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745 207 i0 15 2O 25 Expenditure", and then next to that the column is entitled "Percentage Share of Voice". Would you tell the Court first what is share of voice, Mr. Hoult? A - Well, voice is a bit of marketing jargon, and voice really means how loudly are you shouting. So, the total voice is one hundred percent (100%) and the competition has fifty percent (50%) share of voice. It means that they have fifty percent (50%) of the presence of all messages going to the consumer at that particular time. So it's the share of total voice that the different brands have got. THE COURT: Q - I'm not sure I understand what you are saying. A - The total expenditure in the industry at any one time is called the total voice. Q - Okay. A - All cigarette advertising, all sponsorships, all other activity. And that is very much an estimate, and you might say the total expenditure in the year nineteen eighty~seven__(1987)~was of the_order, say, of one hundred million dollars ($i00,000,000.00). And if that were the case -- and I'm making it up for illustration -- our expenditure, if, say our expenditure was twenty million dollars ($20,000,000.00), we would have a twenty percent (20%) share of voice. AUDIOTRANSCRIPT, ~;,,~,;oo d, Pierre Vilaire & .~,$~oEie~ Li'~e

746 208 5 i0 15 20 25 Q - Okay. Me IRVING: Q - And is this your share of total advertising expenditure or total... Total marketing... ...in any category? Total marketing expenditure, because the advertising expenditure is very clear. You can measure that very accurately. Hm, hm. But the total spending does include things that you have to estimate, like point of sale activity, in-store activity, merchandising activity and, of course, sponsorship activity. And do I understand correctly then, Mr. Hoult, that your brand managers, in preparing their own budget requests, as it were, will monitor the amount of spending which they are able to measure for the brands which are competitive to theirs? Well, they.certainly.~wouold, because one of-those telling arguments for asking for a budget increase is to say: "Look, this competitive brand against my brand, Export, has doubled its expenditures last year, and I need to do the same if I'm to remain competitive" So it would be utilized that way and very important. ,4UDIOTR,,4NSCRIPT, Division de Pierre Vilalre & Associ4s Lt4e

747 209 i0 15 2O 25 Am And each brand manager then would do that, would Okay. he? Yes. And would do it in relation to the brands competitive... Yes. ... to this particular brand? Yes. So, in describing the process then, you have started with the brand manager and I think you said, in answer to a question from the Court, that the brand managers would report up to the Vice-President Marketing? Yes. So that person is getting the... That person would take all these parts, make some evaluation and modification himself, bring in his own input in terms of priorities, in terms of opportunities and finally the whole thing would be put together as a marketing plan which would be a part of the strategic plan. And I would evaluate that marketing plan alongside a manu,facturing.plan and alongside a sales plan and so forth. Now, as the -- at the time when you were the Chief Executive Officer, President, then you would be receiving through the Vice-President Marketing the combined efforts of all these brand managers? AUDIOTRANSCRIPT, Division de Pierre V;Io~re ~ Associ~s LtCe

748 210 I0 15 20 25 QD Am Qm Yes, I would. And would you just tell me again what .was,-in fact, your role during the time when you were C.E.O. in dealing with these forecasts, these requests? It can be summarized by saying it would be, a) an evaluator... Hm, hm. ... to determine the credibility, depending on the evidence put forth, of the proposal. Can you really grow this brand or have you really given up on this brand and so forth. I'm sorry, when you say: "Can you grow this brand", do you mean... Share. ... "Can you increase your share of market"? Yes. Yes, okay. Because, normally, such a commitment would be in parallel with a fairly large request for increased funds... So you would be the evaluator,.and having evaluated, it was finally my decision, my responsibility to allocate corporate resources accordingly. Hm, hm. And in reality now, and during the time you were the C.E.O., were you ever able to... AUDIOTRANSCRIPT, Division de Pierre Vilalre & Associ~s Ltge

749 211 5 i0 15 20 25 THE COURT: When you say.C .... Me IRVING: Chief Executive Officer, My Lord. THE COURT: Oh, Chief Executive Officer. Me IRVING: President. Q - Were you ever in a position to approve everything that was requested by all of your brand managers? A - No. Fairly typically, the total sum of that requested exceeded by far available resources. Always the problem was one of cutting and pruning and protecting those projects that you had a belief could succeed, but the demands always exceeded the resource supply. Q - Does the -- did the extent and nature, or the extent anyway, of competition relate at all to whether the overall market is in decline? A - No. The extent of competition had had -- has an effect only on. the distribution of share between-the different companies. Q - But when the overall market is declining, Mr. Hoult, does that make competition less severe or more? A - Oh, it makes it more severe, for two (2) reasons: a) there's a smaller pot, and therefore the slices are AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associgs Lt@e

750 212 10 15 2O 25 capability. THE COURT: Q - really fought for, and it's not insignificant that expenditure has increased very-dramatically over the last three (3) years and that's a company in a period when the industry has declined more severely than in the past. Secondly, and very importantly, with the industry decline, there has been an over-capacity of production And if you are... Do.you have -- I'm sorry, I missed -- I missed you -- have a smaller share to -- part to share and then you have what? A - And then the other side, in terms of costs, is the production over-capacity that currently exists in the Canadian market. Given the market decline, we have facilities and capabilities of producing significantly more cigarettes than the consumer is demanding. And when you have this situation your costs escalate very rapidly. Me IRVING: Q - Now going back to Tab 1 just for amoment, just to refer to the competitive situation, Mr. Hoult, would you look at page nineteen (19) of the strategic business plan? Looking at that second (2nd) paragraph on the page, is that a reference to the competitive situation you've just been describing? Down at the bottom of that AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associgs Ltee

751 213 i0 15 2O 25 paragraph. A - Yes. Yes,~it does.. It describes.the.competition between the companies and specifically the competition between two (2) very strong brands, Players and DuMaurier in this case. Q - Now, you spoke a few moments ago about ongoing research, Mr. Hoult, and I'd like you to look, if you would, at Tab 3 of the... THE COURT: Are you -- I'm sorry, Mr. Hoult -- Mr. Irving, are you going to put an exhibit number on this? Me IRVING: I will, My Lord, but I have one other exhibit which is not in here to put in and I thought that since we'll be spending virtually the rest of Mr. Hoult's evidence on this book afterwards, I'd wait and then we could number these consecutively. I thought it might be easier. THE COURT: Okay. Me IRVING: There's one more exhibit I'm going to put in. I'll give it to my friend at the end of the day today, so he has it, and then there won't be anything left except the book, and tomorrow we'll simply give consecutive numbers to these, simply. AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associgs tt4e

752 214 i0 15 2O 25 THE COURT: SO we are moving to Tab 3..now? Me IRVING: We are, just for the moment. Yes, My Lord. In view of the time, this will be the last subject today, I think, and I just wanted Mr. Hoult, not first with specific reference to this tab, but to tell the Court the kind of general research, market research that you carry out on a regular basis. A - On a regular basis, we carry out product testing, which is the monitoring of how the consumer sees our products versus the competition. And product testing involves giving the consumer the product and coming back a couple of days later and say: "Tell me what you thought of it" on rating scales. We carry out regularly image studies of our brands, again always versus the competition, what our strengths are, what their strengths are, what the weaknesses are and the opportunities. Of course, we have the Neilsen information on an ongoing:basis.and, we have ~many.specific studies which I know we'll get into -- you referred to them earlier -- on individual projects. But those are the sorts of basic monitoring studies that we do, and at periodic intervals, every one (i) or two (2) years, we will carry out what is described as a total market evaluation, AUDIOTRANSCRIPT, Division de Pier,, Vilaire & Associ~s U~e

753 215 i0 15 20 25 segmentation study, where you will look at your market as a totality, and divide it into segments, so you~can focus on each individual segment and understand -- understand more about it. And you will monitor how the market has changed over time, like comparing one segmentation study with the past studies. Now, we've already looked in Tab 1 at the seven (7) segments of the marketing, so far as they relate to cigarettes, segment 1 being the highest tar and nicotine and so on. Would you explain to the Court the other kinds of market segmentation which exist? A - Well, the first, as you rightly described, is segmenting the products. Essentially, it's as simple as sorting the products into those products against which they're competing. The other major method of segmentation, which is a little newer in the market, it does require, you know, certain techniques that have been borrowed from the Social Sciences, is consumer segmentation. And in consumer segmentation, you will look at your total universal.smokers~and by means of a series of attitudinal questions, behavioural questions, demographic questions, you will, using various statistical techniques, group the smokers into segments. THE COURT: Q - Attitude, behavior and...? AUDIOTRANSCRIPT, Division de Pierre Vil(}ire & Associ~s Ll4e

754 216 I0 15 2O 25 Demographics. Social class, age, sex and so forth. I would like_~to.just..add-one.more.word about.the ~so-called consumer classification. This can be done in several ways, but two (2) of the most common are just taking them as they are, without regard to their smoking behavior and seeing what they are like as general consumers. And these are very general questions of the sort that relate to consumer behaviour, like: "I like to experiment a lot in the products I buy". And the other type of consumer classification and segmentation is where you will take particular cigarette or tobacco dimensions and you will classify them as cigarette smokers more specifically than consumers. So that's very refined, very tight, and the other is more general. Me IRVING: Q - Now, if we look at Tab 3 now, Mr. Hoult, which is called "Family Segmentation -- Segment Descriptor Study." And my friends won't mind my saying, My Lord, since they have -- havethis~and.have the other document, that this comes from a survey which runs to some three hundred and fifty (350) pages which we don't intend to put to the Court ... Me BAKER: What number Exhibit was it? AUDIOTRANSCRIPT, D~,~oo cle Pierre V~lalre & Assoc~s Ll@e