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- TO: Mr. Jerry--R. Moore FROM: Ms. Kay Duffy_,_-_ - SUBJECT: TEE`7AGE SMOitERS (14-17) AND NEW ADULT SMOKERS AND 'QU2TTERS INTRODUCTION This is the third report relating to teenage smokers and new adult smokers and quitters. This report updates the previous reports to include Soring 1980 data. These reports are provided semi-annually, coinciding with the semi-annual release of National Family Opinion, Inc. (NFO) data. for marketing strategy purposes. for product testing and recularly tracl:ing~ adult smoker profiles and switching infor-mation. The data regarding teenagers, new smokers and quitters is a natural by-product of the tracking of adult smxers. No special effort is made to gather this data and it is not to be use: The data analyzed in this report was obtained from NFO Inc. of Toledc Ohio, which maintains a panel of adult constimers for the purpose of __~ cozaucting `co..sur:ter surveys. For the "past ,~;5- years RJR has :u:s,ed..NF.O:: SU:Lt!MLRY OF KEY FINDINGS Below is a summary of key findings based on the analysis of teenage smokers and new adult smokers and quitters. _ RJR's share of teenage smokers has stabilized, with a share of 20.2% in Spring-1980, 19.9% in Fall 1979, and 21.3% in Spring 1979. WINSTON realized a slight increase in share of teenage smokers in Spring 1980 (7.8$) versus Fall 1979 (7.2%). SALEM continued to lose share among teenagers, with 7.5% in Spring 1980 versus 7.9% in Fall 1979. CAMEL, VANTAGE, MORE and NOW all have a relatively low share of teenage smokers, and none are gaining significantly among this age -group.

,` S.:.oki:ic Ar.:one T.e 14-17 Aee Grouo"fAaina (Continued)' - RJR continues to lose share points due to-aging, F which is the natural process of 18 year olds eater.--- ~- ing_the market and 50f•smokers leaving the mar:cet: = lost .14 share points in Spring 1980 ve)f!Lu5-- a,~ loss of .11 share ooints in Fall 1979. P.I_R's _ inc-reasing losses are due to a decl:ining share among. 18 year olds coupled with a relatively stah:= share- -: - amorig_ 5.0 +- smaizr s : - - . P:*Mor.ris' share-of teenage smokers declined sl:chtlv in Spring 1980 versus Fall 1979 (62.6%). The decreas is due to a decline in Marlboro's share among teenagers fr 52.0% in Fall 1979 to 49.9% in Spring 1980. Fiowever; the P. Morris share gains continue.to increase due to the aging process, with a gain of .46 in Spring 1980-versus a gain of .41 in Fall 1979. The increase from 1979 to 1980 - came from brands other than Marlboro (primarily merit), which increased in snare among the 18 year old age group. . P. Lorillard, B&W, American and Liggett & Myers all contin to lose share due to the aging process, primarily due to decreasing shares a.r.ong the 19 year old group ccLpled.with stable or increasing shares among the 50+ age group. - New ABult Sm-okers and Quitte_~ . Males and 18-24.year old smokers continue to be the.raost active groups in terms of starting and quitting smoking. e Fuller flavor low tar smokers quit sno'.{ing.at a somewhat. higher rate than do ultra low tar smokers. Full flavor smokers quit at approximately the same rate as ultra low tar smokers. . RJR broke even in terms of the share effect of new smokers and quitters in Spring 1980. This compares.to a loss of .04 share points in Spring 1979 and in 1976. ' • P. Morris and B&W continue to gain'share due to the effect of new smokers and quitters while American, P: 3.orillard' and Liggett & Myers continue to lose share due't.o new smokers and quitters. _ •v, m a CD Ln

S:fO::FNG AIMO:vG THE Snokir.g behavior of 14-17 year olds is analyzed in order toV, I--improve our ability to forecast trends. It is not-desicned F a- to be used as a tool for develo:ing marketing strateaie* for --, this•age group._ : _ __ - - -- --- Tlie analysis is divided into. three sections: _ . Demographic description of 14-17 year old smokers popu ~ ati~a,_ inc~c3eisce',' r~e 'and vo lume .- -- . Share of each of the six companies and key brands a~lhong-the age gr-oup. oNet effect of aging on the six company's .'ranc:ase and key brand's franchises. TABLE I SUM:-!ARY OF DE:•1OGRAPHIC DATA ``1975 : 1979 1980 1975 ,. 1979 1980 -Males Females Total 8.0 8.3 8.0, 7.7 10.6 17.4 13.1 13.1 . 8 1.4 1.0 1.0 2.8 1.7 1.5 2.7 1.9 1.9 18.9, 19.1 19.1 15.6 16.4 16.3 10.2 6.1 5.6 8.3 6.3 5.9 1.7 1.0 .9 1.4 1.0 1.0 1975 1979 1~ 16.9 16.3 15 17.2 11.9 11 2.9 1'. 9 ? 5.5 3.6 3 17.3 17.7 17 18.3 12.4. 11 3.1 2.0 Sources: Population - U.S. Census Projections Incidence - 1979 HEW estima"tes • T Rate/Day - Adjusted NFO * No new estimates available'for 1980

,it declir.ed slichtl_v between 1979 anc 198 . . This ,' and i979- _ c.c.mpares with a slicht increase in rate per day amona 6-Tult smokers,from-1979 to 1980. . ~ .., ,_ Male teenagers',woZs:rsefis -decreces2.ng at__a raster rate tnan _- female teenag'ers' volurae. From 1979 to 1980, male's volume '` decreased by 8.2% whi?e fe_ale's volume decreased by 6_31. 2. Share of Comoanies and Key Brands Ariong 14-17 Year Old Smokers -, : _ . -, e'ez total cigarette volume deciized Teenace.s.:okers' share'ez from 3.1% in 1975 to 1.9% in 1980. This dec:ine is due- -_ to a decrease in teenage population coupled with a decreaset in smoking incidence~ among teenagers. F- e While rate per day a.-nong 14 - 17 year olds increased beln2nn-x19 Table II illustrates share of companies and key brands among teenagers, and Table III illustrates the percent of volume for teenagers among companies and key brands. TAB LE I I SFr1R. AMONG 14-17 AGE GROUP Share P•mong 14-17 1975 1_979: j 1979 1980 Spring Fall Soring RJR 29.9 WINSTON 12.5 SALEM ~ 10.6 M%IEL NA VANTAGE NA MORE NA NOW NA P. Morris 39.6 Marlboro 36.1 Merit NA B&H NA Virginia Slims -NA American 1.2 Carlton NA -P. Lorillard 7.3 Newport - 4.3 Kent* • NA Liggett •& Myers 1.3 21.3 ~9~ ~b. ~ 8.3 7.2. 7.8 10.6 7.9 7.5 1.2 2.4 2.2 1.0 1.9 1.8 .1 .3 .2 . 1 . 1 . 3 58.8 62.6 61.5 51.6 52.0 49.9 2.1 2.8 3.8 2.6 2.8 •. 2.2 1.7 - 2.3 1.4 .3 -.8 .1 .1 8.8 5.2 6.4 4.2 9.7 11.1 7.6 8-.9 1.2 1.0 Source: NFO Estimates ti includes Kent, Kent III, ~ - --- ~,,r 5.9 4.9

1975 TA3L.L ZII. - ~ n .. ^ , , . . - . , , . .. y; ,: ,. " ~. , . . . . , ~ .. . - . 14-17' AGE GROUP ESM-L3TED PERCEIT OF TOTAL INDUST Y VOLt3Z-LE % Of Total Spring 1979 J4 . . .., . . . - '. _ .~. --•'- ~ =--7 '~.~X .. , ~V ~z•~~-•~~~~ .s ~ - ~ ...~ © • i 'j• W RJR _ WINSTON SALEA2 CAi•IEL ~ ~ VANT-AGE __ MORE NOW American Carlton P. Morris Marlboro Merit B&H Virainia Slims 1.25 1.14 NA NA NA .04 NA .70 .18 =t63 .13 .23 .14 NA .04 3.14 1.18 1.03 .04 .05 .03 .01 * .19 .15 .02 .02 2.00 * Less than .01 Industry 1.25 1.04 .06 .06 .05 .02 * il .08. .22 .18 .02 .00 2.00 1980 1.19 .97 .07 .04 .03 .01 # .00 1.94 Source: Estimates based on number of teeriage smokers, rate per day and share of smokers. W ~

. RJR's share of teenage smokers has stabilized, with a sharet p c 1I, Spring 1979. %,;._of 20.2% in Spring 1980, 19.9% in Fall 1979, and 2-1.3% in ~ -•wiNSTCN'-S share`o•_` teenage smokers increased slid ht1y"_ ,in--Spring 1980 (7.8%), versus a decline from Soring (1.2% to 2.4%). - stable share of 10.6% in both Spring 1979 and 1975. SALEM'S share of teenage smokers declined in both Sprz:Tg 1980', (7.5%) and Fall 1979 (7.9$) , versus a `" increase indicates a-sieni-frcant trend. 1979 (8.3$3 -to Fall 1979 (7.2%). rlnother- reoo-rting - period is necessary-to determine whether WINSTON'S - C?_MEL'S share of teenage smokers leveled out in Spring 1980 (2.2%) after doubling between Saring and Fall 1979 this group. - VANTAGE, MOR : and NOW all have a low share of the teenage market, and none ac=ear to be gaining significantly among • Sprin, 1980 (61.5%) versus Fall 1979 (62.6$) . P. Morris' share o= teenage smokers declined slightly in -_P:--Morris` decl:ine in~share o~ teenage 's,":okers,_is.. due to Marlboro, which declined in share from 52.0% in Fall, 1979 to 49.9% in Spri.ng 1980. Another reporting period is necessary to determine whether this is a significant, trend. w CD -4 Jr. - Merit has been slowly gaining in share ar..ong 14-17 year olds, with 3.8% in Spring 1980, 2.8% in Fall 1979, and ` 2.1% in Spring 1979. B&H and Virginia Slims have relatively small, stable shares of teenage smokers, with 2.2% and 1.4%, respectively, in Spring 1980. . P. Lorillard continues to gain slightly a_-aong.teenage smokers with 11.2% of the market in Spring 19"0 versus 11.1% in Fall 1979 and 9.7% in Spring 1979. Newport is among the fastest growing brands in this age group, with. 9.4% of teenage smoker in Spring 1980 versus 8.9% in Fall 1979. Kent's share of• teenage smokers is stable,. with only 1.2% of 14-17 year old smokers in Spring 1980. . B&;Vs share of teenage smokers increased slightly in.Spring 1 (5.9%), verzus a steady decline from 1975 (22.0%) to Fall 197 (5.2%). The increase isattributable to Kool, whose share - increased in Spring 1980 (4.9%) versus Fall 1979 (4.2%). -::_;'-''1980, Liggett & Myers accounted for only .1% of teenage smoke teenage smokers and are unimportant.factors in this+market'.' Spring 1980, American accoanted for .6% of teenage smokers, w Cariton having only .1% of 14-17 year old smokers. In Spzing s Americ3n and Liggett & Myers are continuing to lose share am~o. w~~;-r,r'.,.~;.~

~Franchise aging is the natura3l process of younc adult- smokers r ~(18 year olds) entering the smoking gopulation, and o'!dar _sro.ke__-s (50+) leaving the snokina population. This analysis-addrts-sses- _ ~ the efZ~e~ct of- this o`rocess on each of -the six cor..: an*`_esJar,,01 - key- brands.•- Table IV illustrates share of 18 and 50+ year olds bv cc.;.Pany'' _ ° and key brands,t a_nd Tab1.e-V 331u~trafes the net ef=ec~ of aging ~~ by company and key brands. TABLE IV SHARE AMONG 18 AND 50+ YEAR OLDS Share Among 18 Share Soring Fall Spring Spr.ng 1975 1979 1979 1980 1975 1979 RJR WINSTON SALE:4 CA•IEL VANTAGE MO~•'-". NOW 28.0 25.0 23.6 22.0 33.3 12.8 9.2 8.2 8.2 11.2 10.5 11.4 10.2 8.3 8.1'. NA 2.3 2. 4 2.. 4 NA NA 1.5 1.9 .2-.2- NA ' NA . 2 . 3 . 3 NA NA .1 0 .2 NA P. Morris 44.0 Marlboro 34.6 merit NA B&H NA Virc='nia S1i:as NA 52.0 54.9 57.9 15.3 41.2 42.1 41.8 5.0 1.6 2.6 3.6 NA 2.5 2.6 _ 2.2 NA 1.3 2.2. 1.3 NA .5 .9 1.0 17.7 :1 .1 .1 . NA 11.1 ' 9.6 8.8 12.5 8.7 7.9 7.2 4.2 10.5* 10.7 10.1 12.3 9.0 8.0 8.0 .6 1.3- 1.0 1.1 NA .7 .3 .2 7.5 33.3 32.6 33.4 9.6 9.8 9.1 9.3 8.4 8.5 6. 0., ... . 6- 3. .. 6,0 •3.3, 3:~1 4.2 . _ 2.9 `::-_ . 3. 0 . 2 . 3 •.8 .8 1.3 15.7 16.5 16.8 3.8 4.9 5.1 3.2• 3.2 3.4 4.4 4.7 4.4 .9 .9 .7 17.9 17.3 17.0 4.2 4.6 4.6 12.3 12.6 12.5 v 3.8 3.9 4 1 E 12.9 14.0 . 13.8 a Al~ v .3 .3 4 w 9.0 9.1 . 9.0 a 1~ 6.6 5.9 5.4 v:

RJR ~ WINSTON SALE-H CaMEL VAN?'AG E MORE NOW ~ P. Morris Marlboro Merit B&H m :t`7irgiziA- Slims Anerica.z Carlton -.03 +.04 B&W +.06 Kool +.20 P. LorilZard -.03 Newmort Kent +.03 NA Liggett & Myers -.06 Chance Fall* Spring* 1979 1980 -.04 -.05 +.03 =.+.02 -.01 -.02 -.03 +.10 +.08 +.09 -.08 -.08 -.09 -.06 ' -.08 --.06 Source: Estimates calculated based on rate per day and share of_ smokers. * These share points are annualized; that is, they represent the share gains/losses that would be realized for an entire year based on the NFO data for_the reporting pericd. =.06 -.10 -.11 -.14- .00 -.02 -.03 -.02 +.04 +.03 +.02 .00 -rrA -.04 -.04 -.04 NA • -.02 -.02 -.02 NA -.03 -.03 -.03 NA -.01 -.01 -.01 +.40 +.40 +.42 +.46 40 +.41 +.41 +.41 + . NA -.02 -.01 .00 NA -.02 -.02 -.03 NA __ .00~: +.01 .00 -.22 -.19' f -.18, -.18 NA -.04 -.05 -.05

Kev Findir.cs: If Dresent trends remain the sa,:.e,, RJR will continue to lose share at a slightly increasing rate due to thL- aging . P. Morris is the only company to realize share gains due to the aging process. P. Morris gained .46 share points in Sprinc 1980, .42 in Fall 1979 and .40 in Spring 1979. amoag 50+ s-okers coupled with a relatively stable share ~- among 18 year old smokers. The growth of other P. Morris brands a.:.ong 18 year olds, particularly Merit, is allowing P. tiorris to continue to gain from the aging process. Merit's share of 18 year old smokers has steadily increased, with 3.6% in Spring 1980 versus 2.6% in Fall 1979 and 1.6% in Spring 1980. . American has the largest loss of share points of any company, with a loss of .18 in Spring 1980.. Its losses are due to a c: E C X. c E, c very high share of 50+ smokers (17.0?s in Spring•:1980) coupled with a very low share of 18 year old smokers (1.0% in Spring 1980). Carlton accounts for about one-third of American's losses, with a loss of .05 share points'in Spring 1987I. ' . B&W and P. Lorillard are both losing share at a slightly increas ing rate due to the.aging process. = RJR ccntinues to lose share points due to_agir.g, with a loss of .14 in Spring 1980 versus a loss of .11_in Fall ~-: 1979 and .10 in S:.ring 1979. -' RJB's increasing losses are due to a dec?inir.,_share - -E.mong 18"-year olds coupled with a relatively-sta3le share a*nong 50+ smokers. - Spring 1980, SALEM was the only RJR brand not - As of to realize losses due to aging (it broke even). How- - - ever, if SALE.Ws p,3~esent trend of declining share among 18 year olds continues, it will also be losing share- in the near future due to the aging process. Most of P. t•Sorris gains in share due to aging cc-e frcm Marlboro. Hcwever, Marlboro's gains have stabi_:zed, with a cain of .41 in Soring 1979, Fall 1979 and Spring 1980. ~ riarlboro's cains have stabilized due to an increasing shar:e-.: B&W lost .05 share points in Spring 1980 versus ..q4 in Fall- 1979 and .03 in Spring 1979. Its increasing losses are •. ' prinarily due to Kool, which has been realizing smallzr gains due to aging (it gained .02 share points in Spring 1980 versu: .03 in Fall 1979). Kool continues to lose share-aa;ong 18 `. year o~d smokers while gaining sha: e among 50+ smoJcars, ~ :_.. :...~-

Kev:indincs: (Continued) ~.- _ . . - - - - - - ' lost .03 share points in Spri::g 198ft' ye.~sus p. Loritlard .02 in Fall__1979 and .01 in Spring 1979, primari?y due to decreaszs-in share- among 18 year olds. Kent is responsible for much of P. Lorillard's share losses, with a loss of t09_ share aoin-ts--in-Sprinq 1:98Q` Newport remains =elatively stab3.e in its share gains due to aging, with an increase in. share of -09-in Spring 198a, .08 in Fall 1979, and .10'in Soring 19-79. - ' . Liggett &:iyers has remained stable in its losses due to aging. It lost .06 share points in Spring 1980, .08 in Fall I979,-and .06 in Spring 1979. Its share losses are attributed to a relatively low share of 50+ smokers (5.4% in Spring 1950) -couo?e with a very low share of 18 year old smokers (.2% in Spring 198C