SNUS CONSUMER LEARNING RESEARCH SCHEME

3 Phases: Ethnography, Qualitative Concept Building & Deconstruction, Product Testing

December 7, 2007

Objective:

To inspire growth of ideas to harvest enriched rewards

Best Practices for Brand Projection - Part 1

“Parallel pathing” research works best when there is a clear distinction between the various research efforts.Equally important is making sure the efforts maintain their perspective and congruency to each other, as well asthe whole. The ongoing product research will inform and guide, and to a large extent, corroborate new insights

and opportunities filtered through the lens of the user.

We will start with the raw materials, logically and intuitively putting the pieces together. Designing and constructing a[new] category and experience is not a puzzle…something one solves for. But a creation, something one builds

where the magnitude is greater than the individual components.

…But how do you create and dramatize a new commercialized experience, exciting and influencing ASU30 withoutcreating too much attention?

Brand Jujitsu: Flip the product perception on its head. Reframe and rearticulate the product and its benefits tospeak to the greater experience. New and emerging perceptions of the benefits and product offerings are realized.

Consume Experience

Standardized Designed

A to B “Magic Flying Carpet”

Category Experience

VS

Branded Experience

Turning a [consumer] belief on its head…

Consume Experience

Standardized Designed

A to B Motoring”

Category Experience

VS

Branded Experience

Turning a [consumer] belief on its head…

Snus’s multi-dimensional and sensorial experience is the product, and ingredients and social taboos…>

when the total experience is greater than the product, brand affinity and advocacy doesn’t stop.

VS

To change perception is to alter existing recognition and interpretation of sensory stimuli based chiefly of memory

These brands met an unmet/unfulfilled need within each of their respective categories. What are the dynamics influencing snus?

How should a snus product be affiliated with BAT and its legacy brands? Each brand on the preceding pagecorrelates to a specific type of brand relationship with its organization.

= Prime areas

Creating a new category may require a new snus product to not be directly and obviously associated with BAT’s individual brands

Steps to pioneering category leadership

• Simplification of the complex

• An iconic statement about culture

• Imaginatively creative and curious

• Authentically courageous

• Brand is as powerful and the product performs

• Timeless and originality

• Bi-directional communication - dialogue

• Empathy and forethought of the user experience

• Category agnostic

What are snus’s inspirational and aspiration elements? What is the snus experience?

What drives the category’s dynamism?

From first sight, touch, grip, opening, aroma, selection, insertion, satisfaction, re-engage life…

Possession

Shared Experiences

Snus has the behavioral elements and rituals of sub-culture

Self-instructed behavior and attitudes are obvious. The product begs to be handled. Real touch points.

Trend Laddering

NEW ENLIGHTED CONSUMERS

How do trends effect acceptance, appeal, and consumption of snus?

HIGHER/NEW EXPECTATIONS OF PRODUCT

EMERGING FUNCTIONALEXPECTATIONS

EMERGING SENSORYEXPECTATIONS

EMERGING EXPERIENTIALEXPECTATIONS

Source: G2/Singapore, Food Trendz

• Tobacco vs cigarette smoking - no matches

• The experience inside and outside the tin

• What is the product for, what does it do for users? How?

• Product as object [artifact] as companion

• Decipher ritual from practice, habit from routine

• Closet and secretive behavior and consumption, foibles and idiosyncrasies with tobacco

• Proof of life, “in the moment”, “living life”, control

• Release states and moments of incidence

• Technology as a facilitator of old things as new, again

• Product performance, thrill, ride, pleasure, elixir qualities, “sessation”, savor

• Indulgence factor and the Pleasure Principle

Experiential Issues & Dynamics

Example: Las Vegas, Sun City, Macau are premised on the competitive spirit not gambling, per se. Gaming is an elements of thegreater entertaining experience. In Vegas hotels, restaurants, bars, lounges, and casinos compete for users. The Triple Crown, inthe UK or US, is all about “outdoing one another” - tailgates, hats, Sunday’s best, etc. Gambling evolved to gaming and chance,

partially removing its stigma, How can snus leverage its tobacco heritage for a transcending experience?

What can snus attach itself to, to create momentum and pleasure?

15 Universal Need States

Freedom

Self indulgence

Fun

Well being

Attr

activ

enes

sH

armony

Love

/ Fe

llow

ship

Belo

ngin

g

Respe

ctSec

urity

Tradition

ControlIndividuality

Leadership

Knowledge

Snus Opportunity Grid

Some questions to consider

• What is considered “success”, what are the key measurable KPIs we intended to target?

• What [food/beverage] new product launches do we feel have sustained, and even gained, momentumamongst Early Adopters?

• What is the experience we want to deliver? How do brand and product work seamlessly to tell its story?

• What do we mean by Early Adopter? Do we have a demo in mindset to compliment their mindset?

• What, if any, is the brand fit with BAT “legacy” brands and a new snus product?

• What can we leverage from successful launches of consumer-oriented products distributed through FMCG?

• What are our launch plan success criteria based on vol, $ by regional geography, dist. channel, etc

• If positioning is non-smoking related, what are the parameters of conveyance of nicotine as a moodenhancer, sensation, accoutrement, etc?

Approach & Methodology/Discovery - Part 2

• To learn from and apply the knowledge gained from the current and planned product-focused research into consumerunderstanding research

• To understand the fundamental functional and emotional drivers that appeal to snus or smokeless tobaccousers, in order to create a unique, differentiating, and compelling product proposition, and brand positioning

• To infuse ‘snusing’ with modernity, creating the new sensorial delight for ASU30

• To learn the “in context” dynamics, motivators, and influencers that define successful product launches:– User understanding [Exactly, who are the primary and secondary users?]– Perception [imagery, symbolism of users of snus, and the product]– Point of Market Entry decision making[the logic and rationale leading to the decision to choose smokeless formats]– Brand Preference [I choose this brand given a consideration set]– Brand Affinity [I associate with the values of the brand]– Persuasion [what is most compelling and credible as a message, benefit, reason to believe]– Early Adoption [what are the characteristics and behaviors of brands that innovate appealing to niche consumers]– Brand Loyalty [Conscious user incorporation of brand and products into lifestyle]– Product Usage [How, when, where, why the product is consumed]

• To create a strategically sound and ingeniously creative launch marketing campaign and sustaining communications

• To maximize volume through increased penetration, stealing share from “other” smokeless tobacco products, brands andoccasions [See “Targets” in Key Areas of Exploration]

• To understand the human and consumer dynamics of Early Adopters

Objectives

Given the uniqueness of the snus product offering and benefit, a research plan that allows leverage against previously gained

insights, yet builds on new undiscovered ones, will provide the most dynamic and actionable research findings. Phasing the

research across three methodologies using Best Practices for ethnography, qualitative, and concept testing will yield

seamlessness and “leading” learnings.

Ethnography

The first phase is to understand the human connection [sensation, craving, ritual, etc] with snus or smokeless tobacco.

Understanding the physical, physiological, social, and cultural elements of snus or smokeless tobacco usage [beyond cessation

or suppression of combustible tobacco products] will allow the brand to relate to the user first, consumer second.– Mix of interviews and observation at work, home, play - sociability, shopping, usage and consumption, moderate depravation

Concept Analysis

The second phase builds on the knowledge of phase one, and develops visual concepts to test in qualitative groups, gaining

further user insights to be applied to the communications and marketing planning for the brand.

Product Testing - New Product Development

Lastly, the third phase will incorporate the knowledge in phases 1-2, qualitatively assessing the brands product proposition,

positioning, messaging, and experience [product performance - sensory, flavor, smell, taste, appeal] attached to a physical or

conceptually designed packages for interaction and use in the users typical environment.

Approach

Ethnography

• Four to six individual, simultaneous observations in no more than two cities

• “Degreed” and qualified anthropologist designed curriculum

• Mix of Early Adopting dual users [combustible and smokeless] with index-parity P3M usage

• Observations ‘in-field’ conducted in one week - efficient and effective synchronization

Concept Analysis

• Qualitative “in context’ groups exposing ethnography-based…

– Consumer insight areas

– Product benefits, RTB, performance

– Utilitarian usage and portability, design and engineering

– User generated concepts and design boards/storyboards

• Two to four groups of six respondents in two cities, incremental learning city-to-city

Product Testing - New Product Development

• Qualitative analysis of three mutually exclusive new product positioning areas

• Discovery and exploration of spec products

• Evaluation and merits to pass gates to quantitative research of concept(s)

Methodology

Timeline

JAN FEB

Deploy Phase 1

MAR

Results - Phase 1

Deploy Phase 2

Results - Phase 2

FEEDBACK/APPLY

Deploy Phase 3

FEEDBACK/APPLY

Results - Phase 3

COMMON DENOMINATOR:PRODUCT RESEARCH - U&A

• The meaning of snus– Symbolism– Heritage and provenance, tradition– Rituals, habits, customs, tendencies, values

• The power of snus– Performance, technology, innovation– The role of nicotine - the initial rush, post-consumption rush,

craving and satisfaction, sensation– Mood enhancement, usage behavior, transformation

• Points of contact– Decision criteria, consideration set– Purchase intent triggers - Replenishment– Usage occasions, moods, events, complimentary

products/brands– Needs - emotional, rational, dependency, habit– Adoption, motivators, influencers

• Brand and product positioning– New category fulfillment– BAT branding adjacencies (consumer-facing)– Leading edge, early adopter, Alpha male– Occasionality, event, moments, exoticism

• Target(s)

– Early Adopter mentality sans tobacco usage

– Dual users: combustible & smokeless

– Lapsed smokers

– Uncommitted & social smokers

– Switchers: All forms of smokeless & combustible

• Environmental context

– Usage in social environments, work, active, idle

– Supplementary and adjacent product compatibility

– Motivation states

• Purchasing & Selection

– Replenishment

– Substitutable products, forms, etc

– Halo of recognizable combustible brand on smokeless

– Price sensitivity; value of quantity, duration of effect

– Repertoire usage, form usage and preference

– Propensity to purchase, purchase intent

– Retention and repeat consumption and purchase

• Brand Affiliation & Credibility

– Legacy attachment

– Brand extension, line extension, sub-brand, etc

Key Areas of Exploration

About 80% of new product launches will fail in the first three years of introduction. Early Adopters provide significant insights intooverall consumer acceptance, and are the most likely candidates to determine a product’s success. Early Adopters tend tocommunicate their likes and dislikes with others and they adopt new products quickly - they do more than adopt newness, theyadopt perceptions, attitudes, behaviors, and belief systems that become benchmarks for Late Adopters and mass.

New products have the opportunity to be new with the consumer only once, which is why an early understanding of consumeradoption is critical in driving business optimization. Given the leadership that Early Adopters represent, they often act as abarometer and are critical to a brand’s long-term viability and overall success.

What do do we mean when we say “Early Adopter”? What are the implications? How do we identify them? How do we reachthem? What makes them different? What compels them to experiment with new products and technology? Who or what do

theyrefer to for guidance? What are their expectations? What are their emotions? Are they less likely to be loyal?

The correlations between new products and Early Adopters are obvious - need for differentiation, identity and belonging (findingyour place), and leadership. Key variables impacting this quest for identity for Early Adopters are:

– Increased affluence fueling status, image badges– Desire for instant attraction, gratification– New social mobility, being part of many disparate cultural and sub-cultural groupings– New roles for social energy extending beyond on-premise involvement– Desire for exploration, fun, and frivolity in an increasingly serious world– Relationship to previous generations– Leadership acknowledgement and social hierarchy

Gaining insights on Early Adopters: Attitudes, Behaviors, Perceptions

Gaining insights on Early Adopters: Attitudes, Behaviors, Perceptions

Waterline

Leadership

EthosPromise

Memorability

Imagination

Courageous

Believability

Purposeful

Iconic

Authenticity

Dialogue

Distinction

Originality

AwarenessVisibility

Intrigue/Curiosity

Experimentation

Acceptance

REJECT

Adoption of new behavior

Adoration

Loyalty

Preference

Glide Path for Early Adopters

Awareness Consideration Trial Regular Repertoire LoyaltyCDF

New Products targeting Early Adopter Mentality

Getting to Inspirational Attributes through Early Adopters

Sweden as Provenance. The Design of Lifestyle

SWEDEN

Scandinavia

Danish Culture

Region

The Source

CoolBrands’s Top Cool Brands 2006 (UK)

Source: IRS

2004 2005

2006

2005

FMCG Channel New Product Performance Sheet

Summary• This is new behavior. Each person snuses differently.

There are a variety of different users but archetypes ofEarly Adopters can be created.

• Brand Jujitsu is critical snus acceptance, appeal, usage,and other forms of scrutiny towards tobacco.

• Brand first, product second. It begs to be handled.

• Engage all of the users senses and positive emotionsfrom purchase intent to pouch insertion.

• An emerging snus brand should be aware of lifestylemarketing towards ASU30 that is deceptive. Some EarlyAdopters are predisposed to marketer cynicism.

• How are rituals created, where do they start, what arethe most natural ones for snus? Are their different ritualsfor different snus brands?

• Creating a new category requires leadership as well asthe patience to allow behavior to prevail, eg - Coronaonly suggests a lime. Users just know to do it

Implications

• What is the best way to segment Early Adopter behaviorand attitudes? Should those characteristics beconsidered apart from ASU30 category U&A? How dowe understand the fluidity of both?

• Don’t act like a tobacco brand, behave differently notbecause of mandates but because of savvy.

• Snus as a brand is both an emotion and an activity. Ithas its own call to action through packaging andadjacencies and incident occasions.

• How problematic are the negative perceptions in thecategory? How do they impact penetration? Isfrequency and usage increasing amongst key segments?

• Differentiation is key in commoditized category. Vodka’sstrength was its weakness - in 2003 there were nearly200+ vodkas in the USA, appeal but not barrier to entry.

• How does snus stand apart instead of standing out?

Summary & Implications