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SMOKING ISSUES 3 KEY AREAS: TAXES SOCIAL ACCEPTABILITY . RESTRICTIONS 4w,

, ,~ s 4`:. . - . . , . 'SMOKING'"`ISSUES" ~ . BACKGROUND';' NrrCs jrGA f2 j:TE,:. S- •` ~ AL , TAXES ON CIGARETES HAVE MORE THAN DOUBLED SINCE THE MID'6O0S• EVEN IF,THE,FET.NERE;'..TQ BE RETURNED FROM 161 TO H1,.-THE AVERAGE` . ,.. ,:. .. . . . . ; . . . . y ;q . • .• • . . . . . SMOKER WOULD STILL PAY NEARLY 24E PER PACK IN STATE EXCISE TAXES• ~ -. ~ra~~ T~ C I ~'ARE~TE'f AX~`P'ER?'~P'R ift[i 1WINTEO AM 900 TAXDIA ATATi1 rliM li4OM AND FEDERAL .. v:: .a. .! . r! ,gu! .a• ..rr ,..rs. +fl.s ..a..4~a.flalafaf : •,w-..•.sl..wl:./a!!!lwr.!!f!!rf ~ ..:..............l.........*......• :..:......laaala!!l.....l......f......f ...........w..!!l..rl............l....... "!!!rlfR!!a!l!!!!.!!!1!!!!!r!!.la.!!!f!!f!rlf/f 'laflfla.la.a.aalal.•!!.!a!a!.laa!!lall..lfaal.R~ i!!!.lar.!!la..l...•..•.•!!a.!•!f•!!!•.!la.r.!!r• . _ ~l.llrll!l.1.ll.lr.l1!!!!..!!!!!a!!f1!!!!!!!l..r.• • ......aa.Na/alrarir!!ia .!!!!!al.rr.!!!!l..ar+• lT~raJl.a!!!falllrf!!a!f!!!.!!!..l.~,:y a .aua.a..a.aaa •.u.a.aua...ara• , ll!!f.!!•r!al~,la.afa!!.a!!!1P":.t.. la!!.a!!!f.l.a!!Ialallll!!.• , • . . .- . . . . :"J .• !la..u ..r...l..l....!- r.aar.l...!!!ffl.rwt . ~'. ,~. .l.rsaas..a~...r.!...r-• r , . asaarr!. . s a s s . - . - 0 ® STATL Ayp f!n[IMl pi1t1CAS Tlr TAX UA03c! r?loam ALTHOUGH TAXES MAY ROUTINELY DEPRESS DEMAND, THEIR MAJOR MARKETING IMPACT RESULTS FROM THEIR SUDDEN CHANGES, AT THE STATE, LOCAL AND NATIONAL LEVEL. THESE SUDDEN SHIFTS HAVE INDUSTRY MIDE IMPACT, ~ 0 BUT ALSO DISPROPORTIONATELY AFFECT BRANDS WHICH HAVE MORE, OR p~. LESS, PR1Ce~SENSITIVE$tFRAMCHIY SES- W m m .. • f

..: SMQWG' ISSIfES : 5 a_~#w~~rrw~w!L`tsi~. TOTAL 16+ ` ' , , " 42 SMOKERS 18+ 75 -s x z~v`i~w~ 3~1' 'r! ai y-;h t ri;:t ~s ACCORDING TO.YANKELOVICH, ONLY 36X°OF.AMFRiCANS OVER THE`AGF. OF-16" ENJOYMENT. ABOUT HALF AGREED 10 YEARS AGO• FEEL IT IS ACCEPTABLE TO SMOKE CIGARETTES, L~'10i?ERATION, FOR X AGREE 48 45 43 42 41 36 EVEN AMONG SMOKERS, MORE THAN 1-OUT'OF'3 HAVE COME TO FEEL THAT SMOK I NG I S NOT AC,f4 PTAALF . < 64 THESE ATTITUDES APPEAR IN LEGISLATION,, AS, SMOKijNG,, R[S?RI.CTIONS~--- ,-

L ' 1i. .., ~ „ .. ?f%~+< . ~ . SMQKING RESTRL('J10N . , . . " . ,. . N &I j0jw'-:; E: OK I NG,. ODAY, IHZ OF: AMERICANS' ARE -'AFFECTED! BY,LAWS ,RESTRICTING SM ~ ~ ~ , COMPARED TO 352 10 i'EARS AsO '- MORE THAN DOUR1.E• IH% OF AMERICANS ARE SUBJECT TO SEVERE RESTRICTIONS, WHICH AFFECT :,,i;: ., . ,_,.-~. . ,. 4.,.; THEIR.ABILITY TO SMOKE''IN•TNE COURSE OF NORMAL SOCIAL AND WORK LIVES, BY SEGREGATING OR PROHIBITING SMOKERS IN RESTAURANTS OR I{II. N_EiAZARD03!S PLACES OF WORK•' STRTE LEGISLRTION RESTRICTING SMOKING •T f us r01.1M'ILC".b /MO itvOQTY g M 1tl12AR0&A NOIq'L= atMER, sCfIObL tllMlsnneX,TU rBcurrr .e : ~~ W~ ~ .. . . ~ . . . . ~~f~/AIWV.b= ~ i7M t //{/'///I ~I, ./I ..•.11111•.•(l. ~ t I~•f••r•.•..•••• •1 ,'1!*::s: 0 ...::i a.a ...................... 1 ::::::::::::::::::::::::: _; rrl..r.f.a. 1 ..1 l t •. ... r ..~ 0 •" H ,' .......,~ .•, '•0 , 14 •r to./ ... ..,.. %/ // I . !• 1.•.... ~ .. ; r.f .r..u./r 1 .• •. u•! •./ !I~ i. ! a~ . ~a•a .. a•......r. •.v~t! t 1•! ~ r• ~.• . ••••aH i •.•.•a•.r. • a . .• • • , • •flf••.0/1 1 • .0 . 1 . ~ ~ ~1 f1a 1 . 1/1 ' . f..11 . • •.fy.r.. ri • ~ .:: . :'nri...:.::a:::: '" .1f•..tl ~!!. 4. st>ll •aN~a.....~•.~~.~...~L. •r..d ll .. ~!• _ .. ~, .. a . . .. ~ ~; _. 1~4 1;n

it: BACKGROUND (CONT'D) .i •ywil.f ,) V. C}a~;Ly-7>Rc ~a W{ in: , -.~. ..a... . . . . . 'yyk:4- - ! , THE, ;,PRESSURE „O,F, SMOKINGriISSUESa~IS°r~,ALMOST`CERTAIN`°TO ;INCREASE THE.LATE'.HU'S. , . .,, . . .. m,.,- , . ...w:-~.- . ,~ INDEX SOURCE: VdLS 1983 • ONE CLEAR INDICATOR OF THIS IS THE BABY.BUBBLE.• ALTHOUGH THERE, WILL MBE A SI1EfABLE INfLU~X}' OF SMOKERS~INTO AG ES 35-49 IN THE LATE $0"5, THIS WAS A LOW °INCIDENCE GROUP•"- THUS, THERE WILL BE A' j1LICH k 'i4)fb'I:Wll N WE HAVE ALREADY SEEN THAT AGES 35-49 ARE MORE HEALTH CONSCIOUS THAN OLDER OR ,:Y01lHGER GROUPS•,-THEY ARE; ALSO: AT~ A,, STAGE • OF 1 NCREASED ~• POLITICAL CLOUT, ECONOMIC SOPHISTICATION, AND `SOCIETAL CONSCIOUSNESS~•' ~SOCIETALLY CONSCIOUS~,s, x-L DISTRIBUTION.W"40-A 18-24: 25-34 35-44 45-65 31 1 171 224 65 "BABYllBUBBLE4""~`"~ INCREASING POPULATION 65+ WILL PROVIDE A RELIABLE GROWING CLIENT BASE TO ~ .. ,, . ~ ~ , W.,~.~~,, ,,; , BOOST`THE'`INFLUENCE`'`OF HEAITH'IlkSTITUTIONS AND DRAW EVER MORE ATTENTION TO HEALTH CARE AND 1NS:IRANCE COSTS• < 65 65+ SOURCE: HEM4, ....*,, gYG• HEAI COST S 597 31,026 w .0 ~

... . ... .. ~d':,*>ti ! } +."-a~ T1~2 f21ZLA aL < y~`.~ ~ . .. . . . .. ~-. .. y 2. GROWING SMOKER/NONSMOKER'DIFFERENCES .lWi.:J'! .a ..r:..fw r.1.,. ~ . . 11 a,

• DEGREE OF LEVERAGE AVAILABLE • PROFIT .,~..~..,~..~.~ . g r r e 9 . j. . . : .v-' ~:. .F Y } ISSM,Lsoq PRIC'-1NG#LEVERAGE4*~- STRUCTURE FOR CIGARETTES,'GIVI"tG !lNBRANiED'CIGARETTES MORE. THAN 4 POINTS OF THE MARKET AND ADDING ANOTHER POINT OF SAVINGS BRANDS• MSA -St ARr, . 1m 1981 `. M GENERICS .04 .46 .95 2.92 4.35 SAVINGS SEGMENT •04 .46 .95 3.34 5.50 BY EARLY 1984,1 SMOK ER l N,°S HAD.'AL READY ; P (JRCHASED ~ ENERIC4,~. • G , ~ ~ ~ ~ ~ ~ ~ . : . CIGARETTES OR WAS SERIOUSLY CONSIDERING BUYING THEM (YaHKftovtCOY: ~.~: I OF TOTAL SMDKERS TOTAL 18+ Lm 8% 20% v HOWEVER, THERE ARE TWO KEY PROBLEMS IN CONSIDERING SAVINGS BRANDS: 1983 1984

0 S t03Jb~`rvF5, ' - "- .3! 1 + K-".ar ? ~~~ ~ ~ aSM01CING ICSIIF ;.,_ _,t7in .'.h T A.~ S YINGS.SIDF~~Co,N~n .. . .. , r'.::~ . -.. ~ . . -. .. ~ . . , ~ i'-. .. s THERE IS NOT MUCH LEVERAGE ON THE,LOif„'.PRICE,END FOR CIGAR' ETTES• HERE WE SEE,THAT',BECAUSE`0F THE FIXED TAXES INCLUDED IN THE-CONSUMER PRICE OF CIGARETTES, IT TAKES A LARGE PR1CE 4+'~*., s: }, t....;+,., w. o NA'.ar^.~s a~~:+s: q r.r,.~.urt4 CUT AT THE~'t~A~NUFACTURER CEVEI- T0 SE'KORTH ANYTH 1 NG! 3!0 THE Y~ CONSUMER PRICE : :a? •..,.,.^ x CHANGE E PER PACK 2 16` 91 86 IF MFGR. CUTS-BY 32 . ~.~ 32 -, 15 14 12 34 22 80 66 5% 12% 27% .. . ~~.b&". .. a ~ '=r: C 3

A. HERE.IS AN AVERAGE`1984 BREAKDOWN < A PACK OF C I GAfi£T T PURCHASED LEAF PROCESSING TOTAL TOBACCO F II,TER PAPER, ETC• PACKAGING TOTAL OTHER MAT'L MANUFACTURING LABOR TOTAL DIRECT ADVERTISING ->OVERHEAD/TRANSPORTAI'ION'. ~m W TOTAL INDIRECT TOTAL MFG. COST OPERATING PROFIT PRICE EXCL. FET . a L PER PaC A - 7.3 17 4.0 9 11.3 26 1.6 4 1-3 3 2.6 6 5.5 13 2.8 -2 -.$ 6 19.6 45 7-2 17 1.6 .4 8.8 20 . 28.b 66 14.7 34 ~ .. 43.1 100 yo~ 6wa.~ ,w..k,:...ww +ll~"~rt«~MyS ~ irliW«~WMMY.~rY~kr~i'.awa:^~a _ +w~ w Tluiww~:,HERE "IS NO ITEM ON}THIIST~s'JaNtl4MI~fHICH CAN BE CUT ENOUGH TO GIVE{~ THE CONSUMER A 1OL PER PACK SAVINGS WITHOUT UNDERCUTTING PRODUCT ACCEPTABILITY OR REDUCING PROFIT• ADVERTISING IS THE MOST CCNTROLLABLE ITEM, BUT ELIMINATING ADVERTISING ONLY SAVES 71 A PACK• %0 N

y A-MJ"9io% 4~:s 1 B• PREMIUM SI[_1.L ~ ~ p, % CHANGE OVER THE LAST 10 YEARS, THE INDUSTRY UP-SIDE LEVERAGE WITH ITS AGGRESSIVE ~M~ ' 11 "TH' TES• IF wE ER . GARET E I'S'LEVERAGE ON THE HIGH PRICE SIDE INCI WERE TO INCREASE OUR_PRICE 25%, AND THE,TRADE TOOK THE SAME MARKUP, THE' CONSUMER MIGHT.ONLY SEE At1Ql,INCRE ....,__....... ASE• TRADE MARK' MANUFACTURER CONSUMER PRICE YEAR AVERA aE; 1994 ! .K. ~ a} y ' 43 CONSUMER PRICE MANUFACTURER 15 91 43 100 100 41< 35 34 > 47 BUT, THERE HAVE BEEN NO SIGNIFICANT PREMIUM BRANDS• IF WE INCREASE ~ .; 32 E .32 NAS,,TAKEN.ADVANTAGE OF THIS., PRICING STRATEGY ~ • • l % OF T_oSAI ~. e kn 0 ® w ,. ~o .. P

PAPER PaCKAGING MFG. LABOR ADVERTISihG 1984 MULTIPLIER To _l.__ ADn 18t CosT 7•3 2•5 4•0 4•5 1.5 1.3 13.8 2.6 d, 6.9 2.8 6.4 7.2 2.5 6 CONSUMER BENEFIT ??? , 1~ ~..pr'4... TRANSPORT/1T l OMO~) •t . . . : ,~.~,...,, .. THE KEY AUE".TIOH /4BOLT,,,:PREMIUM , . . .., . ,.. , DESIRABLE ADDED VALUE COULD WE GIVE THE CONSUMER FOR OUR PREMIUM PRICE? CONSIDER, FOR EXAMPLE, A CONSUMEfi PACK PRICE OF $1.15, A 25% PREMIUM. KEEPING SULL PERCENTAGE MARGI!!S FOR OURSELVES AND THE, ,._. , . TRADE, WE COULD ADD 181 TO MANUFACTURi,NG,.COSTS• ,.. . . _ LEAF PROCESSING . FILTER' FOR THESE KINDS OF INVESTMENT IN A PREMIUM PRODUCT, COULD WE GIVE THE CONSUMER 25% MORE? i,

' *k'•k~ idmi^P+41i~u 1' "'A , ISSUE 2:r'` GRO~l1NG ~SMOKER%NONSMOKER DIFFERENCES THE.PSYCHOLOGICAt lMPACT OF SOCIAL ACCEriAt3ILITY AND SMOKING RESTRICTION ON ALL ASPECTS OF SMOKERS' LIVES MAY BE OF KEY IMPORTANCE TO OUR MARKETING- • IN 1984, 47% OF SMOKERS AGREED THAT 'SMOKERS ARE TREATED LIKE SECOND CLASS CITIZEhS TODAY~• • IN THE 1950'5, IT WAS BLACKS WHO WERE FORCEL TO RIDE IN THE BACK OF , 7,HE BUS AND,USE ~SEPARATE FACILITIES«•: IN THE H0'S IT IS SMOKERS- THIS KIND OF PSYCHOLOGICAL PRESSURE MEANS THAT SMOKERS OF ALL AGES •< ~DIFFERENT~• IN MANYd WAYS, ME ' AVERAGE SMOKER~JS N0"[,QHGER THE MUST BE INCREASINGLY AWARE THAT BECAUSE THEY SMOKE THEY ARE . ~AVERACE MERI _AN' OVERALL tiIHDSET• SMOKERS DIF ER NOT ONLY LY IN EDUCATION, BUT IN .~ ,. , .. ":;.,, ~~.. , . ~ ,s,. , . . .,. . ~ , ,THESE° DIFFERENCES IN MINDSET ARE'APPARENT"'TODAY AND CIKELY""Y' OT'~GROM/"."` WIDER IN THE FUTURE• TO ILLUSTRATE SOME OF THE DIFFERENCES BETWEEN SMOKER AND NONSMOKER Ln " 0 1, GAPS~ BETWEEN THE TWO GROUPS. KEYING ON THOSE WHICH ARE NOT A '~ v ... MINDSETS, WE CAN LOOK AT SOME OF THE ATTITUDINAL AND BEHAVIORAL FUNCTION OF AGE OR SEX BUT LIKELY RELFECT A FUNDAMENTAL DIFFERENCE• „"' , . •, ^ fAO , ~ k

I ShiQKERSR ARE~~~IOT4~IgT0:~4~^£' THE PHYSICAL` FITNES TR ND 'PHYSICAI FITN ts` (YANKELOVICH) . SMOKER ACTIVITI S ($IMMONS) - _ _ . .... ., ,*-, ° +a ~ A t,•H9F1~+t~lldFft ~~1 i ',M~«spr"V I~~~ ~ fi p ~? ' P" ~ 4 ^ i~(??in y 14 B SMOKER'NON,t K 'R DIFFERE E , .~V'`.: *. rt ~ , .~u ra,,, s t'. 5 HUNTING MOTORCYCLES HORSEBACK RIDING FISHING CAR RACE/RALLY dw~ NOT: BICYCLING HIKING,- SNOW SKIIING (DOWNHILL) SKIN DIVING RACQUETBALL GOLF w.4~,,...4~ , ., 75 133 127 125 119 ,119 78 , .u. 79 79 84 87 89 W ~O

T'V;rSMQK ~ISSIJ S , ,x1 ? .>SOCIJAL:.I.SSI! ;:"BiSMkE~RL44)!`Jf~~?`~?~1'~~';ti4~„4.t~~3~t ~1QNSMOKER DIFFERENCES PREFER.TO ,~. , SMOKERS ._ VS :~~' TOTAL`"' =' ~AUTHEN,T.1C,SELF~.JYANKEL,OVICH),. FIND. THE INTEREST„1NG. "NEwS",AN: -,-, NATIONAL ENOUIRER TRUE STORY SOAP OPERA IUIGEST xNOT :'*l"NAl°&'Sl`0ttl*Jb`B"RA N.Y. TIMES DAILY U.S. NEWS CONSIDER THEMSELVES IMPULSIVE BUYERS (S) -4W INDEX` SMOKERS PREFER THE-SPONTANEOUS, ,COLQRFUL.' ANQ~ INPRF,jFNI_(_ll_IS•~ 'TOLERANCE FOR CHAOS~ (YANKELOVICH). PLEASURE OK As A GOAL (YANKELOVICH) BUY COMEDY RECORDS (SIMMONS) , k . . WATCH SATURDAY NIGHT LIVE (SIMMONS) LIKE To BE OUTRAGEOUS (SIMMONS) 167 132. 114 125, 1 6 115 137 123 67 86 0 0

~Y t ~q~r a~!~~)P.»s y~~.`k. f w mr+r. s~ t 7,x e; L~Sd~'i'Yd~.Y~~ ~~, .-c. ,.. , ~2:ANll LELILOTHEP ~~7~ ~ ~iHE~,~S Ea;~ i.,.. d4 4 BELIEVE,THERE IS.NO,RIGH,T AND WRONG. ONLY, ~ PERSONAL"CHOICES ~Y) "REJEC'fION OFr AUTHORITIES . . . . ~ .~. _ . . . . . . , . ~ , ...~.~ .,.~'.:... s::.,-' DO NOT CONSIDER THEMSELVES ~VERY RELiGIOUS~ ~ UPPORT FOR "FEMALE CAREERISM" (Y) vy~ 0 DoN';T EVEN READ READER'S`DIGEST, t VEW%LIBERAL" ' ~ SMOKERS~;. I NhEX- .137 TEND TO1. BE; POLITIC,A4LY, LIBERAL ~$): t,.VERY CONSERVATIVE, ~~ " ..`.~ f I$J(. SOM W.HAT CON.SERVATi E ~ {4~~~~~±w~+~~~ ". 5 ~ ~~ ;MIDDLE-OF-THE'ROAD' a. ~~~ .' ,BERA~~~'~~~ ' `. 203r '102 ~~1274, r

7 Sh10KIN I"ISS IES' 1 A- 1 ;,~SOG I ALSy,J SSUE~;S; u KER-NONSMQ J "'A SMOKERS T Nn TO LIVE WITH MORFINTENSITY ~ ..T..~.• •.w..~..~..~_ _ . . ~ . . _ ... . ~ {,~ ~, ~ t _ .i ~~.. ~"~r SLEEP 7 OR LESS HOURS A NIGHT (ROPER 1980) ;.. DRINK COFFEE.(Y) DRINK ALCOHOLIC BEVERAGES , REGULARLY OCCASIONALLY ;LIGHTLY NONE REALLY DISLIKE STANDING IN LINES SMOKERSr UON!7~; D.p.WN f:ASTERMrTHANrMOST- PEOPLE AFTER I'VE BEEN UPSET"• HAVE HAD MORE THAN MY SHARE OF THINGS TO WORRY ABOUT x:e 128 123 233 143 113 48 122 90 119

210KERS TEND TO RF MORF,• nFMAfJDING , I N RElAT I ONSN I PS TNAN S(Qy,SM[1KFRS * TEND TO BE SELECTIVE IN LABELLING TUNE OUT OTHERS IF RELATIONSHIP HAS TOO MANY PROBLEMS/DEMANDS (Y) FEEL AN 1HCREASING NEED FOR SOMEONE TO TELL ME I'M OK (Y) DESCRIBE THEMSELVES AS: STUBBORN (S) DOMINATIN ~S) ,... • L~y, ,~':aJ, MUCH MORE LIKELY TO HAVEfBEEN DIVORCED INDEX SMOKERS YS .•:,1'OTAL ° -129, 130 129 111 156:} O W

I 4 S M 0 K IH ;VI S fi I . ',, ~2•.fSOCIALISSUES 1 ~MOKER'NONSMOKFR QjFFERE,NGES 4' J ,,.,.~.,; ,.>.-.-44, 4k, ~ S j~,t,~~ >. 11 ~~.Selic , srz ,:,, "l;I" 'r, I A a °T`~ a~ ,4,. THEY DON'T THINK.• PORNOGRAPHY SHOPS SHOULD BE CLOSED (S) TOO MUCN.sEx ON TV (S)' CONSIDER THEMSELVES ~SWINGERS` (S) WERE SEXUALLY ACTIVE IN THEIR TEENS (FEMALES USED CONTRACEPT I VES AGE,S., 15'i9,HEN) PREFER LESS "SOCIALLY,REDEEMING" LITERATURE (S) -INDEX SMOKERS VSLTOTAL.' 225 88 89 121 278 READERSHIP OF:

1 I xlq s t,0, `q' OCJA ",~;I S S U E S SMQKFR-NONSMnKFR IIFF}R NC S ~- alr~ sA:R~ •'~1' :,>,;_~. .r r . . µ':.wYlL17~ SMOKERS AREATTIINV D. TO -" OD _ 01 D RAY _ ~. ' 1 s .THEY suY: -,: 60's ROCK TRADITIONAL COUNTRY FoLK MUSIC ` +RETURN TO NATURE" (YANKELOVICH) BUT NOT AS SHOWN IN: .:...~.~~ TOWN 8 COUNTRY COUNTRY LIVING BETTER HOMES 8 GARDENS 157 134 136 112 122 76 /8 87

e ~ SMOK I NC~ I S$!I~`" ~• S~OCIAL~' lSSUES r.: 4 / >1(sJit ;r i'~~, [t SMQKER'NONSMOKER DIFFERFNCES A 4kfi xi¢i a SMOKERS AR~NO___T_.A.TT IN D 0 TH " FRIENTIA! J IFESTYI 1- ~, "TONARD INTANGIBLES" (YANKELOVICH) THEY DON' READ: TK SMQKER'S IDEA OF EXPER[ N.E IS. METHING m ""r.FT i nSTINV 'RESPONSIVENESS-TO FANTASY" (YANKELOVICH) LIKE TO IMAGINE MYSELF DOING SOMETHING I` WOULDN'T DARE DO• BUY ~HEAVY METAL" RECORDS (S) GO TO DISCOS & BARS (Y) SMITHSONIAN NATIONAL GEOGRAPHIC TRAVEI 8 LEISURE FOOD & NINE CUISINE 82 72 84 80 74 81 139 119 139 142 . r

y .~,, ~r~ e yA; Y5M0KIN L5 ISS11U ~ r7* i Cf{ LLU f~ L (] N MOR !1 -AU 4A , Self-Pocu.aed Relatiotuhip Pleaaure ~. ;~.coalq~~ Panta.y Cood Old Days ve• Today Pemale Careeriao 18-20 DUTLOOK TNROUGNOUT LIF . I +8 . .. _ . .. _. . , . . . . . YAA'KELOVICH 1:ET AGREFKE\T. • - Smokera va. Nonaaokera (18+) 0 = 1a-24 vs. 18t- . . , +9 +12 +13 +15 +19 +20 > > > +18 > t-n cs ~ P W

, `~t14~ I~`' I S S t/ ?f r r • THE PRESSURE AGAINST SMOKING AND SMOKERS IS LIKELY TO INCREASE IN TNE LATE',I9$O'S- ` THIS WILL MAKE INDUSTRY AND CORPORATE EFFORTS TO DEFEND THE SMOKERS~' POSITION"EVEt(;`HORE,_RCRITICtAI,a: - FOR BRANDS, EVERY EFFORT SHOULD BE MADE TO MAXIMIZE QUALITY AND.. ELIMINATE ANY PRODUCT NEGATIVES• • THERE IS N0T MUCH LOW SIDE PRICE LEVERAGE IN CIGARETTES• ADDITIONAL SAVINGS,ENTRIES SHOULD BE CONSIDERED ONLY AS AN "' INVESTMENT IN A KEY SMOKER GROUP, E•G•, IF SUCH A BRAND COULD BE MADE,.APPEALING TO-,FU$YAS• ~ ! CONSIDERATION SHOULD BE GIVEN TO A~PREMIUM BRAND'• AN EARLIER STRATEGIC STUDY SUGGESTED THAT THE MARKET MIGHT SUPPORT UP TO 4 SHARE POINTS OF PREMIUM BRAND POTENTIAL IF SUFFTCIENT CONSUMER BENEFITS COULD BE ADDED TO WARRANT A PREMIUM PRICE• WE SAW EARLIER THAT SUCH A PREMIUM BRAND MIGHT HAVE DISPROPORTIONATE APPEAL TO BLACK AND HISPANIC SMOKERS, WHICH ARE OPPORTUNITY MAPI.ETS FOR RJR. ~ 0 0o R.JR ESTABLISHED'BRANDS SHOULD BE"WELL'PREPARED TO REACT TO PERIODS OF HIGH LOCAL OR NATIONAL SAVINGS INTEREST, SINCE THERE WILL BE A GROWING POOL OF 3S'49 SMOKERS WILLING TO ADOPT SAVINGS BRANDS•

e ,4, SMOKERS AND NONSMOKERS DIFFER IN THEIri FUNDAMENTAL VALUES.' ATTITUDES AND;APPROACH,TO LIFE -' THEIR TOTAL MINDSET• GIVEN THE•PRESSURE OF;.SMOK,kNG,ISSUES, IT.IS INCREASINGLY~LIKELY THAT SMOKERS CHQQSE TO BE DIFFERENT FROM NONSMOKERS " IF THEY HAD A STRONG INTEREST IN EMULATING NONSMOKERS, THEY COULD SIMPLY QUIT• YHUS: THE MOST LEVERAGEABLE IMAGERY IN THE CIGARETTE MARKET MAY ARISE FROM THE KEY VALUES AND ATTITUDES WHICH DIFFERENTIATE THE SMOKER MINDSET FROM THAT.OF NONSMOKERS•" RJR SHOULD DEVELOP A CLEAR PASfOE bFARiiIK_BOUT• TH4U I2IFFERENCES AND INCORPORATE THA'f' LEARNING IN ALL OF OUR MARKEIING ACTIVITIES• HAVING CHOSEN'TO BE DIFFERENT, THERE MAY BE A SIGNIFICANT RISK TO MARKETING PROGRAMS WHICH SEEM TO REFLECT finNShQKER MINDSETS• THIS UNDERSCORES OUR NEED TO FULLY UNDERSTAND THE DIFFERENCES• IT ALSO POSES A STRONG NEED FOR RJR TO ALERT ITS MARKETING 4 SUPPLIERS THAT FADS,-TRENDS. ETC="`SEEN°°FOR'TNE`TOTAL U•$• AND EVEN MARKETING APPROACHES USED WITH SUCCESS IN SOME OTHER CATEGORIES AY BE_1RQE VAi{j OR EVEN DJJ IM NTAL TO OUR 9USINESS• yf, .,., ~;~c,~<,,„. ~~; • '~;°=+G1YEN THE" SIMILARITY 'OF`"VALUES AND`ATT,..I"TUDES BETV,EEN SMOKERS OF ALL AGES AND YOUNGER ADULTS, THERE SHOULD BE LESS RISK INVOLVED IN MARKETING PROGRAMS TARGETED TO YOUNGER ADULT SMOKERS THAN IN MANY OTHER PROnUCT CATEGORIES- f O ~