VECTOR DETAILS THREE-STEP NICOTINE-FREE QUEST

Admits Ads for Low-Nicotine Omni Failed

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CHICAGO (AdAge.com) -- Tobacco maker Vector Group said today its long-hyped nicotine-free cigarette finally will be on store shelves in select markets by the start of next year.

A December print and point-of-sale advertising push for the new smoke, called Quest, from independent Trone Advertising, High Point, N.C., will feature taglines including "The road to nicotine free," "The path to nicotine free," and "Step down to nicotine free," said Vector Chairman-CEO Bennet LeBow during the company's second-quarter earnings call today. SLG Advertising, Greenwich, Conn., handles media buying.

Premium-priced Quest, whose January rollout will be one quarter behind schedule, is being offered in three different varieties featuring varying levels of nicotine: low nicotine Quest 1; ultra-low nicotine Quest 2; and the virtually nicotine-free Quest 3.

'Consumer acceptance'
"This step-down approach

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will be the most effective way to gain consumer acceptance of the new product," Mr. LeBow said.

"The key is getting a product that consumers react to positively," said Rob Campagnino, an analyst at Prudential Securities. He said Vector might be more willing to take time readying Quest for launch since "their recent launch of [reduced-toxin Omni] was a notable failure. There wasn't any retail pull [for Omni] despite signficant ad spending behind it."

The company said it has pulled back from advertising Omni, which launched in November, due to low sales resulting from limited brand awareness. "We are limiting our expenditures on this product" pending further scientific and market research, Mr. LeBow said, adding that Omni's tagline -- "Reduced carcinogens. Premium Taste" -- "did not work." Trone handles Omni as well.

Ad spending not specified
Vector said previously it would spend $35 million to $40 million on the national launch of Quest in the third quarter, but Mr. LeBow would not specify spending on the now scheduled regional launch in January. He said Vector will spend "a significant amount commensurate with the rollout," adding "if that goes well, we'll get up to that [$35 million to $40 million] number."

Quest is made from tobacco genetically modified by patent-pending technology, which Vector hopes will ultimately gain approval by the Federal Drug Administration as a smoking-cessation device, pending further testing.

Vector posted a net loss of $3.3 million in the second quarter, compared with a net income of $11.8 million in the same period last year, due to significant spending on marketing and research and development, coupled with nominal second quarter revenue, Mr. LeBow said. The company reported total revenue of $140 million, up from $110 million in the same period last year.

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