Tayside Investors In Tobacco Society

1. Tayside Investors In Tobacco Society SHAREHOLDERS Special General Meeting

2. Our Corporate Success • Financial Strength • Marketing Methods

3. Our Corporate Success Financial Strength • All UP for another year: • Profits • UK Strength • International Sales

4. Our Corporate Success Profits • Operating profit up 60% in six years to £604 million • Dividend per share up 15% to 33p • Yesterday’s share price £13.89 (four years ago it was under £10.00)

5. Our Corporate Success • Total sales £604 million in 2001 • UK share was £325 million • Market share in 2002 was 43.5% up from 37.9% in 1999 • Now the UK market leader

6. Our Corporate Success

7. Our Corporate Success Our Marketing Strategy Marketing The Consumer Young People The Poor

8. Why the poor? • Smoking is strongly related to social class • Regular Smokers • Social Class AB 13% • Social Class DE 49% • In the poorest communities up to 56% of adults are smokers

9. Why the poor? • The Castlemilk Experience • Around 16,000 people live in Castlemilk • On average they smoke a pack a day • That’s worth £1,308,160 a year to us

10. Marketing to the poor • Profile/demographics • Needs • Cheapness • Reassurance • Delivery/marketing

11. Profile “THE SLOBS – describing 27% of 18-24 year olds as ‘slobs’ may seem unkind, but this title is particularly earned by their low concern for their appearance and the little effort they make to keep themselves informed.” “Slobs are committed smokers [and] show commitment or concern about little else e.g. appearance, health, diet, the future.”

12. Cheapness “Typically you should aim at the downmarket smoker, both male and female, who will be affected by price increases” “If we do our job properly Mayfair should be able to attract more smokers in the post-budget period which is when people are most aware of the costs of their smoking. It is strongly skewed to C2DE’s”

13. Reassurance “Although racked with guilt they feel reassured that in smoking low tar they are making a smart choice and will jump at any chance to make themselves feel better about their habit.” “A minority saw low tar cigarettes as a stage on the way to quitting smoking….however, more common was a sense that low tar was a way of making quitting less urgent or necessary.”

14. Delivery/marketing • Loyalty schemes • Direct marketing: our database now contains over 7 million names • Place • Cigarette smokers tend to purchase a daily newspaper Sovereign could place branding around the paper stand or gantry • Price • “Oh aye, fags first, grub second” • Product • “the whiter the pack, the healthier they are”

15. The Ban • Urging MSP’s not to go ahead with the ban • Links to death and disease had been overblown by the anti-smoking lobby • “What we object to is the distortion of science to further an anti-tobacco agenda” • “We…refute the evidence…in the sense that the relative risk figures arrived at …..do not warrant the claims made about the effect of ETS on health.” • Hundreds of deaths a year....”incredible from our own observations.”

16. Young People - recruitment • Long been recognised that we need to get young people smoking; “If you are really and truly NOT going to sell to children, you are going to be out of business in 30 years” Bennett Le Bow, Tobacco CEO • ‘Child recruits’ are needed to replace those who die as a result of tobacco use • Around 300 young people a day try tobacco for the first time….many are hooked on the nicotine straight away • “Cigarettes are no more addictive than Gummi Bears” James Morgan, CEO, Philip Morris

17. Young People - recruitment • Teenage years are the years in which most smokers become addicted to nicotine – when peer pressure, brand selection and loyalty ignite all at once.. Only 5% of smokers start after the age of 24 • “Realistically, if our company is to survive, we must get our share of the youth market. In my opinion this will require new brands tailored to the youth market” R J Reynolds 1973

18. Young People – Brand Identity • Joe Camel – introduced as a cartoon character • Sales rose from $6m in 1988 to $476Million in 1991. • Especially attractive to young teenagers – featured in Honey I Shrunk the Kids and Who Framed Roger Rabbit • 3-6 year-olds were as familiar with Joe Camel as Mickey Mouse!

19. Young People – Marketing the Image • The young are a key target and imagery is the way to reach them • Very aware of brands on the market • Smoking is a badge – a sign of maturity, discernment and independence • Their lifestyles, hopes, fears, motivations and aspirations are all the subject of detailed and continuous market research • Young people smoke for emotional reasons – aspiration, coolness and street-cred • No concern that marketing to 16-year-olds can attract younger children • Packs of 10 are bought disproportionately by young people as a cheaper route to quality brands

20. The Perfect Product? • People are ‘blind’ to the harm that tobacco causes – 6000 died in the Twin Towers attack, 12000 die in Scotland every year as a result of smoking • Uniquely addictive • Appeals to all age groups • Dedicated users • New markets opening up all the time

21. Thank you!