SEC Ft~.
-rxICKY STRlyr. - PRICF POSITIO.N-
pRIcE POSITTONING:
From both short and long term perspectives, LUCKY
STRIKE 1-5
the Group's best and most prooising UST-B
contender versus
Marlboro in the young adult male smoker segment.
As the
brand grows and is launched in Zara markets (i.e.,
becomes
established as a truly global brand), key elements
of the
brand offering are constantly evaluated and
improved,
including: Product, pacy-aging, style portfolio,
creative
and pricing.
From an bittorical perspective, the LUCKY STRIKE
price
strategy of being "one or two price points below
Marlboro"
provided a key point of difference for the brand
versus
Marlboro. The success of the brand at a lower
price point
in lead markets such as Spain, singap*re and
Panama
confirmed the validity of this strategy.
At present, pricing across markets is not
consistent; It
ranges from being at parity price with Marlboro to
being
belov Marlboro price. Relative price versus
Marlboro also
!aries within the markets in every region ta
"arket SummarY
Is attached).
The purpose of this document is to review current
thinking
regarding the optimal price position for LUCKY
STRIKE vis a
vis Marlboro.
CONCUTSIONS:
-in mostuarkets LUCXY STRIKE should be positioned
at
price parity with Marlboro it it is to achieve its
maximum, long term potential as the leading global
USIB
for young adult male smokers.
-Strategies and timetables for implementing price
increases should be developed on &-market by
market basis
due to significant differences between markets In
current
price positions, franchise and target profiles,
stage of
brand development and market dynamics.
1991 PRICING sTRATRGY:
"Retail price can be one or two price points below
Marlboro but is to be in the next significant
price
category immediately below Marlboro. in cases
where
low price positioning can have a detrimental
effect
on the image, parity pricing with Marlboro should
be
utilized.*
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BAT IndustrieS document for Province of BritiSh
Wunlbia 25 October 1999


1991 PRICTNG STRATEGY. cont.:
The iggi pricing strategy is a modification Of the
historical price strategy which simply stated*
-Retail price is normally one or two price points
below Marlboro."
The 1991 strategy language reflects the Group's
directive
to bring LUCKY STRIKE's retail price more in line
with that
of Marlboro, and to position the brand as a major
USIB
competitor and presence in the global market,
i.e., a brand
that in all respects is capable of usurping
Marlboro's
leadership role among young adult male smokers.
In addition, the 1991 language recognizes that in
many
markets, USIB product price is an imagery element
which
supports attributes of U.S. origin or U.S.
heritage, high
product quality and smoker status.
PRICING ANAT-YSIS FINDINGS:
A comprehensive pricing analysis was conducted in
1990 to
determine if a relationship existed between the
relative
price of LUCKY STRIKE versus Marlboro and the
level of
brand success in any given market.
The analysis did not identify 6ny generalized
formula for
optimal price positioning, but it did yield the
following
general conclusions:
h LUCKY STRIKE price point lower than that of
Marlboro aDneAra to Arive SON orowth In markets
where:
- LUCKY STRIKE price is at an index of
80 or less versus Marlboro.
- Relative consumer income (measured via
per capita GDP) is lower.
- Rate of population growth is higher.
A LUCKY STRIKE price point lower than that of
Marlboro does not annear to sianificant1v drive
SOX
crgvl-h in markets where-,
- LUCKY STRIKE price indexes 93-99
versus Marlboro.
- Relative consumer income is higher.
Rate of population growth is lower.
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BAT Industries document for Province Of BritiSh
COIurnbia 25 October 1999


SOURCE OF BUSINESS:
The market review that was undertaken in the
pricing
analysis indicated that the current source of
business (as
well as target audience) for LUCKY STRIKE appears
to vary
significantly on a market by market basis.
- Relativelv Downscale
Directionally, the current franchise in those low
price
markets in which the price differential of LUCKY
STRIKE
versus Marlboro was 20%-or greater appears to
consist of a
smoker group with a lower socio-economic profile
(e.g.,
Panama, Malaysia, Indonesia, Singapore, Israel and
Spain).
LUCKY STRIKEt at a much lower price, provides the
lower income consumer with a significant enough
savings versus Marlboro to either: Encourage
uptrading to LOCRY STRIKE (rather than to
Marlboro)
from local brands; or, to encourage downtrading to
LUCKY STRIKE from Marlboro.
on Judgement, the overall LUCKY STRIKE proposition
(USIB, product, packaging and imagery) is
attractive
and strong enough to allow lower income smokers to
trade off the relative status gained from
purchasing
a premium priced brand (Marlboro) for meaningful
price savings.
Conversely, due to its low price position in these
markets, LUCKY STRIKE may not be an attractive
alternative to Marlboro among more upscale smokers
who are willing to pay premium prices for reasons
of
status.
Relativelv UDSCale
Per capita income levels in Western Europe are
much higher
than in most other markets. In general, cigarette
prices
are high, and the absolute difference between
price tiers
does not permit LUCKY STRIKE to be priced at a
level
significantly lower than Marlboro. LUCKY STRIKE is
priced
at parity to Marlboro in two Scandinavian markets.
RRP Index: TA vs Marlboro
- Norway 100 - Germany 95 "tck
- Denmark 100 - Belgium 94 U_j L.(--
- Italy 97 Switzerland 941
- France 97 Netherlands 89
-(American Tob.) -(Based on unit cost of
LS 25's vs Marl 201s)
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BAT Industries document for Province of British
COIUMbia 25 October 1999


-4-
SOURCE OF BUSINRSS. cont. -
- Relativelv lUDscale
The Western European young adult male smoker
target audience
is likely to be more affluent and more
sophisticated. The
success of Marlboro in this region also indicates
that a
substantial pool of those smokers is willing to
pay a premium
price for a USIB.
In Japan, LUCKY STRIKX has had success with a
price at parity
with the leading USIB, Lark, and at a premium
(until may,
1991) with Marlboro. It is interesting to note
that Marlboro
shows signs of growing in Japan, and that .7TI has
now raised
its price from 240 to 250 yen, at parity WWI LUCKY
STRIKE.
On judgement, in markets where the target audience
ismore
upscale; is relatively more sophisticated; and is
willing to
pay a premium price for a USIB, the marginally
lower price of
LUCKY STRIKE may be a factor in limiting the
brand's growth.
This lower price.may create a consumer perception
that the
brand has a lower level of status than Marlboro
and is
inferior to Marlboro in terms of product quality.
PrCOMYPRDATION:
If LUCKY STRIKE is to ultimately become the most
viable,, long
term challenger to Marlboro among the largest pool
of USIB
smokers, i.e., those willing to pay a prezius
price for a
TJSIB, LUCKY STRIKE price should be brought to
parity with
that of Marlboro.
Increasing LUCKY STRIIM price to a parity position
with
Marlboro entails, however, an element of risk;
higher in some
markets than in others.
- T-w Risk Markets
New markets in which the brand is to be launched,
such as
Denmark, Hong Kong, Guatemala, Venezuela and
Saudi.
- On judgement, this approach requires that a
longer
term perspective be taken in terms of rate of
brand
growth, investment, etc.
- Since the historical "lower price" point of
difference
is eliminated, -market strategy changes.
- From: Encouraging up-trading from lower priced
local brands.
- To: Encouraging switching from other premium
priced USIB's or high priced local brands.
CD
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BAT IndustrieS document for Province of BritiSh
Columbia 25 October 1999


RFCOMDMNDATION. cont.:
- Medi- Risk Markets
Markets with the following characteristics:
- The brand is currently small; volume and SOM
growth is
relatively low or stagnant.
- Current pricing is already close to that of
Marlboro.
Price differential versus Marlboro is 10% or less;
or,
the brand is only one significant price point
below
Marlboro.
- A simulated test market conducted in 1991 for
LUCKY STRIKE 200s by BAT Nederland indicated that
the 20's at parity pricing with Marlboro (3.85)
had greater potential than did a 20's priced
lower than Marlboro (3.50, or, at a 91 index).
- Includes Western European markets (less Spain),
0-hile,
Iceland, Israel.
- Hich Risk Markets
Markets with the following characteristics:
- The brand, at a lower price point, is well
established
and/or is growing.
- current pricing is significantly lower than
Marlboro.
Price differential versus Marlboro is 15% or more;
or,
the brand is positioned two significant price
points
below Marlboro.
- The franchise tends to be composed primarily of
people
from the lower socio-economic strata.
- Includes Spain, Singapore, China, Malaysia,
Panama,
Indonesia and Paraguay.
HIGH RISK VXPVRIrNCV:
Experience in Israel has shown that an increase in
price,
although having longer term benefits, can have a
serious and
immediate impact on brand performance.
CD
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BAT IndustrieS document for Province of BritiSh
ColUmbia 25 October 1999


-6-
HIGH RISK EXPFRIENCE. cant.:
Although the change in pricing was not the only
factor
involved in the decline experienced in Israel, it
is, on
judgement, the significant factor.
- Prior to the price increase in 1989, the brand
was a
very low priced product. As such, it was perceived
to
be a low quality brand that was smoked by people
at
the lower levels of the socio-economic spectrum.
- Sourcing of the *product was changed from Cyprus
to
Macon to improve the product and the price was
raised
to improve positioning.
RSP (NIS)
Im 10/89
- LUCKY STRIKE 1.80 2.50
- Marlboro 2.80 2.90
Index Vs Marlboro 64 86
- Volume decreased from 47.3MM units in 1989 to
0.7MK LA-".
units in 1990.
- The now price (although still well below
Marlboro)
placed the brand beyond the means of its
traditional
franchise, who then defected to other lower price
brands. This loss, however, was not offset by
inflows
from suckers downtrading from higher priced
USIB's.
The lesson learned from the Israel price increase
is that in
established and successful low price markets, both
the
strategy and timetable for increasing LUCKY STRIKE
pricing
should be based upon prior consumer research and,
where
possible, test market, experience.
PFrMIUM PRICING VEPIqUS MART-BORO:
Consideration has been given to p ricing the brand
at a
premium to Marlboro. At present, this strategy is
not
recommended. Once the brand has proven product
superiority
to Marlboro and SOM levels are significant, this
potential
approach should be reevaluated.
NJ
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BAT Industries document for Province Of British
COIUMbia 25 October 1999


TZICKY STRITP PRTCP VrRqUS MAIZT.RnRO
IMY MARM SUMMARY
Source: BWIT Region Survey
April, 1991
N-)
N.)
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13 AT Industries document for Province of British
Columbia 25 October 1999


LUCKY STRIKE PRICING REVIEW
MARKETS BY ASC ENDING PRICE DIFFERENTIAL VERSUS
MARLBORO
RETAIL SELLING PRICE j X POINTS
P
INDEK LUU(Y
INDEX
ELOW
S
I
RANGE STRIKE
I MARL
MARLBORO VS MARLBORO
100 - 10G+
JAPAN 250 250 100
1 PARITY
HONG KONG 24 24 .100 PARITY
MACAU 9.00 9.00 100 PARITY
NORWAY 33.80 33.80 100 PARITY
DENMARK 27.75 27.75 100 PARITY
VENEZUELA* 36 36 100 PARITY
95-99
ITALY 3.250 3,350 97 ONE
FRANCE 10.00 10.30 97 ONE
CHILE 370 380 97 ONE
GERMANY 4.00 4.20 95 ONE
90-94
BELGIUM
74
1
1
79
1 941 ONE
SWITZERLAND 2.9
0 3.1
0 94 ONE
85-89
NETHERLANDS- 0.17 0.19 89 ONE
ISRAEL 3.85 4.45 87 ONE
COSTA RICA 100 115 87 ONE
EL SALVADOR* 5.10 5.95 86 ONE
SINGAPORE 3.00 3.50 86 TWO
ICELAND- 179 208 86 ONE
80-84
PRC 4.50 5.40 83 2-3
MALAYSIA 2.30 z8o 82 TWO
PANAMA 0.80 1.00 so TWO
GREECE 230 270 85 ONE
75-79
INDONESIA 9D0 1,1501 781 TWO
PARAGUAY Boo 1,000 so TWO
B FLOW 75
SPAIN
1 S
0 205 73 TWO
LEELANON 299 475
1 63
1 TWO
SYRIA 18
00 28.50 63 TWO
Brand In Development: Not Yet Launched
Unit Price (LS 25*s vs Mart 20*s)
Marlboro Not In Market; index Vs Winston & Camel
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BAT Industries document for Province of British
Columbia 25 October 1999