase brand presence. In these designated markets, we will leverage our consumer popularity to gain Sales and Trade: support. 3) CAPITALIZE ON SHIFTING DEMOGRAPHIC TRENDS. By the year 2000, Blacks, Hispanics and Asians will represent nearly 25% of the adult population. Increasing our share among ethnic smokers will be!paramount in reversing our current rate of decline. Targeted promotions, improved'marketplace presence and, relevant advertising, are all necessary to achieve these goals.. INTRODUCE: ALTERRATIVES' FOR AT LEAST TWO OF OIJRPREliIUM FRANCHISES (B&H/V.S)~ WHICH BRING OUR PRRMIU'M~ TR;ADEI+LXRR.S, TO COMPETE IN T'HE DISCOUNT SEGMErTT. To accomplish the aggressive goals outlined in this plan it will be necessary to, expand our packings that either carry these trademarks (B&H, V/S) or are endorsed by them. The operating ph~ilospphy will shift from, a pure brand orientation to a focus on trademark management. PROVIDE ADDED VALU'E' TO OUR CURRENT FRANCHISES. In conj'unction with the introduction of' low price alternatives, we must also add value to, the premiu¢m, end of our franchises. We will utilize product/packag,ing' innovations to encourage loyalty among!our existing smoker base as well as to attract inswitchers. By adding value to our brands, we will give smokers a, reason to choose paying a premium price versus selectingia low price alternative. In addition to the above, it will be necessary to utilize aggressive direct mail/continuity offers against our current smokers to encourage loyalty within, the premium end of these franchises. During, 1992, wewill implement a Brand name generation program against our own smokers to significantly increase our currentt level of penetration (48%).

BENSON &' HEDGES Positioning, o America's premium quality cigarette Geography o Focus spending in key markets: B&H is the most geographically concentrated major brand (West, Southwest, Southeast). Demographics o White female skew, 40+ o Black and Hispanic, female skew, 30+ o B'&H King Size: male skew, 25-34, mainline and ethnic Trade Class Convenience Outlets - Pack Purchases o increase inipro¢notional support Supermarket Outlets - Carton Purchases o Occasional couponing (FSI's, Direct Mail) in conjiunction with "Signature Collection!' premium offers. Urban - Pack o Continue market penetration pack prograan Strategic Approach o Market to diverse target groups o Build' on premium image o Build'.ethnic franchise o Line extend to Kiings smokers o Compete inithe low price arena

BENSO'N& HEDGE~S 1992-1996 O'V E Pt'V I EW •. The Benson & Hedges franchise is experiencing disproportionate volume decline versus the category as the result of younger smoker inswitching being siphoned off by Marlboro, Camel and Mewport coupled with increasedioutswitching due to sustained, competitive activity by other Full Margin 100's andPrice Value. In,addlition, Benson &' Hedges 100mm only lengthiproves a barrierr tolentry for younger smokers; 100's are sDcewed'toward older, female smokers and perceived as such. ISSUES • The accelerated volume decline and the aging demographic profile risks Benson & Hedges' long term viability. Benson & Hedges' future rests on gaining and building share among adult smokers under 35, while at the same time providing incentive for current users to remain within the franchise. S T RAT'EG'Y• ' Benson &.~Hed'ges is to be positi~oned to be more relevant to smokers under 35 through the introduction of a King size line extension. The Kings'' packaging, advertising and retail activity shall be cpntemporary and relevant to younger smokers but consistent with Benson &' Hedges positioning in ord~er to reinforce the trademark's strengths. Pack trial, which focuses on the purchasing patterns of young adult smokers, will be!initiatedivia an extended reduced price offer. These programs are designed to add new "news" to the franchise and provide significant competitive inswitching. Direct marketingland media will deliver continuity programs designed to retain smokers within the 10'01's franchise. Product/packaging based benefits will be sought to provide a sustainable point-of-difference for Full Margin smokers. Loww price line extensions (flankers) will be introduced to stem the flow of franchise outswitching and to recapture former B&H' smokers who have switched to low price brands.