V. PHILIP MORRIS, INC., ET. AL.,
DEFENDANTS.
TOPIC: TRIAL TRANSCRIPT
TRANSCRIPT OF PROCEEDINGS
DOCKET-NUMBER: C1-94-8565
VENUE: Minnesota
District Court, Second Judicial District, Ramsey County.
YEAR:
March 17, 1998
A.M. Session
JUDGE: Hon. Judge Kenneth J. Fitzpatrick, Chief Judge
THE CLERK: All rise. Ramsey County District Court is again in session, the Honorable Kenneth J. Fitzpatrick now presiding.
(Jury enters the courtroom.)
THE CLERK: Please be seated.
THE COURT: Good morning.
(Collective "Good morning.")
(Jury collectively says "Top of the morning to you.")
(Laughter.)
THE COURT: And a happy St. Patrick's Day.
(Laughter.)
THE COURT: In observance of this grand occasion,
we'll be taking a two-hour lunch period.
(Laughter and applause.)
MR. CIRESI: Good morning, professor.
THE WITNESS: Good morning, Mr. Ciresi.
MR. CIRESI: Good morning, ladies and gentlemen.
(Collective "Good morning.")
ROBERT J. DOLAN called as a witness, being previously
sworn, was examined and testified as follows:
BY MR. CIRESI:
Q. Professor, when we recessed yesterday, we were
addressing the issue of the primary objectives of the defendants' total
marketing and communications program as indicated in and disclosed by their
documents, and you had stated that there were four, and the first two you
had listed were to get new smokers, and secondly, to keep the consumers
of the present smokers in to prevent them from leaving.
A. That's right.
Q. I believe that's where we were when we recessed.
A. I think that's right.
Q. Can you continue, then, with the primary objectives
of the total marketing/communications programs of the defendants as disclosed
by their documents.
A. Okay. Surely.
The -- the third thing that would be an objective
-- objective or -- or task for marketing is that we know that even though
the second objective is to keep people in the market, in fact people do
quit and leave the market, and so the third effort would be to induce those
people who have left the market for a time to come back into the market.
So we know that there are quite a number of relapsed quitters, is the terminology
used, people who have left the market but then come back into the market.
So those first three things all have to do with the overall size of the
market.
The fourth thing that your total marketing and communications
package would be directed to would be to, once you have somebody in the
market and with your brand, you would like to keep them with your brand.
So even though, as we talked about yesterday, this is a product category
which shows a lot of brand loyalty, as a marketer, you don't just take
that for granted and say, "Well, brand loyalty has always been exhibited,
so anybody who comes in is going to stay with me. I don't have to enhance
my brand image or reinforce my brand image over time."
*2 As we talked about yesterday, the -- the third
phase of marketing is really sustaining your ability to create this perception
of value so that you have a relationship with your customer. So the fourth
job of marketing, really, is to say I want to keep those people that I
have, to -- to really enhance that -- that brand loyalty that naturally
occurs in this market because of the nature of the product.
And I think the flip side of that is that, given
that some people do switch brands, a fourth -- the second part of the fourth
job of marketing would be those people who are giving up the brands that
they have been loyal to for a while, you'd like to position yourself as
a brand that would be acceptable to them so that they might switch to you
if they're leaving the brand that they have typically been loyal to.
So those would be the four major aspects or objectives
of marketing which flow right out of the special characteristics of the
cigarette market that we talked about yesterday.
Q. Professor, then if we could direct your attention,
first, to the replacement or starter smokers, did the defendants' documents
reflect their objective and their total marketing and communications program
to get starters and replacement smokers?
A. Yes, they did. You can see quite clearly the
objective, the focus on the starter market and the objective of getting
new people into the market as replacement for those who are leaving.
Q. Can you direct your attention to Exhibit 13430,
which is a Brown & Williamson document dated July 9th to 12th of 1984.
It's in volume two, professor.
Is this one of the documents that you reviewed?
A. Yes, it is.
Q. And is it representative of other of the defendants'
documents?
A. Yes, it is.
Q. And does it form part of the basis of your opinion?
A. It does.
MR. CIRESI: Your Honor, we would offer Exhibit 13430.
MR. BLEAKLEY: No objection.
THE COURT: Court will receive 13430.
BY MR. CIRESI:
Q. If you turn to actually what is the second page
of the document, professor, the title of the document stated "PROCEEDINGS
OF THE SMOKING BEHAVIOR - MARKETING CONFERENCE," which was held in Montreal,
Quebec, on the 9th through the 12th of July of 1984. The upper part of
the document has the Brown & Williamson notation, and you'll see at
the bottom a distribution list. It is --
The first two names, Dr. Blackman, who was the R&D
manager of BATCo, and Mr. A. M. Heath, who is the executive director of
marketing. You then see various individuals from the various companies
of B& -- of BATCo and the B.A.T family, as they've been referred to,
from Germany, the United States, Australia, the U.K. and Canada. And if
you direct your attention over to the page which bears the Bates number
004, the titles of those individuals who attended the 1984 smoking behavior
- marketing conference are set forth, and from the United States we see
that it's a W. H. Deines, D-e-I-n-e-s, who is the section head of sensory
evaluation, Tilford Riehl, division head product development, and Andy
-- Andy Mellman from marketing.
*3 And if you could, sir, could you direct your
attention to page 016, and specifically to the second-to-the-last paragraph.
Is there addressed there the importance of the starter population on the
market?
A. Yes. Basically the -- this second-to-the-last
paragraph on -- on the page talks about having some information about quitters
but saying that they have inadequate data on -- on starters. And then the
-- the key sentence here is, you know, reflecting their understanding of
how critical this starter group is to them, they say that our future business
depends on the size of this starter population set. So it's really important
for us to know why it is that -- that people start to smoke.
Q. Okay. And can you direct your attention to the
page which bears the Bates number 086, and please describe for the jury
and the court what is disclosed on that page.
A. Well here, this is -- this is sort of going back
to the umbrella approach of marketing or the -- the -- the demonstrative
exhibit that we have up still on -- on the easel over there from yesterday,
and it's basically saying that, you know, people don't just buy the products,
they buy the enhancement of that -- those products with everything else
that you put around it.
So it goes and it says people buy brands and brands
are a combination of the elements of the marketing mix or the total marketing
and communications program as we've been talking about it; that is, the
name, the product, the price, the packaging, the image, so and on so forth.
Really going back to this issue of the brand image that a product has is
-- is the result of all kinds of communications about the brand. Rather
than just one single element, it's -- it's a whole -- as they say here,
the combination of elements. So it's going back to the umbrella approach
that we talked about yesterday.
Q. And if you turn to the next page, sir, is that
marketing mix also set forth?
A. Right, it is. This is basically the same -- the
same kind of thing that we -- we've already talked about, that you've got
the product that we talked about yesterday, the -- right around our little
target customer person on that exhibit, we got the product, then we got
the packaging, the price, the advertising, promotion.
Word of mouth is -- is important here. I mean there
are situations where you -- you use a marketing program to induce word-
of-mouth communications by other people. So clearly they're seeing that
the peer influence which we know, I think Dr. Perry covered with you as
-- as being important in this product category, that peer influence is
a part of their marketing mix. So the fact that somebody would talk to
somebody else, as we were talking yesterday when we were talking about
the Minnesota Twins, that you might have a bat day where -- or a helmet
day where somebody goes home and they're wearing their helmet and you hope
that they talk to their friends about what a wonderful time they had at
the Twins game. So this word of mouth and peer influence is a part of the
marketing mix that they are talking about here as part of their overall
marketing and communications package.
*4 Q. And if you turn to the next page, is that
theme carried forward on that page with regard to potentially relevant
product differentiation?
A. Yes. It -- it sort of goes through the whole
-- the whole list of attributes on which a firm might differentiate its
product: taste, specifications, the price, the packaging, the health, whether
it offers the best health or is the best compromise, its image, is it the
in-brand, is it the youth brand, macho, so on and so forth. So -- they
go on and say et cetera, et cetera, meaning there's a large number of things
that you bring together here.
Q. And can you direct your attention now to an RJR
document, Exhibit 12579, which would be in volume one. This is an RJR document
dated February 29th, 1984 from Diane S. Burrows to Mr. G. H. Long, who
was the president of RJR.
Is this one of the documents that you reviewed,
sir?
A. It is.
Q. And does it form part of the basis of your opinion?
A. It does.
Q. And is it representative of other of the defendants'
documents that you reviewed?
A. It is.
Q. Can you direct your attention, please, to page
8464, which is the table of contents.
A. Uh-huh.
Q. And does this set forth the overall young adult
smoker strategy and opportunity issues that are dealt with in this document?
A. Right, it -- it does. And in particular section
one of the document is "THE IMPORTANCE OF THE YOUNGER ADULT SMOKERS," the
replacements for those people who are leaving the market.
Q. And can you direct your attention, then, to the
next page, professor. This page is entitled "MANAGEMENT SUMMARY, YOUNGER
ADULT SMOKERS: STRATEGIES AND OPPORTUNITIES."
Is there set forth here the position of RJR with
regard to the importance of younger adult smokers?
A. Right. It -- it's quite clearly laid out here
in the -- in the part of the text which is -- which is underlined where
we see them saying that the -- their recognition -- they're recognizing
that the younger adult smokers have been the critical factor in the growth
and decline of every major brand and company over the last 50 years. So
that's how critical this -- this new smoker is to -- to the market overall
and -- and to companies. And then they say this is true for two simple
reasons, the renewal of the market -- that is, the replacement of the people
who were leaving the market -- the renewal of that market stems almost
entirely from 18-year-old smokers. And -- and in fact we know that the
adoption rate, the large majority of people adopt -- begin smoking earlier
than the age of 18, and secondly, as we talked about yesterday, the brand
loyalty of that 18-year-old smoker far outweighs any tendency to brand
switch.
So then it goes on to talk about the success of
Marlboro and how, because of the ability to attract these people at a very
early age and then retain them over time, they refer to this fact that
it's -- the 18-year-old smokers provide an effortless momentum due to the
successful first brands. And then the asterisk next to "first brands,"
if you -- we go down to the bottom of the page there, you see that basically
they're saying that, you know, this applies to -- this will -- would appeal
to 18-year-olds rather than switchers.
*5 So they're saying 18-year-old smokers, but we
know that the vast majority -- the majority of the people who come into
the mraket in fact do so before they're age 18.
Q. And can you turn, then, to page 8467, and is
there then an implication and recommendation with regard to the younger
adult smokers concerning RJR's future?
A. Right. Basically up at the top in -- in the box
there, they're saying because this is so critical to us, it's critical
to our long-term performance, what we at RJR ought to do is we ought to
make a substantial long-term commitment of manpower and money dedicated
to this particular program. So we really ought to dedicate our efforts
to this segment of the market to induce those people to start.
And then as you go down a little bit on the page,
down to the -- the third bullet point, it talks about this younger adult
market and how is it that we're going to go after this younger adult market.
It says because of the sensitivity, it says, brand development/management
should encompass all aspects of the marketing mix and maintain a long-term,
single-minded focus to all elements, product, advertising, name, packaging,
media, promotion and distribution. So again, we're back to this notion
of the whole total marketing and communications program that we've talked
about yesterday and in the first two documents from today, one from Brown
& Williamson and one from RJR, really reflect again that all of these
elements of the marketing mix are being brought together to induce people
to start smoking.
Q. And the marketing mix that you're referring to
are those that are set forth on Exhibit 30225 which was introduced for
illustrative purposes.
A. That -- that's correct, the same overall marketing
and communications program that we've -- we've talked about yesterday.
Q. Now with regard to the fact that younger smokers
start before the age of 18, can you turn to page 8471, and is that reflected
in this document under the title "THE IMPORTANCE OF YOUNGER ADULT SMOKERS,"
number one, "VOLUME?"
A. Right. Right. It -- it basically poses -- poses
the question of why are these smokers important? And then it says volume,
that less than one-third of the smokers, so the younger -- saying the younger
adults are where we get our replacement smokers, and then it says repeated
government studies have shown that less than one-third of smokers start
after the age of 18. So we're back to the idea of the narrow window of
vulnerability that I talked about yesterday as a special characteristic
of the market is reflected here in this RJR document.
Q. And can you turn, then, to page 8526, and is
there a graph there and a chart showing the age at which RJR was tracking
young smokers?
A. Yes. Basically the -- this is the Appendix B
that the text just referred to a moment ago, so they have this histogram
up -- up at the top of the page here, and it's -- it's a little bit hard
to read, but basically what you can see is, you know, there are a lot of
people coming into the market at ages 13, 14 and 15, and, you know, the
-- the ages at which people are most likely to come in are ages 16 and
17.
*6 And then if we go down the page a little bit,
you can see these cumulative statistics that are reflected in this document
where it's basically saying that 10 percent -- if we look at male smokers
-- 10 percent of the male -- people who are smoking, male smokers -- males
who are smoking started by the time they were 12 years old. Then it goes
up, 30 percent of them had started by the time they were 15 years old.
And this 68.7 percent number, 69 percent of them have started by the time
they're 18 years old. And these are data from 1970 and 1975. And I think,
as Professor Perry covered with you the other day, the percentage of people
who are adopting by time 18 has gone up to something like eighty something
percent, 82 percent I believe it was. And we see here what's reflected
is, over on the right-hand side of the page, is that the median age of
adoption is 16.7 years old. So a typical adopter, a typical starter is
16 years old when they start smoking.
Q. Professor, can you direct your attention now
to a Philip Morris document regarding this same subject of replacement
smokers, and it is Exhibit 10339, which was introduced previously when
Mr. Bible was testifying. That's in the same volume, sir.
A. Yes, I have it. Thank you.
Q. And the date of this document is March 31, 1981.
Its title is "Young Smokers -- Prevalence, Trends, Implications, and Related
Demographic Trends," it's written by Myron Johnston and approved by Harry
Daniel and Carolyn Levy, and it was distributed to a number of -- of individuals.
And if you go to page 806 of that document, you'll see again the carbon
copies to those individuals which included Mr. Thomson, director of development,
Mr. Daniel, an R&D scientist, Mr. -- or Dr. Levy, who was senior VP
for marketing and sales, Mr. Meyer, a scientist, and Mr. Zoler, director
of marketing research.
If you could direct your attention, please, to page
805, which is the first page of text, and we see there that it's directed
to Dr. Seligman, who was vice-president of research and development, from
Mr. Johnston. And can you tell us, sir, what's significant with respect
to that page concerning the replacement smoker objective of the industry?
A. Well, this is the -- sort of the cover memo to
the -- to the -- to the study which follows, and in this memo, in the --
in the -- in the study, Mr. Johnston is more or less sounding the alarm
about how important this starter group is. They're saying that what has
happened over time is that the demographic trends have really helped Philip
Morris because there's been an increasing number of 15- to 19-year-olds,
just because of the demographics of the U.S. market, and that these people
have been adopting cigarette smoking at a particular rate, but now he's
saying, you know, the -- the factors that are turning against us, is the
term that he uses, he says that the prevalence of teen-age smoking is now
declining sharply, and if we go down to point number three, he's saying
that the absolute number of 15- to 19-year-olds will decline 19 percent
during the '80s.
*7 So so concerning is this to him that he -- that
if we go to the next page, page two, he says that this report deals with
only one of these trends, the teen-age smoking and their attitudes toward
smoking, and subsequent reports will cover the social, economic and psychographic
characteristics of teen-age smokers. So they're basically saying we'll
study this teen-age group in -- in more depth in subsequent studies.
But then he notes in his last paragraph, "Because
the major data sources have just become available, and because of the importance
of these data to the company," the critical importance of this teen-age
group to the company, "I have elected to report the data in a series of
memoranda rather than wait and issue all the material at once." So he's
getting this information out to the senior management in the corporation
as quickly as he can.
Q. And can you direct your attention to page 808,
and please explain what the significance of that summary page is with respect
to the objective of the industry to get replacement smokers from young
smokers.
A. Well the -- the summary document really -- really
shows - - again, reinforces this point about the critical importance of
this -- of this teen-age group. Right at the beginning Mr. Johnston says
we have to understand as much as we can about teen-age smoking patterns
and attitudes. "Today's teen-ager is tomorrow's potential regular customer,
and the overwhelming majority of smokers first begin to smoke while in
the -- while in their teens."
So the second paragraph, he says it is during these
teen-age years that the initial brand choice is made, and goes on to say
how this has been a -- this has been a critical part of the success of
their -- of their Marlboro brand.
And then in the third -- the third paragraph there,
he talks about the daily consumption of these young smokers has increased,
as we talked about yesterday. So that between 1980 -- 19 -- I'm sorry --
1968 and 1974, the number of 12- to 18-year-olds who smoked 10 or more
cigarettes per day has doubled. So they're tracking their information down
to the level of 12-year-olds in this marketplace.
Q. And can you direct your attention, please, to
page 828, which is the "Conclusions and Implications" section of
this Philip Morris document, and tell us what if anything is significant
on that page, sir.
A. Well the -- what's important in this conclusion
here is that he talks about what --
What's going on is that he's saying the decline
in the percent -- right at the top of the page -- the decline in the percent
of teen-agers who smoke, their decreased levels of consumption and the
decline in absolute numbers mean that we can no longer rely on an ever-increasing
pool of teen-agers to replace adult smokers lost through natural attrition.
So they know that they're going to have this natural attrition to the marketplace
-- from the marketplace as we talked about yesterday, the people are continually
moving out of the market, so he's now saying we really face a challenge
in getting the number of starters that we need to renew the marketplace.
*8 Q. And if you look at the last paragraph, does
he report there on the implications of the fact that Marlboro was a brand
of choice among young teen- agers?
A. Yeah, he -- he does. What he says -- what he
says in the last paragraph is basically this decline in the number of 15-
to 19-year-olds, because of the demographics, that's -- that's bad news
for the industry overall, and it's not great news for Philip Morris, but
it's not as bad for Philip Morris as the others because what they have
is having the dominant market share among the people who have already adopted
smoking, the young people who have adopted smoking, and because of the
brand loyalty, that effect is going to carry through to the future. So
the fact that they at the time of this document have the dominant share
of the people in the 14 to 18 kind of age group, those people are going
to age, they're going to stay with the brand, they're going to increase
their consumption rate, so all of that would help Philip Morris, and that's
a benefit that their competitors won't have.
Q. Now did your review of the documents of the defendants
indicate that the defendants tracked teen-age smoking behaviors?
A. Oh, absolutely.
Q. And what would be the purpose in doing that for
the marketing departments of these companies?
A. Well, as we talked about yesterday, the -- the
first thing you do in -- in coming up with a marketing program is you figure
out who your target market is going to be, and then you try to understand
the behaviors of that market, what are their attitudes, what are their
-- as the phrase from the first document we looked at yesterday -- what
are their hot buttons is the -- the terminology that RJR used. So you try
to understand what it is that they're going to look for in a product. All
of that is input into phase two of the marketing activity, which is to
design this total marketing and communications package.
So you set your target market, you try to understand
it so you can then develop a marketing program which is basically going
to work in helping you achieve your objectives with respect to that particular
group.
Q. And did your review of the defendants' documents
reflect whether or not the defendants did, in fact, plan marketing and
communications programs to capture the groups that they intended to?
A. Oh, absolutely. They recognized the importance
of this group, and then they set specific objectives to -- to capture this
group.
Q. Can you direct your attention in volume two to
Exhibit 13854, which was a document introduced during Document Day Two.
13854.
Do you have it, professor?
A. I do, yes. Thank you.
Q. This is a Brown & Williamson document entitled
"KOOL FAMILY UTOPIAN OBJECTIVES, 1979 to 1985." It's an August 1978 document.
Can you describe, sir, what is of importance on
the first page of this document.
A. Surely.
Basically in -- in late -- in the late '70s here,
Kool has done very well throughout the 1970s and -- and now it's having
some difficulties. And basically it says, you know, we -- we really want
to supplant Winston as the number two cigarette in the country, so here
are the obstacles that we have to overcome under point two there. So the
first thing they say is that Kool must move into the health reassurance
segment, so this is the low tar and low nicotine segment, so this HR or
health reassurance segment, saying we got to position our brands in there
because we know that that's a segment of the market that's growing.
*9 The second thing that they say, second obstacle
they have to overcome, second thing they're going to try to do is they
say we must attain a user image that is acceptable to the majority of young
adult and starter smokers.
So this specific focus on starters is one of their
objectives that they're setting out here for 1979 through '85.
Q. And part of their strategy down below, 3.A.,
does this also direct itself to the health reassurance?
A. Right. The first thing we mentioned a moment
ago under there, things they were going to try to do, was to move into
the health reassurance, the HR segment, and under "Strategies" they're
saying, well, the way we're going to do that is we're going to provide
product safety reassurance while enhancing the satisfaction. So try to
get their brands associated with product safety is one thing that they'll
be trying to do as they move into the HR segment.
Q. If you turn to the next page under "Strategy,"
paragraph D., does that again relate to the total marketing/communications
programs that you have already testified about, professor?
A. Right. They're, you know, focusing on the social
acceptability of really the entire -- the entire product line that they've
got -- that -- that they have out there, so -- so that's basically what
they're going to be trying to do.
Q. And do they relate there that they're going to
do this through creative management as well as specific media targeting?
A. Yeah, that -- that's correct.
Q. And can you direct your attention to page 152.
Under "Demographic Objectives," is there reference there to the starting
segment of the market?
A. Right. Particularly under -- under point three
there, the "Demographic Objectives," they first start talking about the
-- the black and the Hispanic market, and then they say what we'd like
to do, our objective is to return our starter index to 11 percent by 1982
and maintain this level as the highest starter index in the industry. So
it's reflecting, again, this -- this -- this focus on starters.
And then if we go down the page a little bit under
"Rationale," down to point C., it reflects the fact that this starter index
has been, as they call it, the historical pillar of Kool's strength, and
that's -- they wanted to return it up to 11 percent so it's going to build
longevity into the franchise.
So again this goes back to the brand loyalty notion
that we had. If we can get these people as starters, they'll stick with
us and they're going to build longevity, they're going to stick with us
and help us get into a relationship and maintain the franchise over time.
Q. And if you turn over to the next page, Bates
number 153 under the "Strategies" section, they first deal with the
black submarket, then the Hispanic portion of the market, and then C.,
"Starter Index," and what is disclosed there, sir?
A. Well basically here they're setting out the strategy
to achieve what we just talked about of improving their starter index,
and they, point one of two points will be that we'll "Flight advertising
pressure against high filtration styles in young adult skewed publications,"
and what "young adult skewed publications" means is that they'll go into
publications with a lot of young adults reading them. And then the second
point, over on the -- right at the top of the next page, is that they say
that they will dominate specific young adult publications with a particular
style.
*10 So this is going from their objectives down
to the media- selection issue, where they'll be placing their advertising.
Q. Now can you direct your attention, professor,
to Exhibit 12493, which will be in volume one, and this is an RJR document
which the jury and court has seen before and has heard testimony on. It's
a presentation to the RJR board of directors on September 30th, 1974. And
you can see on the first page it's a marketing plan, Mr. C. A. Tucker's
presentation to RJR Industries' board of directors on September 30, 1974.
Now sir, with regard to this document, if we could
-- the jury's heard about this document. What I'd like you to do is discuss
this document in terms of Exhibit 30225 and what you've talked about as
the total marketing and communications programs that have been undertaken
and instituted by the industry over the years, if you can do it from that
perspective.
A. Okay, fine.
Q. First off, we direct our attention to the first
page. Is there a reference there to the necessity and importance of re-
establishing RJR's share of the marketing growth in the domestic industry?
A. Yes. That's basically right -- right at the top,
the first thing they talk about.
Q. And what is one of the key opportunities that
is reflected there?
A. Well the key opportunity, as they -- they set
out in this document is, you know, point one is to increase our young adult
franchise, which, as you probably recall from the other day, they explicitly
define as the 14-to-24 age group. And so what this is really saying is,
if we go back to the exhibit we've got, the demonstrative exhibit we've
got over -- over there, the -- that little person in the middle, that little
target of this overall marketing and communications campaign, that little
guy is the 14- to 24-year-old age group, basically, as they're setting
it out here.
Q. And we again see down at chart three the use
of the term "young population skew." And I think that was just in the Kool
document, that Brown & Williamson document that we just saw; is that
correct?
A. Right, uh-huh.
Q. And what is reflected there, sir?
A. Well it's basically showing that -- how critical
this 14- to 24-year-old age group is, that they represent 21 percent of
the population, but again they say they represent tomorrow's cigarette
business. So it's back to the idea of saying, boy, this starter population
is -- is really the key. They're going to represent tomorrow's business,
and as they mature, they will account for a key share of the total cigarette
volume for at least the next 25 years.
And again, the importance of brand loyalty, the
degree of brand loyalty, as we know, makes it critical to get the people
as they're starting and then try to hold them over time.
Q. Now in designing a total marketing and communications
program for a company, if you're on the inside, is it important to understand
what the competition is doing?
A. Yes. Basically -- I mean the -- the two kinds
of major analysis you do in terms of input into your marketing plan is
the consumer analysis that we talked about yesterday in terms of specifying
your target market, trying to understand their wants and how you're going
to satisfy them, that sort of thing, and then the second thing you do is
you take a look at your competition because you want to understand what
their strategies are and how you should position yourself relative to your
competition. So those two things -- typically you look at your --
*11 As well as looking at your consumers, you look
at your competition in terms of input into the formulation of your plan.
Q. And if you turn to the next page, page 1312 at
chart four, is RJR here looking at its competition in the cigarette market?
A. Yes. Basically the -- the whole page is sort
of related to that. They -- they --
Again, our target market is, as is said here, the
14- to 24- year-olds, so they're specifically looking at how well Philip
Morris and Brown & Williamson are doing with respect to this age group.
So they note there what Philip Morris's share is, and then - - and then
they move down on chart six, down on the bottom of the page, they look
at -- they go down to the brand level. They're saying, look, we -- we have
-- our two major brands are Winston and Salem, so Winston has only a 14
percent share whereas Marlboro has a 33 percent share, and Salem has a
nine percent share versus a similarly positioned brand, Kool, they have
a 17 percent share. So the first thing they -- they're doing here, having
specified their target market, they're looking to see what their competitive
position is at the moment.
Q. And they're talking about, there, the 14-to-24
age group; is that correct?
A. Right. That's explicitly -- explicitly noted
there, right.
Q. And at the bottom, then, do they show that this
suggests slow market- share erosion for us in the years to come?
A. Right, it does, for exactly the kind of reasons
that we - - we talked about yesterday and went through an RJR document,
sort of mapping through what happens to your share over time if you have
a low share of starters. So again it's reflecting in 1974, '75, that they
really understood even at that time the criticality of getting the starters
in, and because of the brand loyalty effect, that's going to -- that's
going to carry on over over the years to come.
Q. And once a company looks at the competitive marketplace
and who their targets are, I take it it's then necessary to implement a
strategy?
A. Right. Then you design a strategy in light of
the information that you have about your target market and your competitors
and your competitive position, you then go into the next stage, is to develop
a total marketing and communications program against that target market
segment, and then you implement it in the marketplace.
Q. And if you turn to the next page, page 1313,
does that portion of this presentation to the board of directors of RJR
start addressing the issue of strategy?
A. Yes, it does. And -- and I think what's -- you
know, what's important about what -- what's done in this document, I think,
is that, number --
Number one, what it tries to do is it looks at all
of the major brands within the RJR portfolio, so it will look -- it looks
at Winston, it looks at Salem, it looks at Camel, it looks at Vantage,
and tries to see how all of those can work together to create for RJR what
it wants -- what they want to do. And the second thing that, you know,
that this document does, which, you know, I think warrants going back through
it even though you're probably groaning, "Oh, no, not this one again,"
is that it really shows you the level of detail to which the people are
-- to which RJR and generally -- this is reflective of what the other companies
do as well -- kind of the level of detail to which they think through their
marketing programs.
*12 Q. And if we look at page 1313, they're talking
about direct advertising appeal to the younger smokers --
A. Right.
Q. -- at number one. And then number two, they say
they want to be true to the brand's basic product attributes, and three,
without alienating the brand's current franchise.
Can you describe what's going on there, sir, from
a marketing standpoint?
A. Sure.
If I can just try to put it in -- in context here,
at this time, around 1974, '75, Winston has about a 15 percent market share.
It's more or less tied to Marlboro for market-share leadership in the market.
Marlboro has been increasing rapidly just prior to this time. But Winston
has a very valuable franchise with its current product positioning. So
what they're basically saying here is, gee, we want to go to these younger
smokers, but in the process of going to these younger smokers, we don't
want the people who represent -- who give us our 15 percent market share
now, we don't want them saying, oh, this brand is no longer for me. So
they're really trying to avoid the -- the Black & Decker/DeWalt effect
that we saw where Black & Decker, doing so well with the homeowner
like me, the -- you know, the incompetent do-it- yourselfer like me, that
Black & Decker was doing so well with them that the tradesman looks
and says, "Oh, well that product is not for me." So they don't want Winston
to become such a kids' brand that the adults that are making a big part
of their franchise at the moment say, "Well that's not for me."
So that's why it's -- it's a hard -- it's not an
easy thing to do, to appeal to a couple groups. They -- you get a little
flexibility because you can do product line extensions. Right? We can have
Winstons, we can have Winston Lights and so forth. So one of the things
we'll see, I think, is how they try to hit these dual audiences.
Remember, we talked about you want to keep the people
that you've got, giving you the 15 percent market share, that's an extremely
valuable franchise for RJR, so they say, look, we can't move away from
the value that those people see in our brand as we try to go for this younger
group. So that's what they're going to be trying to do here.
Q. And in this document, do they report to the board
that in following that strategy -- and that is, appealing to the young
without alienating the brand's current franchise -- that they followed
that strategy in developing the new "Candid" advertising campaign?
A. That's correct. Basically they're saying we're
-- we're following this strategy with the new -- with the new "Candid"
campaign. And you may remember seeing some advertisements of that type
the other day where they tried to hit this younger market.
At the same time, around this same time period,
as I was looking through the advertisements which had been sent to me from
RJR, there is advertising copy that's saying "Winston for when your taste
grows up." So it's -- you know, they're doing a couple different things
here in terms of not having the advertising look so youthful that they're
alienating their current franchise, but trying to go to the younger market
as well.
*13 Q. Okay. And do they report to the board at
this time the results of their research on the campaign?
A. Right. I think this is -- this is reflective
of the -- of the kind of level of detail and sort of, you know, doing --
doing the right things from a marketing point of view, that they're going
in researching, that they're developing new advertising copy, and they're
basically going and doing the research to see whether it's more effective
than the campaigns they've had in the past, and how would it compare to
what Marlboro is doing.
Q. If we go down to chart nine, then, professor,
does this report to the board on one aspect of a total marketing and communications
program?
A. Right. Now it's -- it's basically --
We're switching from Winston to Salem, and they're
basically saying, well, for Salem, we -- we've improved the advertising
campaign. And if we -- if we can go over to the next page, it kind of goes
through at the top there what they've done to improve the advertising campaigns
for Salem, but as you go a little bit further down the page, I think as
we go down to chart 10 here, it's saying further young adult emphasis is
being placed through the successful Salem box denim campaign, and so we're
down to the level of -- of talking about the packaging to really show the
box, the crush-proof box in with blue jeans and that sort of thing. So
-- so that's the --
We've got a strategy and we're kind of going back
to our diagram over -- over here where -- sort of in the packaging realm
of -- of our diagram that we looked at yesterday. That's the level of detail
that we are operating at here.
Q. And if you go over to chart 12 on page 1315,
now addressing the Camel Filter, moving past Salem, what is being addressed
there with regard to the total marketing and communications campaign?
A. Right. Well now we're talking about -- about
Camel, and - - and I think we should note here that they're saying that
this new marketing program is -- it's put into a test market, so it's not
necessarily the case that it -- that this -- that this has been rolled
out nationally yet, but you see these three bullet points are saying what
we're doing with the new program for Camel Filter, we've got a new advertising
campaign, but we've got a new Marlboro- like blend in the product. So if
we go back to our diagram over there, what they're saying is that inner
circle, right around the little target market, the product design, we're
going back to product design and coming out with a new Marlboro-like blend,
and then we're significantly increasing the advertising spending and we're
also coming up with a new package design which is going to be -- which
is being developed and will be tested in early 1975. So you can again see
how they're touching on a lot of the points under -- in the overall umbrella
approach with respect to Camel right here.
Q. And with regard to product line extensions, is
that addressed in chart 13 regarding the Vantage cigarette?
*14 A. Well it's -- it's more a new-product introduction
than a -- than a product line extension in the sense that they're saying
that Vantage is one of their entries into the -- into the low tar and low
nicotine segment of the market, the health reassurance segment. So they're
saying here on chart 13 how Vantage has shown the ability to attract --
you know, we have to jump over to the next -- next page -- it's saying
how Vantage has been able to attract, the second bullet point there, new
and younger smokers, and that field sales reports Vantage has pockets of
strength on college campuses and close to home for me. For example, in
the book store at Harvard Square, Vantage is among the top 10 sellers.
So the idea here is that they've got a brand, this new -- new -- newer
-- relatively new brand, Vantage, which is allowing them to get new smokers,
new and younger smokers.
Q. And do they also address in the first bullet
point the segment of the market that is switchers?
A. Yes, they do. Right. They're basically saying
that, you know, this -- this low tar/low nicotine positioned brand is getting
a significant number of switchers from normal-flavor filter smokers.
Q. And right before chart 14, is there reported
to the board that ad spending has been increased with certain targeted
efforts?
A. Yes, that's right. What chart 14 is about is
media saying we've increased our media effort towards young adults, and
then they give some specific examples of, as they go toward young adults,
the kinds of magazines that they're inserting their advertising in, and
they specifically mention Sports Illustrated, Playboy, Ms. Magazine, new
young adult special interest magazines such as Road & Track and Motorcycling.
And then they're doing expanded outdoor with selective locations for maximum
young adult exposure, Greenwich Village and areas with large college-student
populations.
Q. And if you go over to the next page, sir, page
1317, is there addressed there the issues of promotion of a product?
A. Right. Basically what we have over here on --
on page 15 is they're talking about special events, which, you know, would
go back to our demonstrative exhibit over there, would correspond to sponsorships
over there. And what happens over the next couple pages of this document
is really to lay out in -- in detail for the board of directors the total
communications program that they bring together at these special events.
So they're saying here with -- they're mentioning some of their major special
events are the NASCAR car races with Winston, the -- and then they go down
a little further down the page, right at the bottom of the -- there we
go. Now come up to the top -- to sponsor rodeos for Camel Filters. What
they're doing is they're pinpointing sponsorship of sports car races and
motorcycling. So this is -- this is another element of their overall marketing
and communications package, these special events sponsorship-type things.
Q. And professor, if you would direct your page,
then, over -- or "direct your page" -- direct your attention over to the
next page, which is 1318, and chart 17, and what is then depicted there,
sir?
*15 A. Well what they're telling the board here
is that these special event kind of things are relatively -- relatively
new for us, and they want to review with the board of directors the kind
of things that they're doing at these -- at these special events.
So kind of, as I -- as I read this, I guess what
was really striking to me was the extensiveness of their efforts here.
And also, remember yesterday we talked about the importance of getting
all of your different communications messages to kind of link up with one
another? If we see how -- we can see here how they're really -- they're
really doing that.
So in this chart 17, the first thing they do is
they say, okay, imagine we're at a site, it's a stock car race or whatever
kind of race a NASCAR race is, what do we do? What do we, RJR, do at the
site itself? And basically what we say here is, well, we do five things,
there's five different things that we do at this site in addition to having
the cars running around out on the track with our name on them.
They say, first of all, we have -- we have permanent
billboard advertising is number one. Brand exclusivity at concession stands,
meaning, you know, the only brands that are available at the concession
stands would be RJR brands. Third thing is we have branded event-related
items, so we sell our Winston hats, shirts and jackets. So this is the
-- kind of the walking billboard idea to get our advertising, get people
to pay to put our advertising on their --themselves and wear them around
town. The fourth thing they do, they have tie- in banners and pasters with
strong brand identification. And then the fifth thing they're doing is
they're having the brand featured in commercials over the public address
system. So as you're sitting there, you know, watching the race, you're
hearing public address announcements. So not only are you seeing advertising
while you're at the races, you're -- you're hearing advertising. So that's
what's going on at the site itself.
But then they say, well look, that's not all we
do. Remember yesterday we talked about the importance and the potential
power about public relations? What they then go on to say is we have done
strong press outreach through the wire services, so in something that would
not show up anywhere in our advertising and promotion budget of RJR. What
they do is they say, well, for this Winston Western 500, the race got heavy
mention of Winstons in newspapers having a circulation of 10 million and
on a two-hour radio program reaching 30 million people. So that's the public
relations effort, that they're getting other people to mention the -- the
Winston brand. So that's sort of the sixth thing they're doing.
The seventh thing they're doing is they've got their
sales force going around to retail stores trying to get the convenience
stores and the gas stations and so forth putting up posters. So that's
item number seven.
Then if we look over on the top of the next page,
they've got item number eight, they're running around to shopping centers
to put the Winston Number One and Camel Filters GT cars in the shopping
centers so that when you go there you see the cars on -- on display. So
that's number eight.
*16 And then number nine, they say we do our own
advertising.
So again, what you see here is you've got -- you
got this special event, and then within the special event you've got nine
other things sort of all coming together to really put the brand name and
the image of the brand out in the face -- in the face and in the ears of
the -- of the target market.
Q. And in the next paragraph, do they indicate whether
or not that type of effort produces results?
A. Right. This is a presentation to the board of
directors, and, you know, you could easily -- I could easily imagine people
on the board of directors saying, "Well gee, this is all nice, it sounds
good, but does it work?" And basically they're anticipating the board's
question here, and they say, well, you might logically ask what does all
this mean in terms of sales, and then they go on to say, yeah, it -- it
is having a sales impact. Winston's share of smokers is 60 to 70 percent
greater among -- than among non-racing fans. Among rodeo fans, Winston's
share of smokers is 50 percent greater -- greater than non- -- non-rodeo.
So they're really saying all of these activities which we're undertaking
in such an extensive, coordinated fashion are really having the impact
that we want.
Q. And in the last sentence there, do they state
that while they don't have directly comparable data for the newer Camel
Filter special events, that their research indicates a dramatic increase
in purchase rate among fans attending?
A. Right. And so they're -- they're following through
checking to see whether their efforts are working, and basically they say
that -- that -- that they are.
Q. And in the last paragraph, what is addressed,
then, from the standpoint of the total marketing and communications program?
A. Well if -- it goes on to -- to list some other
things that they're doing. I -- I think I was up to number nine a moment
ago, but what they're saying is we have other programs to reach the young
adults where they work and play, so number 10 is we have these free on-pack
trial inducement promotions, so we're, you know, using the promotions element
of the total marketing and communications program, and number 11 is we
have permanent counter displays in 35,000 outlets.
If we go over to the next page, number 12 is that
successive waves of couponing will be tested in 1975 by way of explanation,
we target a specific market of -- of young adults. And we go down to the
next paragraph, number 13 is we've got a special merchandising division
and it's got these successful wholesale operations offering premiums at
beaches and special events through a separate sales force. All right. So
they've got a dedicated sales force set up to do this, and they anticipate
selling over a million items in 1975, a million walking billboards for
the company. And then number 14, I think, is that they're going to continue
doing their special sampling programs, giving away cigarettes at beaches,
resorts -- resort areas and sports arenas where there are large congregations
of -- of young adults.
*17 So just in this one document alone, under the
heading of "Special Events," there's 14 different things that they're doing
to really speak to the target customer where they live. So you can imagine
that -- you know, the extensiveness and the manner, if you -- and the manner
in which they're talking to people. They -- they've done the research,
they understand what these young people's hot buttons are, they're talking
to them from these variety of venues.
Meanwhile we have perhaps the Surgeon General in,
you know, saying what he or she has to say, and it's a completely different
venue and not near the kind of extensiveness.
So this one is really kind of on the street and
in the face and in the ears of -- of the young adults that they're targeting.
Q. And if you turn over to page 1328 and chart 32,
again is there presented to the board there where the key opportunity for
new brands lies?
A. Right. Everything we have talked about up until
now was - - was built around existing brands. Right? And so now what they're
saying is we have a key opportunity with new brands, so -- so that would
be bringing out an entirely new brand name or -- or line extensions with
new benefits or new personality. So this line extension idea is something
that could help you with hitting the -- the dual audiences, not risking
one franchise when you go after another.
So we've seen a lot about what you do in terms of
marketing existing brands, and here they're pointing out the opportunities
with new brands and product line extensions.
Q. Professor, can you turn now to volume two, Exhibit
13759, which is a Brown & Williamson Kool strategic plan of 1981. 13759.
Is that a document that you have reviewed in this case?
A. Yes, it is.
Q. Does it form part of the basis of your opinion?
A. It -- it does.
Q. And is it representative of other of the defendants'
documents?
A. Yes, it is.
MR. CIRESI: Your Honor, we would offer Exhibit 13759.
MR. BLEAKLEY: No objection.
THE COURT: Court will receive 13759.
BY MR. CIRESI:
Q. The first page is the title and table of contents,
"KOOL STRATEGIC BRAND PLAN, Table of Contents." I'd like to direct your
attention, professor, if we could, to the first page of text which is the
next page, Bates number 653.
A. Uh-huh.
Q. Does that page address the issue of the markets
that are being addressed by the Kool family?
A. Well I -- I basically -- the -- the document
--
This is a point in time when the Kool brand has
-- has had some difficulties, and so it starts out by noting some weaknesses
of the brand, but then they -- but then they go down on the positive side,
they're saying that, if we go down a little further on the page, it's saying
that the -- the Kool family can be characterized as, number one, having
a consistently strong heritage of product benefits which has had historic
appeal to starter smokers and to non-menthol switchers.
Q. Okay. And can you direct your attention to the
next page with regard to the key marketing strategies of this plan under
paragraph C.
*18 A. Uh-huh.
Q. And is the target audiences addressed there?
A. Right. Under "Key -- Key Marketing Strategies,"
they've both -- the first point is that they're going to support the entire
Kool family; that is, all of their Kool product line extensions, but then
the second point sets out who is it that's going to be our target market.
And as we -- as we noted yesterday when we were kind of going through the
Minnesota Twins story, you may have multiple target audiences at any one
point in time. Right? I may have an audience, trying to get the corporate
people to take more season tickets, while I go after youth groups. And
basically what -- what Kool is saying here, that our target audiences in
priority order are, first, our current Kool ethnic franchise, but then
secondly is these young adult starting smokers and non- menthol switchers.
Q. And do they talk about targeting or using promotional
resources against the target groups?
A. Right. Right at -- right at the bottom of the
page, point number four there, they say how their promotional resources
will be targeted against the above groups with the objectives of increasing
inner- city business, increasing awareness and interest, and developing
competitive trials among the selected target audiences.
Q. And can you direct your attention to page 690,
which is toward -- toward the end of the document. And that's the last
three Bates numbers, 690.
A. Uh-huh.
Q. And is there referenced there the fact that they
were watching the starter market, Brown & Williamson was monitoring
that market?
A. Right. Right. A few minutes ago we saw the Brown
& Williamson document in which they referred to this starter index,
and what you can see here is they have market research going on in -- in
1974, which is designated as wave 16. And a wave typically means -- you
know, it's like the 16th in a series. So they're tracking starters in 1974,
and you can also see that they're tracking them in wave 27 over there in
1979. So this means to me that they're regularly tracking through market
research their -- their share of starters that -- that they're getting.
Q. And did your review of the defendants' documents
indicate whether or not the defendants' marketing and communications strategies
to attract starters was successful?
A. Yes, I did.
Q. And was it?
A. Yes, it was.
Q. Can you direct your attention to Exhibit 10133,
which would be in volume one.
Do you have it, professor?
A. I do. Thanks.
Q. Is this one of the documents that you've reviewed?
A. Yes, I did.
Q. Does it form part of the basis of your opinion?
A. It does.
Q. And have you found it representative of other
of the defendants' documents?
A. Yes, I have.
Q. And this is a Lorillard document dated September
15th, 1964 from Mr. Yellen, who was the general counsel and who headed
up advertising, to Mr. Cramer, who was the president and chief executive
officer; correct?
A. That -- that's correct.
*19 MR. CIRESI: Your Honor, we'd offer Exhibit 10133.
MR. BLEAKLEY: No objection.
THE COURT: Court will receive 10133.
BY MR. CIRESI:
Q. Can you direct your attention, first, to the
page which bears the Bates number 262.
And the subject on this is "LORILLARD SALES POSITION."
A. Right.
Q. And if we go down to the second-to-the-last paragraph,
does it state here what Newport was marketed for, which group?
A. Yes, that it was marketed to the -- what they
call a youthful group as well as, it says inmature, i-n-mature, but I suppose
that's supposed to be immature group of smokers. So the target market,
back to our diagram over there, that little person in the middle is this
youthful group, and they're positioning this cigarette as a -- as a fun
cigarette.
Q. And do they reflect here in the memo or disclose
whether or not their marketing was successful?
A. Yes. They state that market -- Newport was marketed
successfully according to the plan that they had.
Q. And can you go back, then, to page one of --
of this document.
A. Uh-huh.
Q. And in the first paragraph, does Mr. Yellen state
what the purpose of the letter is?
A. Yes, he does.
Q. And what does he -- what does he state, sir?
A. Well basically he wants a comprehensive --
He's saying he's been asked to set out a comprehensive
letter stating the position of their various cigarette brands, the major
ones of which at this time would be Kent and Newport.
Q. And in the --
At the bottom of that first page, does he address
the issue of Kent and what it was addressed to?
A. Yes, he does. As -- as he says here, that basically
Kent was positioned as a -- as a safer cigarette for the smoker who was
concerned about smoking and health. And then in 1956, when Reader's Digest
came along and created an awareness among consumers that Kent was the safest
of all cigarettes, Lorillard exploited this advantage. Right? So they --
there's -- the Reader's Digest sort of surfaces the health concern, says
Kent is the safest, and then the company exploits this advantage so that
within a short period of two years, basically, Kent volume goes -- grows
by a factor of nine, it grows from less than four billion cigarettes to
38 billion cigarettes annually.
And then it goes on to note how a number of other
brands, having seen the success of Kent, try to -- try to come along and
-- and do what -- and sort of jump on Kent's bandwagon and erase the Kent
image of safety. But basically what -- what Lorillard did is they protected
their -- their bread and butter brand, protected their differentiation
and the brand image that they had for Kent.
Q. Okay. And they did that in order to retain the,
quote, Kent safety image, end of quote?
A. That -- that -- that's correct.
Q. Can you direct your attention to Exhibit 13679,
which would be in volume two. Is this another document that you have reviewed,
professor?
A. Yes, it is.
Q. Does it form part of the basis of your opinion?
*20 A. It does.
Q. And this is a memorandum of Brown & Williamson
dated September 10th, 1979, "RE: KOOL Analysis of Brand Switching Study,"
and I'd like to direct your attention, if we could, to page 3816. This
letter is on the letterhead of Ted Bates Advertising, and the conclusion
section --
A. Right. Yeah. This -- this is back in -- in 1975,
and this is their -- their advertising agency reflecting back on -- on
how Kool has done, and they say under point one there that Kool's efforts
against the 16- to 25-year-old group continues to be working. And then
related to that, in point two they say Kool's effort is successfully attracting
new smokers. So they're reflecting back on a time when Kool is doing --
is doing very well, and they're saying -- they're attributing that success
to their ability to attract -- attract these new -- these new smokers.
Q. And the age in that paragraph is 16 to 25?
A. Right. The age in -- the age note in the second
paragraph is the same as in the first, it's the 16- to 25-year-old group.
Q. And what if anything do they state there with
regard to their strength among female starters?
A. Well, it's that basically Kool has shown an ability
to attract new female smokers. Although they're having some difficulty
in -- in -- in keeping them, they are -- have some ability to get them
in in the first place.
Q. Can you direct your attention now to Exhibit
10195, which is back in volume one, and that's a Lorillard document.
THE COURT: Counsel, I think we'll take a short recess.
THE CLERK: Court stands in recess.
(Recess taken.)
THE CLERK: All rise. Court is again in session.
(Jury enters the courtroom.)
THE CLERK: Please be seated.
THE COURT: Counsel.
MR. CIRESI: Thank you, Your Honor.
BY MR. CIRESI:
Q. Professor, if you could turn to Exhibit 10195,
which is a Lorillard document directed to the CEO, Mr. Curtis Judge, from
Mr. Achey dated August 30th, 1978, does that document reflect that Lorillard
was being successful with regard to attracting starters?
A. Well yes. This is basically a letter to the CEO
talking about the Newport brand. And so it says -- it says in that third
paragraph of the -- the document the success of the Newport -- of Newport
has been fantastic during the past few years. Our profile taken locally
shows this brand usually being purchased by black people of all ages, young
adults, usually college age, but the base of our business is the high school
student.
Q. And in the next paragraph, does the author of
this memorandum to the CEO compare Newport to the competition, specifically
Marlboro?
A. Yes, it does. It's basically saying that Newport
is turning into what Marlboro used to be. Whereas, you know, Marlboro was
the in-brand, Newport is -- is trying to supplant Marlboro as that brand
for the -- for the starters.
Q. Can you now direct your attention in the same
volume to Exhibit 11780, which is a Philip Morris document. This document
is dated January 23rd to 24th, 1984, about six years after the Lorillard
document we just saw. It's entitled "PRODUCT TESTING, SHORT COURSE," it
is authored by Mr. Ennis, Mr. Tindall and Mr. Eby, and it's -- they are
in the product evaluation division, R&D department, Philip Morris in
Richmond.
*21 Sir, can you please direct your attention to
page 504 of that document. I'd like to read one paragraph to you, the second
full paragraph.
"Marlboro floundered for eight years and then hit
a responsive chord among post-war baby-boom teen-agers with the theme from
the Magnificent Seven and an image uncalculatedly right for the wave of
teen-agers coming of smoking age."
Now on the next page, does -- do the authors of
this document track the growth of Marlboro and Kool and Newport, the other
brands that we have been referring to this morning?
A. Yes, they do. They -- they look at the shares
of the brands over -- over time, going -- starting back late '50s, early
'60s sort of thing.
Q. And do they show a continuing growth in those
brands?
A. Right. Basically what -- what they show for Marlboro
here is the first part of -- of the line from -- over to 1965 is sort --
or late maybe '63 is sort of the floundering years, and then they come
out with this theme that is uncalculatedly right, this -- this theme that
these teen-aged baby-boomers increases the perception of the value of --
of Marlboro, and you see Marlboro then takes -- its market share takes
off. And similarly during this time period some of the other -- Kool and
Newport, the other youth-oriented brands, are growing. And their -- their
market shares taper off, as you see there, you know, around a little before
1975, whereas Marlboro just keeps on growing -- growing.
Q. Now from your review of other of the defendants'
documents, are the documents that we saw today and yesterday consistent
with the efforts of the total marketing/communications programs to attract
starters?
A. Yes, they were. They were. I believe people consistently
recognized the importance of starters, set objectives against them, and
implemented marketing programs to increase the perception of their value
in the minds of starter -- potential starters.
Q. I'd like to direct your attention now, professor,
to one of the other objectives which you described, was to keep smokers
in the market.
A. Right.
Q. From your review of the defendants' documents,
did the defendants utilize various marketing and communications programs
to keep smokers in the market?
A. Right. I would say that they basically energized
the total marketing/communications package program that we talked about
yesterday to keep people in the market as well. Probably two particularly
important aspects of that are the product line extensions, the growth into
the low tar/low -- low nicotine segment of the market, and also the general
communications strategy which they used.
Q. Did your review of the defendants' documents
indicate whether they ever disclosed what they knew about the addictiveness
of tobacco?
A. Not to my knowledge, no.
Q. Can you direct your attention, please, to Exhibit
10585, which would be in volume one. Now this is a B.A.T. Company document
dated April 14th, 1977. You can see that on the last page. It was authored
by the marketing manager, P. L. Short, and the date again is April 14th,
1977.
*22 If we could go back, then, to the first page,
professor, the title of this is "SMOKING AND HEALTH ITEM 7 : THE EFFECT
ON MARKETING."
Can you describe what is being reflected on this
page of this document, sir?
A. Yes. Well basically what happened is a number
--
Given the increasing health concerns at this time
period, there were some conferences held, and you can see here that there
were -- this conference that was held was attended by the No. 1s; that
is, the number one person in the company, and the marketing directors from
North America, Australia, Europe and Brazil.
Q. That's in the first paragraph?
A. Right, it is.
Q. Okay.
A. So the highest levels of management are participating
in -- in these meetings. And basically what they're trying to do is come
up with a set of new marketing policies for the 1980s in light of the --
the changing environment. So what this document does is it sets out what
the new principles of marketing, the new approach to marketing as they
use the term -- terminology, what their approach to marketing for the 1980s
is going to be.
Q. And what do they say in paragraph one with respect
to that future prospect of new approach?
A. Right. Well it sets out here the -- what the
new approach is going to be right in -- under point number one of "Future
Prospects," and -- and basically they're saying that "The new approach
to marketing, supported by suitable strategies, offers distinct opportunities
to create brands and products which reassure consumers, by answering to
their needs." So this theme -- you know, the theme here is reassurance
that you consistently see keep coming up. There's a -- there's a health
concern that is coming up in the marketplace, and basically they're saying,
look, our marketing approach -- and we're going to use lots of different
vehicles to do this -- our marketing approach is going to be to reassure
consumers that it's okay to continue in this smoking habit.
So they go on and say "Overall marketing policy
will be such that we maintain faith and confidence in the smoking habit,
whether brand choice is traditional or not in particular markets. This
means that B.A.T will not remain on the defensive by simply reacting to
alleged 'health' hazards and related competitive challenges: instead, we
shall seek out all worthwhile prospects for brand and product reassurance
in marketing throughout the world."
So to me this basically means we're going to take
all of the elements of the total marketing and communications strategy
and energize them around offering product reassurance and brand reassurance
in order to keep people in the market rather than have them quit because
of health concerns.
Q. And can you direct your attention, then, to page
794 of this document, which deals with communication with regard to health
reassurance.
A. Right.
Q. And what -- what is reflected there?
A. Okay. Well here we're under -- under the heading
of "Communication," which would mean advertising, promotion, public relations,
the whole gamut of things we talked about yesterday, and again the theme
is customer reassurance where they say "All work in this area should be
directed toward providing customer reassurance about cigarettes and the
smoking habit. This can be provided in different ways, by claimed lower
deliveries, by the perception of lower deliveries and the perception of
'mildness'. Furthermore, advertising for low delivery or traditional brands
should be constructed in ways so as to not provoke anxiety about health,
but to alleviate it, and enable the customer to feel assured about the
habit and confident in maintaining it over time."
*23 So it's -- it's this theme of reassurance, maintaining
confidence, and not having people quit, that's what all of their communications
should be directed to, is what this principle of marketing for the 18 --
1980s is saying.
Q. And if you direct your attention to page eight,
which is the second-to- the-last page of this memorandum regarding the
conference that was attended by all No. 1s and marketing directors from
North America, Australia, Europe and Brazil, is there set forth there the
tactics that would be implemented?
A. Right. Particularly they're talking about the
tactics for publicity down on the bottom of the page here, that we started
out this document with a statement of the overall principles of what they're
going to be doing, and then we stepped down to the communications campaign,
and now we're stepping down into a subheading under communications, the
publicity.
And again you see the exact same thing. "The main
objective for all tactics on publicity is directed towards achieving reassurance
amongst a variety of 'publics', including smokers particularly, in the
face of the increasing social unacceptability of smoking.
"A few options were outlined in the Tobacco Division
Board," is what TDB stands for, and further recommendations developed.
And so what they're talking about here is, you know, we're going to directly
communicate this reassurance with the -- to the consumer, but we're also
going to see if we can utilize what they call pressure groups, that they
will influence the consumer as well.
So they're saying who is it that will be able to
bring favorable opinion to bear on the industry? So they say, A, segments
of the tobacco distributive trade. Okay, the people who distribute our
products and sell them, maybe we can get them -- help -- get their help
in getting this reassurance message across. The tobacco growers, the people
that we buy our supplies from. C is suppliers, advertising and research
agencies, media, the people that we buy our advertising space from, maybe
they can help get across in reassurance medium. Sports and cultural organizations
that take our sponsorship money. Favorable -- over on the next page --
favorable medical opinion where it exists. Individual liberty groups. Industries
with problems similar to our own. Employee unions and so forth.
And then they go out and basically close the document
by saying in order to communicate well- attested and, quote, unquote, proven
benefits of smoking, the most promising vehicles appear to be reputable
research journals, public relations releases to the media and other specified
groups, symposia/lectures, or to the smoker directly via pack and outer
inserts, and leaflets.
So, you know, in general we want our communications
by third parties and by the industry, it's going to be best that a -- and
that we're going to maintain a high standard of publication. So basically
what they're saying is that, you know, we will directly get this idea of
reassurance across through the media messages which we control; that is,
the advertising and the promotion and so forth, but we're also going to
exert efforts to have others really acting on our behalf in getting across
this reassurance.
*24 So again, it goes back to this idea of the total
communication strategy, not just advertising, but taking advertising, promotion,
public relations, getting your partners in the business, basically, to
work on your behalf as well.
Q. Professor, can you direct your attention now
to Exhibit 13804, which is a Brown & Williamson document.
Before we talk about that document, professor, have
there been studies published dealing just with advertising and its effect
on smokers?
A. There have been a number of academic studies
which have been published in -- in -- in the literature trying to look
at the effect of advertising on cigarette consumption.
Q. Have any of those studies dealt with the internal
documents of the cigarette industry?
A. No. Basically these -- these studies have typically
used data which were publicly available that you -- you kind of look at
--
The advertising expenditure data is available because
it's been reported to the FTC. The sale data is available publicly through,
I -- I believe the Maxwell Reports would be one place you can get it. But
you don't need company access to get sort of what's going -- the advertising
dollars going in or the sales going out. So a lot of academics, because
of the easy availability of that data, have tried to say, okay, let me
see what the effect of advertising on -- on consumption is, because basically
they were never permitted access to the internal documents which would
let them look at the total strategy and understand all of the elements
of the communications program.
Q. Are you aware of any of these studies which have
had access to the total marketing and communications programs that were
implemented by the defendants?
A. No, I'm not aware of any studies of that type.
Q. Can you then direct your attention to Exhibit
13804. Is this one of the documents that you've reviewed for your testimony?
A. It is.
Q. Does it form part of the basis of your opinion?
A. It does.
Q. Is it representative of other of the defendants'
documents with respect to the subjects that it addresses?
A. It is representative of.
MR. CIRESI: Your Honor, we would offer Exhibit 13804.
MR. BLEAKLEY: No objection.
THE COURT: Court will receive 13804.
BY MR. CIRESI:
Q. Professor, Exhibit 13804, the first page of which
is on the overhead, is directed to B. L. Broecker, who is the manager of
product publicity for B&W, it is from F. E. Latimer, who was the assistant
brand manager. There's a carbon copy to M. J. McCue, the brand manager.
And the subject is "Cigarette Advertising History."
Can you describe, sir, what is being reported in
this document.
A. Well there's a couple things being reported.
I mean, first of all, Mr. Latimer talks about advertising in and of itself,
that if you take advertising and just look at it divorced from the rest
of the total communications environment, he says -- he basically, you know,
doesn't see that cigarette advertising alone could cause lots of people
to be -- to begin smoking. So, you know, as we've been saying, you really
have to look at advertising within the context of the total marketing/communications
-- and communications program that the firms implemented.
*25 Q. And is that at the bottom of the first paragraph
that's underlined, "Cigarette advertising has not and does not cause most
people to start smoking," and then at the bottom of that paragraph it says,
"In the face of such powerful opposition," he's talking about religious
bodies, parents, medical bodies, --
A. Uh-huh.
Q. -- "it is hard to believe that cigarette advertising
alone could cause such vast amounts of people to begin smoking?"
A. Right. That -- that's what I was just referring
to. Yes, uh-huh.
Q. Please continue then, professor.
A. Right. And then he goes on to say, well, you
know, what - - what role does advertising -- advertising play? And -- and
he talks about how this -- in this time, in this history of advertising,
that cigarette smoking is a high performance risk/ high ego-involving activity
for most people, and he says that -- what is the last sentence under --
let's see, right above the point one there, he says, "Good cigarette advertising
in the past has given the average smoker a means of justification on the
two dimensions typically used in anti- smoking arguments." So he's basically
saying the average smoker is looking for self- justification, reassurance
that -- that this is okay.
And so the two dimensions that he lays out then
and sets up this role for advertising is providing a means of justification
for, is to say this high performance risk -- that before 1954, he says
the performance risk dimension revolved around kind of the undesirable
cosmetic or what he calls semi-health side effects of smoking, but then
over on the next -- the next page, he says how after 1954 the anti-smoking
performance argument became increasingly focused on the deeper health threats.
So this is what the consumer, what the smoker is
really looking for justification and re -- reassurance on, are these --
these deeper health threats.
Q. And --
A. So -- I'm sorry.
Q. I'm sorry.
A. Go ahead.
Q. And I was going to ask you to direct your attention,
then, to the paragraph after number two. Does he talk about the history
of cigarette advertising as a history of reaction to the anti-smoking arguments
listed above?
A. Right. He's saying that -- that basically cigarette
advertising doesn't control its own destiny; that is, you know, there --
there is -- that he's saying it's a reactive device that provides justification
and rationalization for those who already smoke. And then the last line,
the last sentence in that same paragraph, he goes down and says that "All
good cigarette advertising has either directly addressed the anti-smoking
arguments prevalent at the time or has created a strong, attractive image
into which the besieged smoker could withdraw."
So the idea is that this reassurance offers a sanctuary
for this beseiged person who is looking for some justification and reassurance
that it's okay to continue in the smoking habit.
Q. And if you turn over, then, to page 6042, he
talks about a period in 1964 to '72, the beginning of the high filtration
derby mentioned in the Reader's Digest articles, and does he then address
what good product copy would be addressed to during this time period?
*26 A. He does. About six or eight lines down there,
right -- right after the "in 1970" part, he says, "In this type of environment,
good product copy directly addressed the health arguments by focusing on
lowered tar and nicotine while also claiming to retain tobacco taste."
So again this idea, even in this time period, the idea of -- of health
-- of health reassurance addressing the health issue that's in the mind
of the consumer potentially.
Q. And does he at that same point, then, talk about
the overall themes in the advertising during this period?
A. He does, basically talking about the -- the --
the themes that need to be -- need to be developed in terms of providing
to this younger and lower socioeconomic groups and so forth. And then he
goes on to say at the bottom of the page there that the marketing implications
of all this are that, at point B, as anti- smoking arguments become more
serious, each brand's advertising will have to become more directed and
specific in order to overcome opposition and give specific justification
to its franchise for continuing its use.
Q. And if we go on to the next page, does he talk
about what good advertising copy will have to include?
A. He does. Right at the -- right at the very top
of that page he talks about how good advertising copy will have to be consistent,
you know, which is something we -- we saw yesterday, appeal to various
segments by focusing on specific concrete promises and focus on the end
benefit the brand supposedly provides rather than the process or the manner
in which it delivers it. So what's the benefit that you're going to receive
as a consumer from using my brand.
Q. Now in point number four, does the author then
expand beyond advertising and address the issues that you've been discussing
in Exhibit 30225, the total marketing and communications program?
A. Right. It -- exactly. So what -- what he says
there is that in line with these targeted marketing efforts, the really
successful brands are going to build, as he says, their complete marketing
program. So this goes back to our total marketing and communications program
that we've talked about that -- that will build that entire marketing program
by extensive use of premiums, contests, sponsored events, all reinforcing
the basic image of the brand. And he's also noted in this document that
good timing of new product introductions will pay off.
So taking the product strategy and the communications
strategy together and building the total marketing and communications program
is what's going to be successful here.
Q. And in number five, then, does he talk about
the specific implications for a brand like Raleigh, and set forth various
points concerning that, carrying over onto the next page?
A. Right. He's basically saying with Raleigh, for
specific implications for a brand like Raleigh, you should continue to
point out the brand's strong points, you should create an image that's
consistent with the lifestyle of a narrowly defined audience. So this is
going to the point of consistent with what the audience wants, really understanding
your target market as we talked about. Reinforce the brand image created
in our advertising by offering premiums and sponsored -- sponsoring other
events that appeal to the target audience. So this is sort of integrating
all of the elements of the communications plans.
*27 And then over on the next page he says that
the next thing we should do is we should do brand line extensions, taking
advantage of what's been established with the brand already, but in order
to get flexibility to meet the slightly different needs of our target audience.
Q. Now professor, can you direct your attention,
then, to Exhibit 13787. It is just a couple in front of that exhibit.
A. Right.
Q. This is --
This is another B&W document that was introduced on Document Day
One, it's Exhibit 13787, and this document is dated July 1, 1983, or approximately
seven years after the previous B&W document that you just went over.
A. Right.
Q. First of all, can you tell us what is being reported
there in the background section of this document?
Before you do that, let me just identify some of
the people as they've been identified by the defendants.
Mr. Blott, who this is directed to, was the senior
vice- president of marketing; Mr. Domantay, who received a carbon copy,
is a vice-president of brand management; and the author, Mr. Ward, is promotions
manager. And the subject "RALEIGH/BELAIR COUPON STRATEGY."
Can you describe, then, sir, what is being reported
in the background section.
A. Sure. We're -- we're down now to a very specific
element of their total marketing and communications program, and they're
saying what -- what is the role that couponing can play? And there's a
couple different kinds of coupons. You know, one would be the one-dollar-off
coupon that you -- you know, for three packs that you give in, but this
is the kind of coupon that you collect over time and then once you've accumulated
so many, you trade in the coupons for -- for a gift. And so that's the
kind that this -- the second of those two is -- is the kind that's being
spoken about here.
So the first thing they're doing in this document
is saying, basically, looking at my target market for these coupons, let
me -- let me sort of draw out what the -- the situation that these people
face. What is the role that couponing can -- these coupons can play for
them? So that's the first part of the discussion here down at the bottom
of the page when it starts to talk about its current Raleigh and Belair
franchise which they're trying to retain rather than have them quit smoking
cigarettes and move out of the -- out of the market.
So they're saying on the economic dimension, both
the Raleigh and Belair franchises have very low incomes, so this expenditure
on cigarettes represents something significant to them. They undoubtedly
feel they must make every penny count. They lack self-confidence. They
still need to smoke a brand image while they retain extra value.
Then they go -- the document goes on on the next
page to amplify on the characteristics and the feelings of the Raleigh
and Belair smoker. They're saying this Raleigh and Belair smoker is very
family- oriented but they have low self-esteem. They tend to deny themselves
pleasure. And they redeem their coupons for household items more so than
personal items to reinforce their sense of sacrifice. They have a feeling
that they're not worthy of self- indulgence. So if they're redeeming these
coupons for something for the family, they can feel less guilty, and that's
really what point three is all about, these coupons are a method of guilt-reduction.
*28 Now one way to reduce your guilt about smoking
and taking this money away from your family that needs it would be to quit
smoking, but as it says in point three here, it says Raleigh and Belair
smokers are addicted to smoking. So a way to assuage their guilt while
they continue to smoke is to give them these -- give them these kind of
coupons.
So they go on and talk about the depression mentality
and how both -- point five there, that both brands' franchises skew to
older traditional values, these people tend to not be very optimistic,
they need control in their lives and so forth. So basically what's -- what's
being set out here is how this one specific element, they're using this
one specific element and an in-depth understanding of their target market
to formulate a program in a way which is going to reduce the guilt of these
people, reassure them that it's okay because they can't quit because the
nature of the product is -- is keeping them from quitting because, it says
right here that the Raleigh and Belair smokers are addicted to smoking.
Q. Now professor, I want you to assume that Mr.
Schindler, the CEO of RJR, testified here that he did not have any data
to confirm that low tar/low nicotine cigarettes were safer, and he was
not aware of any such data that the industry has. Did you, in your
review of the defendants' documents, find any indication that they had
data that would confirm that low tar/low nicotine cigarettes were safe?
A. No, I saw no data that would show that low tar/low
nicotine cigarettes were safe.
Q. Can you direct your attention now to some of
the advertising that was done by the defendants. I'd like to direct you,
first of all, to Exhibit 6609, which would be in volume one. Now we're
going to span a number of decades here, professor, with these advertisements.
A. Okay.
Q. First all, did you review 6609?
A. I did.
Q. Does it form part of the basis of your opinion?
A. It does.
MR. CIRESI: Your Honor, we'd offer Exhibit 6609,
which is a Brown & Williamson ad for Viceroys.
MR. BLEAKLEY: Your Honor, we do object to this exhibit.
This is a 1954 ad which predates any of the issues in this case. 1952 ad,
I'm sorry.
MR. CIRESI: It relates directly to the statements
made in 1953 and 1954 by the industry, Your Honor, specifically in Exhibits
18904, 18905, Hill & Knowlton documents regarding what the industry
knew, and then following up to what they actually said in the Frank Statement
in -- on January 4th, 1954.
THE COURT: All right. The court will receive 6609.
BY MR. CIRESI:
Q. And can you describe, sir, what is being depicted
in this ad.
A. Yes. As was mentioned a moment ago, this is a
Brown & Williamson ad in 1952, and, you know, the headline is about
as straightforward as it -- you can get. It basically says "Filtered Cigarette
Smoke Is Better For Your Health," period, end of sentence. Right. So it's
a very explicit health claim. So it's just straight out, straight at you.
*29 And then they say, okay, the reason -- and then
they offer some justification. They say "Viceroys filter your smoke," and
then down in the bottom the copy reads "Yes! The Nicotine and Tars Trapped
by the VICEROY FILTER Cannot Reach Your Throat or Lungs. Viceroy filters
your smoke. Buy them by the carton!" So this is a point in time when the
health claim is extremely explicit, and we'll see later on the health claims
become more implicit than explicit. But this was a stage in -- in the history
of the industry where explicit health claims were being made.
Q. Can you direct your attention now to Exhibit
19875, which would be in volume two.
Is this another document that you reviewed?
A. It is.
Q. And does it form part of the basis of your opinion?
A. It does.
MR. CIRESI: Your Honor, we'd offer Exhibit 19875,
a Brown & Williamson 1953 ad for Viceroy.
MR. BLEAKLEY: Same objection as to the prior one,
Your Honor. This is 1953, before any of the issues involved in this case,
and therefore is not relevant.
MR. CIRESI: Same statement, Your Honor.
THE COURT: All right. The court will receive 19375
-- 875, excuse me.
BY MR. CIRESI:
Q. Can you describe what is depicted in this ad
for Viceroy.
A. Yes. This is an ad from 1953, a year later than
the ad we -- we saw a moment ago, and again you see the very explicit health
claim is saying that the "New KING-SIZE Viceroy Gives DOUBLE- BARRELED
HEALTH PROTECTION." So what's going on here is we've got a product line
extension. In the last ad we just had Viceroy filter tip cigarettes, and
now we've got King Size Viceroy filter tip cigarettes. So they're saying
you get this double-barreled health protection, the first part of that
being as shown there in point number one, "Viceroy's Amazing HEALTH-GUARD
Filter - 18 percent Longer than OLD-STYLE FILTERS," and secondly, "PLUS
KING-SIZE LENGTH! Viceroys Now Are 21 percent Longer - to Filter the Smoke
Still Further!" And then the copy goes on and it says, you know, that it
costs only slightly more than small-size brands with -- small- size brands
without filters. So again, it's a very explicit - - explicit health claim,
and providing some seeming justification for the health claim by saying,
well, we're longer and we've got a better filter than -- than before.
Q. And professor, can you turn now to the exhibit
right before that, which is Exhibit 18905. It is a Hill & Knowlton
document that has been introduced into evidence already and the jury has
already seen this document. It's dated December 15th, 1953. It's entitled
"BACKGROUND MATERIAL ON THE CIGARETTE INDUSTRY CLIENT."
And if you could direct your attention, please,
to page three of that document, which is within the section of the document
which is entitled "Responses to Questions," which meant that the industry
was asked certain questions by the Hill & Knowlton agency, I'd like
to direct your attention to the second further indented paragraph starting
"Do the companies...." Do you see that?
*30 A. I do.
Q. All right. "Do the companies consider that their
own advertising and competitive practices have been a principal factor
in creating a health problem?"
"The companies voluntarily admitted this to be the
case even before the question was asked."
Do you see that?
A. Yes, I do.
Q. Now these ads that we just looked at, they were
ads that were published prior to December 15th, 1953; correct?
A. Just immediately prior to that, right before
that time period, yes.
Q. Thank you.
Could you turn your attention now to Exhibit 13422,
which is another Viceroy ad. Excuse me, a Viceroy -- a Brown & Williamson
document regarding Viceroy.
A. Right.
Q. This is a 1985 document. Have you reviewed this
document, sir?
A. Yes, I have.
Q. Does it form part of the basis of your opinion?
A. It does.
MR. CIRESI: Your Honor, we would offer Exhibit 13422.
MR. BLEAKLEY: No objection, Your Honor.
THE COURT: Court will receive 13422.
BY MR. CIRESI:
Q. Now this is a historical memorandum of Brown
& Williamson regarding the Viceroy cigarette; correct?
A. That's correct.
Q. And it has certain time periods by which it is
described the type of advertising that was done during that time period
for the Viceroy cigarettes?
A. Right, that's correct.
Q. The first period is 1936 to 1945.
A. Uh-huh.
Q. That's on page one.
A. Right.
Q. The second page, 1946 to 1956.
A. Right.
Q. If you could, with regard to that period, would
you direct your attention to page two, the second-to-the-last paragraph,
and please describe for the jury and court what is being reported at that
point regarding advertising in the '46 to '56 time period.
A. Well this specific paragraph refers to the success
of the advertising copy which we saw offering the double-barreled health
protection, and so they say that in 1953, the demand for Viceroys went
well beyond our production capacity. We couldn't produce enough of the
things. Because why? Well we had the new filter, we had the King Size,
and greatly increased public attention to the health aspects of smoking.
Once again we see this terminology about exploitation.
"Viceroy advertising exploited this to the fullest extent as 'double-barreled
health protection' copy, which introduced the new King Size Viceroy, and
was backed up with factual evidence of the nicotine and tar reduction offered
by Viceroy." So it's just reflecting on how successful this particular
campaign and this health reassurance was.
Q. Professor, could you now turn to Exhibit 6641.
We'll look at some representative ads from the '60s.
MR. BLEAKLEY: Excuse me, counsel, what was that
exhibit, please?
MR. CIRESI: 6641.
BY MR. CIRESI:
Q. Is this a document that you reviewed, sir?
A. It is.
Q. And does it form part of the basis of your opinion?
A. Yes, it does.
Q. Is it representative of other of the defendants'
documents?
A. It is.
*31 MR. CIRESI: Your Honor, we'd offer Exhibit 6641.
MR. BLEAKLEY: No objection.
THE COURT: Court will receive 6641.
BY MR. CIRESI:
Q. Now they're a little faint, professor, and I
understand that, but let's deal with it as best we can.
A. Okay.
Q. This is a Lark advertisement, and Lark was sold
by Liggett; correct?
A. That's correct.
Q. Okay. Can you describe what's being depicted
here during this era.
A. Well basically what's being depicted here is
-- you see in the little box there, it's saying that Lark has a gas-trap
filter, it's got a tar and nicotine filter number one, and then a gas filter,
and then a tar and nicotine filter number two, and what this filter does
is it makes -- it makes Lark cigarettes the pack- a-day smoker's best friend.
So --
And then the copy down at the bottom, which you
can only read if your eyes are a heck of a lot better than mine, says "Do
you smoke more than you like? Then maybe you should get with a cigarette
that's got a filter that does more than most filters are supposed to."
Okay. So it's -- so it's basically offering this reassurance. You've got
a friend in this cigarette brand because of the filter that we put in here,
and this friend will protect you, and this friend reassures you that it's
okay and offers you piece of mind.
Q. If you could direct your attention to Exhibit
11028, which is a report on a visit to the United States by people from
the tobacco industry in England where they visited a number of companies
and institutions, including Liggett & Myers, and this -- these visits
took place on April 17th through May 12th, 1958.
Have you reviewed this document?
A. Yes, I have.
Q. Okay. And if you turn to page two of the document,
which has the itinerary, and you'll see Liggett was visited on April 23rd.
A. Yes, I -- I see that.
Q. And Mr. Darkins -- Darkis, excuse me, and Mr.
Pates were visited; is that correct?
A. Yes.
Q. And I should correct myself, it's Dr. Pates and
Dr. Darkis.
A. Uh-huh.
Q. Okay. If you turn to the next page then, sir,
it's talking about causation of lung cancer, and it's reported here that
"With one exception," and that's Mr. Greene, who was from Yale, "the individuals
whom we met believed that smoking causes lung cancer if by 'causation'
we mean any chain of events which leads finally to lung cancer and which
involves smoking as an indispensable link."
Now sir, did you see any ads of Liggett or any of
the other defendants that said that smoking causes lung cancer?
A. No, I did not.
Q. Can you direct your attention now to Exhibit
6643, which is another Lark ad, and have you reviewed this document, sir?
A. Yes, I have.
Q. And does it form part of the basis of your opinions?
A. It does.
MR. CIRESI: Your Honor, we would offer Exhibit 6643.
MR. BLEAKLEY: No objection.
THE COURT: Court will receive 6643.
BY MR. CIRESI:
Q. Now the picture itself cannot be made out, but
we're interested over here in the text, if you could, professor.
*32 A. Yes, uh-huh.
Q. It states "RELAX WITH LARK."
A. Uh-huh.
Q. "When you've done the whole job as best you can,
you're able to put your feet up with full peace of mind. And Lark does
the job like no other cigarette -- no other cigarette ever invented." Then
down at the bottom, "No! Lark isn't perfect. But it lets you have a lot
less on your mind."
What message was being delivered by this type of
advertising?
A. Well I think it goes back to where we started
with looking at the BATCo documents a little while ago, talking about,
you know, the major theme as we move into the -- this time period because
of a health concern was going to be product reassurance, and there's a
health concern and a health reassurance, and basically we once again have
an ad which cites the gas-trap filter as saying, look, this gas-trap filter
offers you the benefit of having not to be concerned. So relax, it lets
you have less on your mind. And, you know, it basically offers you -- offers
you peace of mind because it offers you reassurance that it's okay to continue
with smoking. You don't have to quit.
Q. Was this ad representative of other types of
ads during that time period?
A. It was.
Q. Can you direct your attention now to Exhibit
10602, and that's in the same volume, professor.
A. Yes. Thank you.
Q. Now before we discuss that document, in your
previous testimony you mentioned that one of the objectives was to keep
people in the market.
A. Right.
Q. And that was accomplished, in part, through line
extensions; is that correct?
A. That's correct.
Q. All right. Exhibit 10602 is a B.A.T document;
correct?
A. Yes, it is. Uh-huh.
Q. And it's one of the documents that you reviewed?
A. Yes. Yes, it is.
Q. And does it form part of the basis of your opinions?
A. Yes, it does.
Q. And is it representative of other of the defendants'
documents that you reviewed?
A. It is.
Q. Okay. Can we direct your attention, then, to
page one. First of all, this is a document of a conference; is that correct?
A. I believe so, yes.
Q. If you can direct your attention to page 583
-- that's the last three Bates numbers.
A. Okay.
Q. And this is entitled "DISCUSSION NOTE, SMOKING
AND HEALTH."
A. Right.
Q. Now you mentioned, professor, previously in your
testimony that in the -- in the '50s, there were explicit health claims,
and then it moved -- the advertising moved to implicit health claims.
A. Right.
Q. Is that correct?
A. Yes, that's what I said.
Q. Does this document reflect that type of movement?
A. It -- it does. If you look down at points 14
and 15, what the document says is that "On legal grounds" -- and then somebody
has written in, I believe it's "alone" -- "On legal grounds alone, it will
continue to be to the industry's advantage not to make explicit health
claims," not to make the kind of claim that we saw in the Viceroy commercial
advertisement, for example. But then point 15 is that "The industry will
make increasingly competitive use of products for which health claims are
implied."
*33 So we're not moving away from health and health
reassurance, but we're just moving from explicit claims that this product
is better for you to an implicit representation of the same thing.
Q. And the date of this document was May 3rd, 1974;
correct?
A. That's correct.
Q. If you'd direct your attention now to page 599
of this document. Now the title of this is "SMOKING AND HEALTH;" correct?
A. Yes, it is.
Q. Okay. And under "ASSUMPTIONS" and "HEALTH CLAIMS,"
the two points that we just saw back on page 583 are made again; are they
not?
A. That's correct. Those are some -- same two points
we just -- we just covered.
Q. And if you move over again to the second column,
it's "POLICIES," and what's reported there?
A. Well it's saying what BATCo's policy is going
to be is, number one, not to make explicit health claims, and to, number
two, discourage unsupportable health claims from any source.
Q. And then for the "GUIDELINES," can you move over
to that column. Is there reported there the fact that BATCo was going to
seek the agreement of the industry with regard to this policy?
A. Right. They're basically saying, you know, we
should get everybody -- see if we can get everybody to go along with this,
to seek the agreement of the industry and suppliers in basically not making
health claims for their products.
Q. And during the period of the 1970s and '80s,
was there a consistency in the advertising of the defendants?
A. There -- there was.
Q. Okay. And with respect to health reassurance,
was there a consistency to it?
A. There -- there was in the -- in the sense that
there was -- we did see this movement from explicit health claims into
implicit health claims, and -- but consistently offering the -- the reassurance
that we've talked about.
Q. Can you direct your attention now to Exhibit
10193. It's back a few documents in the same volume, professor.
A. Okay.
Q. This is a Lorillard 1976 switching study summary
that was introduced on Document Day One. Did you review this document?
A. I did.
Q. Does it form part of the basis of your opinion?
A. It does.
Q. Is it representative of other of the defendants'
documents which address the same subjects?
A. Yes, it is.
Q. Can you direct your attention, first, to page
484.
A. Uh-huh.
Q. And does it show that this was prepared for Lorillard
and produced by Lorillard by Marketing Corporation of America?
A. Right. And they're -- they're basically a market
research firm.
Q. And can you turn, then, to the next page, page
485, which is the confidential memorandum of Mr. R. E. Smith, who was vice-
president of marketing, to Mr. J. R. Ave, head of marketing and who became
president of Lorillard in 1985. And this is dated November 30th, 1976;
correct?
A. Yes, that's correct.
Q. And can you tell us what is of significance on
-- on this page, professor?
A. Well basically this is an internal memorandum
which is agreeing with the conclusions that their market research agency
has drawn, and basically at point number one here they're saying that the
five-year plan of -- of Lorillard to focus the company's efforts against
smokers' health concerns, Mr. Smith is sort of agreeing with that, agreeing
with that plan. And then he notes how low tar and nicotine brands, in that
little indented bullet point there, seem to be satisfying smokers' intellectual
T&N, tar and nicotine concerns. And then he talks -- talks about positioning
the Lorillard brands that -- to directly address the smokers' health concerns.
*34 Q. And can you turn to page 6498, which is the
conclusion section of this document, and what if anything with regard to
the implied health claim issue is significant on this page?
A. Well I think what's important is that they are
developing brands. In point number one here, they're talking about focusing
marketing and R&D against brands which are responsive to the cigarette
controversy. And that is --
Q. And let me ask you something, professor.
A. Sure.
Q. And is that --
Does the first introductory sentence there relate
to results from research?
A. Right. Right. From this research, which is the
research that has been reported in this document that we just sort of jumped
over, the -- the -- the one -- the research which is done by the marketing
research company for the firm.
Q. All right. Please continue then.
A. Right. So it's just saying that, you know, the
-- the research fully supports the idea that Lorillard has the strategy
that they have to really go against these brands which are responsive to
the cigarette controversy, and "the cigarette controversy" meaning the
-- the health issues that had been raised about cigarettes.
Q. And point two states what then?
A. Well they're saying that a -- another part of
the strategy, then, is to concentrate on fundamental innovations and products
which address specific consumer problems and -- and need to protect their
existing business, and then they talk about the specific moves underway
for both their established and their new brands.
So one of the brands that they have is True cigarettes,
which I believe at this time is something in the 10-milligram range, it's
something higher than five milligrams anyway, so they're talking about
restaging through in the five- milligram range and then rapidly developing
new products, and then restaging their Kent brand around lower tar and
nicotine numbers. So increasing its ability to attract new -- new users
from -- from other -- smokers from other brands.
Q. And if you go over to page 499, do they have
listed there major findings supporting the overall conclusions?
A. Yes, they do. On point number one, again they
use this terminology of these low tar and nicotine brands being brands
which are addressing the cigarette controversy, meaning that they're addressing
the health issues, and they have a list there of the -- of the major brands
-- some of the major brands that are in this segment of the market. You've
got your two line extensions there of Marlboro Lights and Winston Lights,
you know, the parent brand being -- let's just take Marlboro, the parent
brand being Marlboro, and then the extension into a lower tar and lower
nicotine version of Marlboro, but extending the Marlboro brand name over
into that - - into that segment. And then same thing with Winston by RJR.
Then we have Merit, which is Philip Morris's new-product
introduction into the low tar/low nicotine segment. Then we have Vantage,
which is RJR's. Then we have, it says "Carton," but I assume that means
-- that should be Carlton, which would be American Tobacco's. And then
-- and then we have these other new brands, the True, which was just mentioned
here in this -- in this document of -- of Lorillard's, and then we have
Doral and Now, which, if memory serves me, are both RJR new brands in --
in the low tar/low nicotine segment.
*35 Q. And if we go over to the next page, is there
a reference there to the ability to attract smokers by these line extensions
or new products in the health reassurance field?
A. Right. It -- it's basically saying that the --
the -- up right at the top of the page, that these cigarettes which address
the -- the controversy, the cigarette controversy, have a demonstrated
ability to draw business from all segments of the market. And then down
in -- in point three it's saying the volume has grown for brands which
address the cigarette controversy. Major segmentation opportunities have
emerged. So it's this idea that what's going on with the people's health
concerns is creating an opportunity for the cigarette manufacturers.
Q. Very good.
THE COURT: Counsel, we'll recess at this time, reconvene
at 2:00 o'clock.
THE CLERK: Court stands in recess, to reconvene
at 2:00 o'clock.
(Recess taken.)
THE CLERK: All rise. Court is again in session.
(Jury enters the courtroom.)
THE CLERK: Please be seated.
THE COURT: Counsel.
MR. CIRESI: Thank you, Your Honor.
Good afternoon, ladies and gentlemen.
(Collective "Good afternoon.")
BY MR. CIRESI:
Q. Good afternoon, professor.
A. Good afternoon, Mr. Ciresi.
Q. When we recessed this morning, we were discussing
the total marketing/communications campaign during the '70s when it moved
from more of explicit to implicit messages with regard to health reassurance.
Do you recall where we were, sir?
A. I do.
Q. Can you direct your attention in volume one to
Exhibit 7382, which is a True ad from Lorillard in 1975. Is this one of
the documents that you reviewed in preparation for your testimony?
A. I did.
Q. And is it one of the documents that you rely
in part on for your -- basis of your opinions?
A. It is.
MR. CIRESI: Your Honor, we'd offer Exhibit 7382.
MR. BLEAKLEY: No objection.
THE COURT: Court will receive 7382.
BY MR. CIRESI:
Q. Sir, this is a Lorillard ad for True cigarettes.
Down in the right-hand corner, it's difficult to make out, but you'll see
that it ran in Family Circle.
A. Right.
Q. Can you describe what's being depicted in this
ad.
A. Well I think this -- this is an ad which -- which
is a health reassurance ad in the sense that it explicitly positions True
as a substitute for quitting. So we have a picture of a woman here and
she's reflecting back and said, "I thought about all I've read and -- and
said to myself either" I am going to quit or I'm going to smoke True. So
I'll either leave the market or, because no -- because now True is here,
I smoke True. So for this woman, she's had this health concern, I -- I
believe that's what the "I thought about all that I'd read," and now it's
basically saying it's either quit, either leave the market, but no, I'll
stay in the market because True is available, so I can smoke True.
Q. Okay. And can you direct your attention to Exhibit
7069, which is an ad that was introduced during Dr. Hurt's testimony. It's
also in volume one. Is this another ad that you've reviewed?
A. Yes, it is.
Q. And does it form part of the basis of your opinion?
A. It does.
*2 Q. And what is the message that's being delivered
here?
A. Well pretty much just the same. It's a shift
from a female in the ad, obviously, to a -- to a male, and it appears to
be a locker room at a golf course, and basically the -- the person says
pretty much the same thing, I -- "I'd heard enough to make me decide one
of two things," either I'm going to quit, I'm going to leave this market,
or I'm going to stick in the market because True -- True is available,
this low tar/low nicotine cigarette. Think about it. And now with low tar/low
nicotine, the person is saying, I was going -- you know, the alternative
was to quit, but now I'm going to smoke True, so stay in the market.
Q. Okay. And can you direct your attention now to
Exhibit 7498. 7498. And that's also in volume one, professor.
Do you have that?
A. I do.
Q. All right. Is this another ad that you've reviewed?
A. It is.
Q. And does it form part of the basis of your opinion?
A. It does.
MR. CIRESI: Your Honor, we'd offer Exhibit 7498.
MR. BLEAKLEY: I don't have a copy of that, counsel.
Can you let me see a copy?
(Document handed to Mr. Bleakley.)
MR. BLEAKLEY: No objection.
THE COURT: Court will receive 7498.
BY MR. CIRESI:
Q. Is this another ad directed toward keeping smokers
in through the health reassurance message?
A. Yes, it is. It's similar to the previous two
that we looked at -- looked at with this woman depicted in the ad saying