Tobacco Documents Online

2461 1990 LEONARD REID, Pet., Cr-Ex i0 15 2O 25 with that word this afternoon. Do you accept that as a way that your mature market -- or the mature market, as you've described it, theory is itself called in the academic literature? I think it's one way that it's been described, yes. M'hm. Now, have you ever -- I turn your attention to page three fifty-one (351) of the book that I referred you to by Philip Kotler, that your counsel now has. Mr. Irving, could we have the book back? Thank you. You see at the top of page three fifty-one (351) a little blue chart, it's white in our copy, My Lord. M'hm. Sticker twelve dash three (12-3). And it says -- under twelve dash three (12-3) it says, "PLCs for product category, product form and brand." Do you see that? Where are you referring that to? You see it right here, twelve point three (12.3) PLCs, for product category, product form and brand. Yes. And it goes from nineteen twenty-five (1925) to nineteen sixty-five (1965), the chart does. Do you see that? Yes. And there are three (3) different kinds of lines on the AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associ~s L~e

2462 1991 LEONARD REID, Pet., Cr-Ex 5 i0 15 20 25 Am chart; correct? Yes. One is for the product category of cigarettes. Yes. Do you see that? Right. And one is for the product form. So that's filter cigarettes... Yes. ...plain, filter cigarettes. M'hm. And then another one is for a regular non-filter, a brand, Philip Morris; right? Yes. So according to this chart used by Philip Kotler, you could have a -- a brand could be stable or in decline as it appears in that chart, but the product category could be rising, as it was in that chart; correct? Yes. Could you explain that? How could that happen, do you know? The product -- the brand is the product form. Yes. Which the product form is of the product category. Yes, and you see, if you look at the product form for

2463 1992 LEONARD REID, Pet., Cr-Ex 5 i0 15 20 25 Am about ten (i0) years, it was sort of stable and then it went up; right? M'hm. But it didn't go up as high on the chart as the product category "cigarettes" altogether; did it? See that way up at the top... No. ...way above that, it's cigarettes? No, it's absurd, because that is the generic demand curve, the product category curve. Right. And you don't make any observations about that? About -- it seems to me within the product category that there's some shifting between a product form and a particular brand. Now, if you remember the testimony you gave last week, I think you said, if I'm not mistaken, that cigarettes by the definition that you had given to it that everybody'd known about it for a very long time as mature pretty much most of the twentieth century; do you remember saying that? Yes. So if we look at this chart, twelve point three (12.3) on page three fifty-one (351), you see that there was quite a pretty dramatic rise between nineteen thirty-five (1935) and nineteen sixty-five (1965). How AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associ4s Lt4e

2464 1993 LEONARD REID, Pet., Cr-Ex 5 i0 15 2O 25 do you explain that in terms of your mature market theory, Dr. Reid? A- I define mature market basically in terms of the number of people who are aware of the product category itself. Obviously, during this period of time there was -- there were people who smoked, smoked with increasing propensity. There were people who changed their habits, their behaviours, and the demand for the product was increasing. Q- But it more than doubled in thirty (30) years, you see, and you said it was mature through the century. So how could that happen? I mean everybody knew about it, so how come it more than doubled? A- I contend again that in terms of definition of a mature market the product was mature and since the individuals -- everyone knew about them. Q- Everyone knew about them... A- Were aware. Q- ...except that -- except that the -- all those people that contributed to its virtually more than doubling in the thirty (30) years. THE COURT: Of course, in your question, I understand, I haven't said it, but I don't want to interrupt you all the time -- but in your question, I understand your question, AUDIOTRANSCRIPT, Division de Pierre Viloire & Associ~s U'~e

1994 2465 LEONARD REID, Pet., Cr-Ex i0 15 2O 25 assuming that the cigarette market has increased since nineteen thirty (1930) or thirty-five ('35), whatever, to nineteen sixty-five (1965), how could he explain his theory? Me BAKER: Yes. THE COURT: Because obviously that fact is not before me yet. Me BAKER: I'm giving him an opportunity to explain it in terms of his theory, because I don't understand his theory when I read what the learned authors write about. Q- You see, that's my problem, Dr. Reid. Would you... Me POTTER: Excuse me, My Lord, you're quite right in putting forth that assumption. But there's another one behind the question that Mr. Baker puts which also is not in proof yet. Mr. Baker is assuming that everyone who contributed to that growth was not aware of the product category. THE COURT: Well, no, I don't think he's assuming that. The question was pretty straightforward. I just wanted to make sure that everybody knew that I don't have evidence yet of an increase in cigarettes from thirty-five ('35), AUDIOTRANSCRIPT, D~vision c~e Pierre Vilaire & Associ~s

2466 1995 LEONARD REID, Pet., Cr-Ex 5 i0 15 2O 25 in the U.S. anyway, to nineteen sixty-five (1965). But, again, he's in cross-examination and he may ask hypothetical questions. Me BAKER: Well, it's -- of course, My Lord, I'm saying this with respect. I'm assuming, for the purposes of the question only, the accuracy of the chart. THE COURT: Okay. Me BAKER: Q- You understood that, didn't you, Dr. Reid? A- Yes. Q- Right. Could you file this page three hundred and fifty-one (351) of Philip Kotler's book, "Marketing Management," as AG-59. THE COURT: Couldn't we... Me BAKER: Yes. Okay. Part of the liasse under 58? THE COURT: Yes. Me BAKER: Certainly. THE COURT: And under the same reserve, I gather. AUDIOTRANSCRIPT, Division de Pierre Vilalre & Associgs Lt4e

2467 1996 LEONARD REID, Pet., Cr-Ex i0 15 20 25 Me BAKER: Yes. Me IRVING: If anything is to be filed at all, My Lord, under reserve of my objection, I would prefer that this whole segment should be filed because there's -- and not just the individual page. Me BAKER: In theory, My Lord, I would have, I can assure you, absolutely no objection to the very kind undertaking or offer by my friend, but I was afraid he'd make another objection, so I didn't do that, because then he would probably say that that would lead to the filing of that pretty blue book and the roof could fall in. Q- Now, just bear with me. I'll be with you in a second. Dr. Reid, I'm having a little bit of difficulty with your theory of substitutability. That theory on page seven (7) of your report. A- M'hm. Q- As I understand it, your report and your testimony is to the effect that when there's a substitutability of a product for another product category, that's an exception to your rule of a mature market; right? A- Substitutability is a fundamental factor of demand. Q- Substitutability is a fundamental factor of demand. AUDIOTRANSCRIPT, o~,,~,io,~ de Pierre Vilaire & Asso¢i~s Lt%e

2468 1997 LEONARD REID, Pet., Cr-Ex i0 15 20 25 Am Factor of demand. Where did that come from? Demand is composed of a number of things. A person's willingness and ability to buy, wants and needs. Yes, well, I know about demand, but you've made a whole proposition that substitutability is a fundamental factor of demand. It's a factor of demand. But the substitutability part is the part that I'm having trouble with. somewhere? It's an economic principle. A principle of economics? Demand deals with substitutability. That is, demand is derived when we substitute one product for the other, that is in the case I've given -- the example I've given: electricity for natural gas. And you gave some other examples in your testimony, you might remember. I think you talked about coffee. Coffee, yes. And soft drinks, remember that? Yes. And I think you even had water in there; right? I don't recall that. Yes, you did, you had water in there. Coffee, soft Does that come from a learned text AUDIOTRANSCRIPT, ~ivi,ion de Pierre Vilaire & Associ~s Lt~e

2469 1998 LEONARD REID, Pet., Cr-Ex I0 15 20 25 drinks and water. I can find it for you if you want. Me IRVING: I wish you would, because he didn't. Me BAKER: Okay. Well, I'll see if I can find it. Yes, I think, Mr. Irving, page -- unless I'm wrong, and if I am I'll apologize, but I think at page thirteen eighty-seven (1387), you see he's got -- at line eighteen (18). "In a sense the example..." -- this is you talking now, Dr. Reid -- treize quatre vingt-sept (1387), Votre Seigneurie. "In a sense the example I used of meat, types of meat: beef versus pork versus chicken. Beverages: soft drinks versus coffee versus water versus juices or whatever." So -- water? People substitute water for coffee? A- It's a beverage. Q- Yep! I can't disagree with that. Now, did you ever do any research to determine that people substitute water for coffee? No, I did not. So you just assumed because it's a beverage? I defined a product category is a type of product, it's a beverage. You defined -- let's see if I understood. What did you AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associ~s Lt4e

1999 2470 LEONARD REID, Pet., Cr-Ex 10 15 2O 25 just say? A product category. A type of product. Water is considered -- tap water is considered a product? Or are you referring to that fancy stuff like Evian water? I'm referring to a beverage. Water is a beverage. So, in the case of -- let's for the moment stick with soft drinks and coffee and water. You're calling them a beverage but for the purpose of, so we understand each other and the record makes some sense, we're talking about a liquid that goes down the throat, right? To quench one's thirst. To quench thirst or whatever else a beverage is used for. It could be used for other purposes too, couldn't it? It certainly could. Right. But basically it's something soft and liquid and it goes down the throat, right; that's what a beverage is. So, we're talking -- and you said, "quench thirst," so we're talking about use; aren't we? Yes, okay. So when you talk about types of meat, beef versus pork versus chicken, which is -- do you want to see this? If it'll make you more comfortable, I'll show it to you. Oh, you've got -- no. This is your testimony I'm