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1895 1362 i0 15 20 25 Qm exposed that person to advertising, and found that the person had read the ads and had understood the ads, would that result necessarily in the person using that product? That's a very hypothetical situation, and it sounds like it would be one that would have to be addressed in a controlled experiment. That's not the context of mass communications, not the context of advertising, because there are other social influences, things that are trying to influence individuals. Very few people go into a mass communication context, including advertising, without some form of predispositions and some inferences to make from past experience or whatever. We're not a Tabla Rosa to be written on. Now referring, Dr. Reid, to page two (2) of the report that you have filed, would you just sum up for His Lordship, please, the -- in very brief terms, the conclusions you reached in the discussion so far? Well, the conclusions that I reached from my reading of the mass communication literature and also advertising, marketing literature, is that desired effects are only achieved by addressing an audience who is receptive to and predisposed to responding in a particular way to a message. In advertising terminology, that's why markets are targeted and ads are based and designed based on AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associ~s Ltge

1896 1363 i0 15 20 25 audiences' characteristics. And secondly, that these desired effects are mediated by a host of psychological and situational factors. Essentially, advertising, or any other form of mass communication, is insufficient to bring about behavioral effects alone. I would add to this that I think, it's my belief, that the powerful view or powerful effects, unlimited effects of mass communications, including advertising, is a myth. THE COURT: Is that a view which is shared by most of the scientific community? A- I wouldn't say the scientific community. I would say it's a view that's shared by most of people who work and study mass communications and advertising. Most research, it's based on the fact of beginning with the audience and finding out what factors will affect their interpretation and their possible responses to mass communications. If I might, I would add that today, over the last decade or so, there's been a move in both communications research and marketing research, consumer research, from traditional positive views or perspectives to studying consumers to qualitative views because of the dissatisfaction with the ability to predict upon AUDIOTRANSCRIPT, O~v~o~ a~ Pierre Vilalre ~ Asso¢i@s [,~e

1897 1364 5 i0 15 20 25 exposure, particular behaviour. Me IRVING: Q- Now, it has been said in this Court, Dr. Reid, that some eight (8) out of ten (i0) new brands, although advertised, fail. Does that surprise you from your perspective of a researcher and professor in this area? A- No, it doesn't particularly surprise me that products fail because the final determinant or the arbiter of that success is the marketplace itself, the buyers. And the market is no more than people. Q- Now, I'd like to turn to the subject of advertising more specifically and its functions just in general terms, Dr. Reid, and I'm referring now to page three (3) of your report. Would you describe for His Lordship the general functions of advertising? A- Okay. Well, as I said earlier, advertising is a special form of mass communication and that's an important distinction, because it has specific characteristics. That is, it's delivered through a mass medium, it means messages are mass mediated, advertising is identified by a sponsor and it's advocating a certain position that the advertiser desires. It is used by marketers as part of their overall marketing communication program. Its purpose in the marketplace is to perform three (3) basic communication functions. AUDIOTRANSCRIPT, Division de Pierre Viloire & Associ~s Lt~e

1898 1365 i0 15 20 25 Qm Let's deal with those one at a time. So the first, Dr. Reid, would be? To inform. To inform a defined target market about the existence of a product, availability, price, the introduction of a product category, brand, brand extension, whatever. M'hm. The second would be to persuade. And that is to persuade targeted consumers to behave, to think, to feel, in the way advocated by the advertiser. The third would be to reinforce, to reinforce people's existing behaviour in the marketplace, brand behaviour, whatever. All right. Now, in your opinion, Dr. Reid, can people be persuaded to buy products they don't want by advertising? No, I do not believe people can be persuaded to buy products they do not want by advertising. Now, in referring to page four (4) of your report. M'hm. Would you just explain to His Lordship the basis on which you hold that opinion? If I understand -- if I understand the question there, one of the reasons that -- the main reason -- and going back to my earlier remarks about the limited effects model, is that when you look at the advertising process AUDIOTRANSCRIPT, D~,~oo tie ~erre Vilalr~ & Asso¢i~s tl~

1899 1366 5 i0 15 2O 25 and it's one form of market communication again, experience in research is taught, marketers and academics, that advertisers control advertising decisions, but consumers control how they respond to those decisions based on their predispositional states. Advertising's power is restricted by three things. It is restricted at least by three things. The predisposition of the target audience, the nature of... THE COURT: Not so fast. Me IRVING: Q- All right. Try to follow His Lordship's pen a little, Dr. Reid, so that he can take notes. A- I apologize, My Lord. THE COURT: You know what you're talking about, I'm learning. A- By the nature of the audience's predispositions. Q- Just a second. Okay, predisposition of audience. A- By the nature of the product and by the nature of the market. Me IRVING: Q- The nature of the product is the second, then. third was the? Nature of the market. And the That was the second. The nature of the product I think AUDIOTRANSCRIPT, Division de Pierre Vilaire 8, Associ4s Lt4e

1900 1367 5 i0 15 20 25 you said. A- Nature of the product, nature of the market. Q- Okay. THE COURT: Could you expand a little bit on this? A- Yes. I can. When you look -- one of the -- perhaps the best way of looking at advertising, understanding advertising effects is to look at it in terms of the nature of the market. And let me explain that. There are basically two (2) types of markets: new markets and mature markets. Me IRVING: Q- New and mature? A- New and mature. Q- Now, let's start with a new market, Dr. Reid. A- Okay. In new markets where products, product classes, product categories are unknown by a sufficient number of potential buyers who are willing and able to buy the product, advertising can succeed in building a primary demand for that product. In new markets products compete against other product categories or product classes. Q- Let's stop for a sec, Dr. Reid, while His Lordship makes a note. And I'm going to ask you to illustrate the concept of a new market by reference to some particular AUDIOTRANSCRIPT, Division cle Pierre

1901 1368 5 A- A- i0 15 20 25 product. For instance, you've referred in your report to the VCRs which we all look at now, and let's go back two (2) or three (3) years when they first came into the market. Is that what you're talking about when you say a new market? Yes, introduction of a new technology. Yes. Where the product itself, the product category diffuses through the market. There are people who invest their time, spend their money and their leisure activities and other forms of entertainment who may adopt this new product category, product form, a VCR, for instance. It does so, those people who adopt that product, a VCR, they do it at the expense of other leisure activities. That is to say, that that product, that money that is invested in that product and that time, is taken from other product categories, which it's competing against. M'hm. And, of course, in new markets manufacturers market brands of products which also are competing within that product category. All right. Now, staying with the idea of a new market, and we'll stay with VCRs a few years ago as our example, what is the role of advertising in that kind of a market. What sort of roles can advertising play? AUDIOTRANSCRIPT, Division de P~erre Vilolre & As,od~s Lt4e

1902 1369 i0 15 2O 25 Well, first of all the product exists because the marketer has deemed a demand for that product. Again, I use the term willingness and ability to buy a product. It's marketed under that assumption. Okay. You mean there is a demand there somehow and the marketers would know that? Sophisticated marketers would know that and even so, as you brought up, eight (8) of ten (i0) products fail. Yes. With that knowledge, advertising's role, and I emphasize advertising's role, because it's not the only form of competition in a situation like that, is to inform those potential buyers of the existence of that product. And, of course, to persuade them to buy that product versus another product category, substitute, and if it's a manufacturer who's interested in brand specific advertising, of course, he's interested in having them buy their Panasonic brand versus a JVC brand. Now, let's stay with that example just for a moment, Dr. Reid. Supposing we are looking at the market for VCRs at the time when it was new, and supposing we were looking at advertising, say by Sony, because that was the one who persuaded me, so Sony is now advertising a VCR. What effect... AUDIOTRANSCRIPT, Division de Pierre V;laire & Associ~s Lt~e

1903 1370 5 i0 15 2O 25 THE COURT: Well, you have to specify at what date, because at one point it was a Betamax and VHS. Me IRVING: Yes, My Lord. A- That's right. Q- I've actually picked a very bad example... Me BAKER: He's pretty old-fashioned. You can assume it's Betamax, My Lord. Me IRVING: Q- There's a technological problem. We will use -- which was the other one? Which was the other brand that you were talking about? A- Panasonic? Q- Panasonic. Let's stay with Panasonic. THE COURT: Panasonic and JVC. Me IRVING: Q- So Panasonic is now advertising a brand of VCR in this new market you've described. And what effect can that kind of brand advertising in that kind of market, have on overall consumption? A- Well, if the aggregate demand curve, the primary brand curve, is growing, is increasing, that is there's demand AUDIOTRANSCRIPT, Divk;on de Pierre Vilaire & Asso¢i#s U~e

1904 1371 5 Q- 15 20 25 market. THE COURT: Can I interrupt just a minute? Me IRVING: Yes, absolutely, My Lord. THE COURT: Q- for the product, brand advertising by Panasonic will not only contribute to -- does not only have potential to contribute to its overall brand sales, but to category sales as well, because the conditions are right there. Does that relate to the newness of the product? It relates to the newness of the product, the innovation. It also relates to the number of people who have wants and needs for that product. It relates to the number of people who are not knowledgeable about that product, are uninformed. A number of things drive demand. So then in the new market, in your view, brand advertising can have a stimulative effect on overall demand. I'd like you to turn now to another kind of market, Dr. Reid, which you've described as a mature What in your opinion is a... At any moment. On the VCR thing, it's interesting. Initially, when the VCRs came out, there were two (2) basic technologies. One was Betamax and the other was VHS. Is there a marketing or advertising explanation to why one AUDIOTRANSCRIPT, Division de Pierre Vilalre & Associ6s b4e