·aAS BRITISH·A~4ERICAN TOBACCO COMPANY LTD d m:sk~ oT~br 6~~~T ta~u~rrir Grog R~larCOlfi;c: PO Bor:6:\fc~rmi:: Houre IlillbMi LJn SUilr JIE PLH~RJZ Teltrhonc: ol·::: i?:: Tr~~::'1SJ B~TTOB G hsmile SO: 01·!t! 36!9 ~~etober 1989 Group asseereh ad DFlslapmsnt esntn, BAIPKE, Swthamptor~~ Deer Taj, I enclose a set of the overheads that ~cec~panied oy talk at the BIPIO~ elear~, they m:st be used very earefully and leleetivsl~ st a Inrketin~ meeting at c~is level. We sheld ~isaa them wben you haM them Isfom p. Please RiU~I1 them to me when yw have !inlshed with BPm~ PLaao note ~ar.~ae are le~o~ eheagss in t~~ note and I have removed the slide where this no longer appll~P~ Itlth kind tegEh, Yours sincerely, R,L~ iIiRRD ENCS~ 0\ · 03 C: I i I; PDF -!::!!::!!::!.f3 StlC.i: 0111 F,trategies for Product Innovation XI:l Heard , The cigarette business is clearlY in need of Product Innovation if its classical product life is to Se extended, Whilst minor innovations such as new brands (based on imagery rather than product) or on minor ,, product changes Idoliveries, f!nours, physical di~nsims) can influence market share, they do not address the fundamental issues facing'the smoker · or those who influence the smoker, In 1~85, I shared my simple view of the rwketingltecCnieal challenge facing the ilstry, ~ that ~s~, I identified 'lolr C~rouod' as the area that should be addressed by the Rm function of our eroup, I was referring to the ever-growing sector of '~it~cers' ct 'reducers'~ I still believe that, to at least arrest the decline of use of our prd~ct, we must consider major product Tnnovationr, Eowever, we must see the product frwn the eyes of consumers and ragulators~ We have to respond to their perceptions of cigarettes and s~noWPp ad approval by re~latary authorities is mandatory in several countries, nor9ly aurope ~ Echoing the abjective of ITI115 project I or 1986, we need to create products that are perceived to he improved by thess who :riticipe our current pgoductsl Clit; PDF -!::!!::!!::!.f3 StlC.i: 0111 ·2· Whe are these perceptions' BaeeC an the sta:enents of Regulatory Skes pr on the growing mass of consumer data now being gathered on 3W 3roduet, it is poss~ble to sunmari,oe as follows, Cigarettes are per:eiveb as pleasurable and satisfying but also as unhealthy, socially uoaoceptabie, "addictive" and pxpensfve~ The negl;ive perceptions, once predominant In :he developed world of North kae:ica and ~rope, are now more widely bid, as antl·maeking factions cain g:aund, If we are to respond we need ~3 identify those characteristics of bur product that are prce!ve~ by reg:l~torsjcbllsumers as 'negative', and reposition t~e~, when Possfble I Clit; PDF -!::!!::!!::!.f3 StlC.i: 0111 -3- Concern By whom Attrib~ed tcr Tar Public Nicotine Iless often) Health Perceptions Tar Peculators Mher Noxa Nicotine Nicotine (~:e~ominantly) "Addictiot" ~ereeptioas All S~oLkin~ ges:~res per se Social Perceptions Public Health (ETS) Smoke Peculators Smoke Components Nuisance (ETS) irritants, C~3U:. Public fcnainF ~o~snents Nuisance (mess) Butts, ~sh Q Pul,lic W Clit; PDF -!::!!::!!::!.f3 StlC.i: 0111 The'w'ay Forward We need Product Innovations that address regulatory concerns and which achieve worthwhile improvements in the view of key re~lators, I ! Despite the fact that I(eguktcrs hold generally negative views on cigarettes and score have identified the factors of cigarette design that they consider to be 'at fault', there Is a general tendency for Regc!dtan to claim ciuite simply that 'smoking is bad' and not enter into positive discussions on how features of the product might be 'imr:reved' in a product sense, The challenge is as much in the direction of encouraging regulators to enter a dialogue on Product madifkation as in actually achieving modifications technically, We need to identify how t~~s can be done internationally, What lessens can we learn from previous attempts at product modiiicatioolinnovation in our industryl RJR philosophy with Premier was to go for the 'wonder solution' - the product wit", no negative perceptions laltha~gh they could only colrprmnicate the smoke-free characteristics), Favor, by Advanced Tobacco Products, was even more extrele~ 'Tt sought to deliver nicotine and flavours 5~: no aerosol whatsoever , Clit; PDF -!::!!::!!::!.f3 StlC.i: 0111 -5· ~he failure of both of these radical product innovations provides some Lapoltant lesJons for B~~ FirPriy, the products failed tJ deliver the pre-replisite of any iILlovatory cigarettes · a satisfyin~ srr~ke in terms of taste, flavour ad other organoleptics~ Sec6ndly, the products were seen as mechanical devices · embarrassing to use and difficult to dispose of~ ~irdly, in trying to teach too far these products were challenged on the grounds that they are not cigarettes, according to accepted defiebtiP1. ~espite the failure of Premle:, the product development and performance characteristics were shared with the seientifc comnunity and there is little dou~t that PJii's atturqt to rackle the issues was very well performed in a scientific sense, and resulted, for example, in a product with ver! low biological aetivitY~ Furthermore, without resort to such extreme designs as Premier or Pa~tcl, there is little hope of cigarette technologp achieving smokeable products with data close to those of Premier, The overall conclusion of t~e Premier land Favor) experience is that: attempts to make major inroads into the negative perceptions: II necessitate eom~lete!g new technology, 2, load to radically different products that do not meet consumer basic requirements for a cigarette, Clit; PDF -!::!!::!!::!.f3 StlC.i: 0111 ·6· 3~ lead to products that risk definition of no: being a cigarette, i, draw too much ;nedj,alrepulatory reaction at an early stage, Premier and Favor are probably the mast extreme of cigarette i ? innovations. Their ccemnan characteristic was that they sought to address all se principal negatives, with the exception of the perception of "addicticn"· BY contrast, such products as 'Vantage Excel' and 'Che:sea' have more modest targets, vie, sidestream reduction and sidestream aroma respecively~ More generally, the gradual reduction of tar and nicotine deliveries has been the norm for cigarette develapnent, meeting consumer reguirenenta, but often affee~ed by publicity given to the views of regulata:s~ In each of these examples the innovators have not only limited the number of issues addressed but have taken an incremental approach to limproving' key dimensions of the grod~ct~ They have also retained the conventional form of a cigarette in these ~nnovatiDns~ Degi;e these relatively limited horizons, the success of most of these innovations has been mades-~~ iou delivery products have had the greatest success largely because of the regulatory baeking~ Sidesaea~n·reducing products fail mainly because of inferior performance jtaste, ash) bur perhaps because they offer insufficient benefit. NSM and the other tobacco surs:itutes failed totally - they addressed the specific perceived negative of biological activity but failed to win both the regulatory support Iwhie~ was essential in view of heir huge public profilel and eons~mer~intexest· me consumer needed some reassurance to switch to a chemically-treated product, C" Clit; PDF -!::!!::!!::!.f3 StlC.i: 0111 ·'I· The message is seen to be: i, FollaJ regulatory directions and seek regulatory support, 2, Go for worthwhile bllt stepwise f~provemant. 3, Avoid overtly technological: ptoduet~ 4, Beeognise Ulat no cqro~ise on current standards on acceptability o~ smoke will be tolerated by cono~ersl Clit; PDF -!::!!::!!::!.f3 StlC.i: 0111 .g. A possible Stratecv for Alterna:ive products Assume: 1~ A product offering a response to the perceived negative aspects of I i aoking (S&H, social, etc~l will significantly alter the decline in cigarette consrrmption~ 2,.A product offering the characteristics of Premier lultra law tar, biological activity and sidestream] is needed but the technological approaches available are unacceptable, 3, Over the next ten years it may be that new tech3ology emerges enabling traditional positive diaractktist?es to be retained in a Pteff~ier type productl In the meantime our Strategy should be: we should follow product modification directions implied to date in the various regulatory publications and reflecting consumer attitudes determined by research, iii) Ye should involve selected regulatory bodies In our Ideas for product modification and in our progress towards targets, (iii) A plan to promote the positive aspects of nicotine and to challenge any negative perception (fncluUJg addiction) should be considered, dependent on the results of further researchl O Clit; PDF -!::!!::!!::!.f3 StlC.i: 0111 .0. (iv) Specifically, we can expec::o achieve: (a) tar reduction at normal nieorine~ (bJ tar quality improvement land reduction in biological activity), I , (C) reduction of 'other nora', (d) reduction of sidestream yield and irrlta:!or,~ (e) reduction of CO, although working within traditional formats of cigarette construction and smoking styles, (V) Targer reductions for these parameters should be agreed against set tlmescalesl (vi) Nicotine reduction per se (cf, Next) should be discounted as a major route for development - the "ad8ict~on" arguments are contentious and to respond through nicotine reduction would be:o remove the pleasurable and taste characteristics of smoking, IIf Next shows that a small segment of the marker will settle for such a'producr, we have a technological base to ccmrplete · but the opportunig will be small.) (vif) We should aim to introduce modified products in stages: (a) to prevent unacceptably abrupt changed in taste, etc,, character , Clit; PDF -!::!!::!!::!.f3 StlC.i: 0111 ·10· I;) to prevent focussing media interest hiPly an such aodifieatioas , to allow market response to be clearly assessed · so often concept response is not matched by product response ~ (viii) ~ Since no compromise on taste, etc,, will he made by the csnscaer, any product modification should meet acceptable standards without any disclosure of so called technical Senefits I In practice, we are tackling, through Project OreenZat, Day and Nova, ?ract'cally all the product modifications in?lfed or reccaclended in paat:epats of Regulatory Bodies, We are also asscbbl!og the :eeh:s!igies t~ar underpin our product response to consumer enncems, ;~ sL~Pe diaFrammatic form, Pig~ 1 shows the eoolc:!or, of products from Sreendo: I·III and including elements c~ Day :? Nova, we neu need :3 ensure eo·ctdination of these projects and to develop a dialogue with selected regulatory bodies, ALHI~JZ h O October 1999 O Clit; PDF -!::!!::!!::!.f3 StlC.i: 0111 e O 0D oO O O 00 O cO oO06O P 3 c a o N A M t O k Bw B I~ / / JX I/ / H A' /IZ I~ I~3 ///A d d I' / / 3 v /, O o ri/ P 1/// , d 3 o I~ % I /~ r/ r k O i I , O i'/llP ~X ii ly /.13 I'H A' ~ I~ a lI r/ /L~L~14lt O bm~ r n c~ d S " d k a 3 O~lh UOIP O m o Pf ClibPDF - v~~fastio.soni RJR QUO~P~IIONS ON "PREMIER" SEPTEMBER 1989 I. "Our commitment to product i developmen! is substantial, and we intend~to continue developing I : .. .new technologies that will better.meet consumer,,,..;, demands and we will fully.address the issues raised: : -' in the test markets, '1he best thing we learned was that smokers`are, indeed, interested in new products that address the · social pressures that smokers face on a daily basis, "Our test showed that smokers showed a great deal ' of interest in such attributes of Premieres its virtual elimination of sidestream smoke, its elimination of loose ash, and its mainstream smoke that dissipates quickly when exhaled," "The worst thing we learned was that some fervent anti·smokers are willing to go to any lengthsand use any means to discredit new, technologically based alternatives that address the desires and emerging desires of today's smokers · this even when the new products go far in addressing re veni criticisms these anti·smokers have made about cigarettes currently on the market," Clit; PDF -!::!!::!!::!.f3 StlC.i: 0111 C-~q IMCE MO COYPIQLE OM ~5 Bt, 1II It WDE n ~r COMOUYEP, AHT PPODUa YODFI~OH OHOU~ MB KtE~sn ~MD~aDs WIBOUT AMI DI#LQUII OF IO ~~O ~ECHNICAL IENER~SI ClibPDF - v~~fastio.soni PROPOSED SI~IATEGY (CONTI) (nl NICOTINE REDUCTION PER SE SHOULD BE DISCOUNTED AS A MsJaR ROUTE FOR DEYELOPM~NI: (IF "NU(T" SHOWS THAT A SMALL SEGMENT OF tHE MARKET WIIl SETTLE IOR SUCH A PRODUCT, WE HAYE A TECHNOLOGICAL BASE TO COMPETE · BUT THE OPPORTUNIM WI11 BE ShW1) ( jil AIM TO INTRODUCE MdDIIIID PRODUCTS IN STAGES: ioi TO PRNENT UNACC~TABIY ABRU~I CHANGES IN TAm,RCI CHARACTER, (b) TO PREYEM FOCUSSING MEDIA INTEREST HIGHLY ON SUCH MODIFICATIONSI (c) TO AUOW MARKET RESPONSE TO BE CLEARLY ASSESSED ·50 OmN CONCEPT RESPONSE IS NOT hl4TCHED BY PRODUCT RESPONSE, Clit; PDF -!::!!::!!::!.f3 StlC.i: 0111 PROPOSED STRATEGY (CONTS (ivJ SPECIFICAUY, WE C4N EXPECT TO ACHIEVE: (al TAR REDUCTION AT NORMAL NICOTINE. (bl TAR QUALITY IMPROYLMENT (AND REDUCTION IN ~IOLO(jlCAL ACTIVIMI~ Ic) REnucnOw OF 'OTHER NOXA'. jd) REDUCIION DF SIOESTREP·M YIELD AND IRRITATION. (e) REDUCTION OF CO, ALTHOUGH WORKING WITHIN 1~ADITIONAI FORMATS OF UGARETIE CONSTRUCTION AND SMOK[NC STYLES. (vJ TARtFT REDUCTIONS K3R THESE PARAMETERS SHOULD BE AGREED AGAINST SET ~IMESCALES, Clit; PDF -!::!!::!!::!.f3 StlC.i: 0111 (IIJ PROPOSED ~E1AI%GY 5) FOLLOW PRODUCT MODIFICATION DIRECTIONS IMPUID IN REGUL4~0RY PUBUCATIONS AND REFLECTlNG CONSUMER AmtUDES DETERMINED BY RESEARCH, Si INVOLVE SELECTED REGULATORY BODIES IN OUR IDEAS FOR PRODUCT MODIFICATION AND IN PROGRESS, r~ ESIABUSH A PLAN TO PROMOTE THE'POSnlVE ASPECTS OF NICOTINESe~l AND TO CHAUENGE ANY NEGATIVE PERCEPTION (INC1UDING ADDICTION), Clit; PDF -!::!!::!!::!.f3 StlC.i: 0111 SI~I~IAEY4EPAS~31EP~C~ 1, FOLLOW REGULATORY DIRECTIONS AND SEEK RECU14TORY SUPPORt, 2, C;O KIR A WORTHWHILE 8UT STEPWISE IMPROVEMENT, 3, AVOID OVERTLY TECHNOLOGICAL PRODUCTS, O, RECDGNISE THAT NO COMPROMISE ON CURRENT STANDARDS, ON ACCEPTABILITY OF SMOKE WILL BE TOLERATED 8Y CONSUMERSI Clit; PDF -!::!!::!!::!.f3 StlC.i: 0111 CONCERN BY WHOM ATTRIBUTED TO? 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J~~· 4 "·L, AIIO;J~kiilitc~ ' not simplefrom:r rnF! av~l~avl v.. ... i· ··,I:· r·: i'L·· : I ~ but al SO out~afchanaes in~the~shad ~· ·.I·I~' O ·.:~:, ':":~ist~,?;'~13'~3: ·. · ".:"' "'....'.. .i' ·.. .. ·1. ·· ,·~, a ··· i· .in.the circumstanc~s;of CO ··,.·~~··.:.·:~·:~·:· ~~:: tech d;aiitativbt7 -· i·· r~finelmentl~*' Ot"OUt initial ?b~n: · · ~P·i~·r· 'E~:*:~ '~ · '' Y~ ~dialpgue with the consumer :: ...·,~· ··, j ·:?·. c ;~~~ ,':':··~`T:: ·: .'?;.~`32~C-F~r~.C'~.Y; ·1. i? f··,·-~ ~·~ :·i·4~~~;YY·r.do not look;tO consumers'L-A:.;t:::SO " ;Ivr mil .1., ·· e~'· ·r ii~i! fO,· T~i dnalysis of suchl dialpsuc ·: ~~\·· '' "~~3~ plan the protws.:·by:whi,kf; iinadej;i ·;, '~· f'!··· ..·I ·I·~; '::7· ,: ·'·"· :· :.1.. understandableand to its :&* :'$I ·i :i. ·i· ::.·l·ts~r": ·; i~ '.L·: if~X~i Ji 1~7:~·: ::] '':'Irlt is' all toa~ easy ·: tq presume,:lithat:' ' mers2wl·; ::j·:9l:· II :~··· ·~:·.,:··~. 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J ·. ·::*. ·:··,·· ""' ,1..:· hecomessimplyisort of circus trick';atechnically :I: clever, · andbften vivid demonstratibnof virtuos~y, O ,t· serving no useful purpose," I,, . ·· LJ .·.· O 6 W ''' ~n ·· ·-··· · · ·----~'~"" a3 '''~ Clit; PDF -!::!!::!!::!.f3 StlC.i: 0111 ~C;plr~iclS(IL~hP~i~ ~~nd Fno~ ~ne~enee i , I 1, HECUSI~ eOYPP~ M~ BQHOLOGY~ 1 ~ Q ~IQ~ DffEP~T PPDUO MM DO Ha wa coHluwe I~~ arauiwrw FOI I a~mt g WD ~ PPODU~ TH~ ~r DER~PIOM OF MQ BEIMG A CIGAR~E, L ~ ~O MUCH MEDIA I IPU~D~ I~OW B Y ClibPDF - v~~fastio.soni