Monday, 18 November 2013

Day 183: Export, eh?

After a week's diversions into other courtrooms, the regular suspects in the Montreal tobacco trials were once again rounded up on the 17th floor of Montreal's Palais de Justice.

It was before a different judge in a different classroom that differing perspectives on one aspect of this trial were argued last week. (A full report on that hearing, and my misadventures within in it, will appear here as soon as the green light is given.)

Suffice it to say that there are now two good reasons to keep an eye on rulings released by Justice Robert Mongeon: in his hands are key decisions in two separate Quebec tobacco trials - a decision on JTI-Macdonald's financing related to the  Blais/Létourneau class action and also the constitutional challenge to the Quebec government lawsuit.

Following his temporary reassignment to Family Court and child custody disputes, I wonder if Justice Riordan is of the view that a change is as good as a rest.

The road a head: 11 more weeks of witness testimony

As they said they would, the companies this weekend provided their schedule of remaining witnesses. There are 21 identified between now and the end of March. This list - much shorter than once anticipated - is shown at the bottom of this post.

Retired public servants whose name does not appear on this list cannot yet breathe a sign of relief. Two weeks at the end of the trial have been reserved for yet unspecified "government witnesses".

Order of the day: Mr. Robin Robb

Mr. Robin Robb
Over a year has passed since the first witness called by JTI-Macdonald, Mr. Peter Gage, gave his colourful story of the ideosyncratic and somewhat despotic management of the Macdonald Tobacco company when it was owned and controlled by Walter Stewart and his son, David Stewart, .

Today's witness, Mr. Robin Robb, picked up the corporate history in the late 1970s, a few years after it had been purchased by RJ-Reynolds. He described his task at the re-named RJR-Macdonald to re-fashion the company's marketing efforts.

Mr. Rob arrived in Canada in 1975, escaping from the troubles in his native Northern Ireland. Not even 30 years old, he already had several years experience in marketing soaps, toothpaste, foods and other "Fast Moving Consumer Goods."  His first job in Canada was with Pepsi Cola, where he worked on the legendary "Pepsi Challenge" across the country. It was that success that seemed to have brought him to the attention of a head-hunter, who recruited him to join RJR-Macdonald as a director of marketing.

By the time he left the company, six years later, he was directing the marketing for all the brands sold by Canada's third largest tobacco company, notably Export A, and Vantage. Since his departure back to foodstsuffs in 1984, and eventually back to the United Kingdom, he has not been involved in tobacco marketing.

Clarity. But to what end?

The intervening 30 years do not seem to have eroded Mr. Robb's memory of his experiences selling cigarettes. Perhaps it was the nature of the questions put to him today by Mr. Guy Pratte, but Mr. Robb seemed to have no difficulty in providing quite detailed answers, and recalling quite specific extracts from long documents.

A well-rehearsed witness, perhaps, but also one who seemed knowledgeable, candid and credible. Today was one of those pleasant days where information was provided through nicely sequenced questions, clear answers, connected documents and infrequent interruptions.

The questions put by Mr. Pratte to Mr. Robb went beyond simply refuting allegations that the company had targetted young people or non-smokers, although these obvious issues were covered in a predictable way. They also elicited insights into what drove the behaviour of the company (fear of losing market share), how it tried to meet its challenges (modernizing its methods and its products' imagery), and what prevented it from achieving its marketing goals (restrictions on marketing in the voluntary code).

I was relieved to hear mid-day that I was not the only one wondering how this interesting story would be helpful to JTI-Macdonald's case. Even Justice Riordan sought some guidance on how to "position" Mr. Robb's testimony.

Mr. Pratte's answer seemed to satisfy the judge. He said that his goal was to show that "the imagery campaigns did not have the impact that they might have had. I want the Court to understand how complex the process is and how in the end it did not work."

Heavily regulated marketing. And no money to boot. 

Mr. Robb contrasted the unfettered scope of the job of selling soft-drinks to the "heavily regulated" cigarette market. "At Pepsi Cola, we could market our goods to whomever we wanted, in more or less whatever way we wanted, but there were many restrictions on what we were able to do in the cigarette business."

He included in these restrictions the ban on advertising cigarettes on television, conducting research on people under 18, or using younger models in advertisements. But the most important rule, he said, was Rule No. 7: "Cigarette or cigarette tobacco advertising will be addressed to adults 18 years of age or over and will be directed solely to the increase of cigarette brand shares."

There was absolute compliance with this and other regulations in the CTMC voluntary code, he said. "Everyone in the marketing department got to know the Code by heart." 

Mr. Robb emphaized that the sections of the code that capped advertising expenditures constrained his ability to market cigarettes. (Exhibit 40005L40374)
1979 Expenditure Cap. Exhibit 40374
At the time he began working at the company, RJR-Macdonald had an advertising budget of only $12 million, out of a total industry budget of $52.5 million. (In today's dollars, the equivalent figures would be $36.3 million and $159 million.)

He made it sound like a paltry sum, and a barrier to an "investment spend" in marketing. "We couldn't spend our way out of the problem."

Slowing the downward momentum of Export A

The problem that Mr. Robb might have wanted to spend his way out of was the diminished market status of Export A. For much of the century, it had been the brand that defined smoking in Canada. ,

He made it sound like company was the victim of its own success. "Export A was still the biggest brand in Canada – but it had previously been absolutely massive. I think a kind of complacency may have built up in the company because the sales and profits were able to come without too much effort."

The company knew it was in trouble when it saw Export A tumble from its pole position in the second half of the 1970s,(Exhibit 40379) but "they didn’t have a plan." 

When he joined the company, he found the marketing department "in disarray ... There had been various attempts to break out of the downward momentum, but without any particular success." The decision to move head office from Montreal to Toronto (after the election of the Parti Québecois) physically divided those working on marketing, creating even more "turmoil."  He described several changes in senior management.

Export A lost sales to Players: Exhibit 40379
From rugged to independent

Mr. Robb spent much of the day describing the steps he directed to stem the hemorrhaging of Export A smokers to Player's following the "phenomenol success" of Player's Light. In doing so, he gave a frank admission of the importance of imagery to successful cigarette marketing.

"The absolutely key thing was that with the Export family we were not satisfying the needs of the smokers – particularly with the imagery we were offering to them." 

"It's not just the product that people are smoking - it's the imagery that goes with it. It's a sort of badge. ... It used to be, when you could smoke in bars, one of the first things that someone would do was take out their brand and put it down. ... [We] had to be certain that what that brand stood for was something that [the smokers] were comfortable with."

The company had made mistakes in the imagery of its lower tar version of Export A. "It was not positioned properly in relation to its parent. If you are bringing in the low-tar extension, you want to keep the imagery the same - the same warm feeling when  you go into the bar and put your pack down. You want to retain that feeling, but with lower tar."

He said there was a dissonance between Export A lights and its parent brand, and that when smokers moved "down" to the light version "they did not feel good. They were accustomed to putting down a green pack - instead they found a gold pack with feminine script."

Even the image of the parent brand was no longer working. Mr. Robb explained how the image values of "traditional and reliable" began to be seen as rather dull. He was part of efforts to move it towards a new image of "masculine, rugged, self-determined and independent." (Exhibit 4037640382)  

Mr. Robb described how the company and its advertisers worked to "rein the ruggedness in," to soften the image, and to give the product a less "down market" impression.

The everyday truck was replaced with an expensive Peterbilt rig - but even that elegant touch was found to be too close to the work environment. Eventually the smoker was left alone in "satisfaction country." 

He did not stay there for long. Further research (Exhibit 40383) suggested that they "had to go further to satisfy the image needs of the Export A smoker."  High adventure, high energy sporting activities were chosen. With kayaking, sailing and hang-gliding, they felt they had arrived at the right image for "self-determined and adventurous."

The image was right, perhaps, but Mr. Robb said it was still not enough to reverse the declining sales - especially without the ability to bump up their advertising spend.

"I like to think it declined less than it would otherwise would have. I like to think we were addressing the problem through the right kind of executions. ... We were limited by the fact that we could not 'investment spend' these executions that we now thought were right. ... Even though we had 'the creative' right, we could not spend our way out of the problem."

The Vantage disadvantage

Mr. Robb described the advertising mistakes that were made with the company's second largest brand family, Vantage. The brand was introduced in 1977, as the market was "moving at a rapid rate from high tar to low tar cigarettes." Almost 10 years after the first league tables were published by the government (in 1968), the company still "had absolutely zero representation" in the low-tar segment.

The first Vantage cigarette - at 11 mg tar - was not, even by the standards of the day, a very low-tar cigarette. Mr. Robb said the company's big mistake was to market it as one. "The advertising that was used to launch that product did not communicate high taste and low tar - it only communicated low tar ." This defective advertising lead smokers to believe that the brand was in the super-low tar category - a category of cigarettes that few smokers wanted to try.

Mr. Robb was in charge of marketing Vantage when advertising copy was designed which might be interpreted as suggesting that smokers move to low tar cigarettes instead of quitting, or that there is a "smart" way to smoke.

Today he brushed aside such perspectives. The ad which discussed quitting  had been designed to generate attention without spending a lot of money stand out from the crowd, and also to "show some sympathy" by "positioning ourselves on the side of the consumer." 

The campaign was successful in getting attention - but not in recruiting smokers. "The taste credentials did not come through." 

The replacement campaign had its own controversial elements, notably the exhortion to "Smoke Smart" at the baseline. Mr. Robb said this line had been intended to appeal to the self-image of Vantage customers, who were "smarter and more educated" than smokers of other brands.

Mr. Robb recommended the removal of this term (Exhibit 40386). In later ads it was replaced with "Think Vantage."

Mr. Robb's testimony continues on Tuesday.  On Wednesday and Thursday, Mr. Lance Newman will testify.

Remaining witness list

C. Frank Marks
Agriculture Canada
December 2,3, 4
P. Wade Johnson
Agriculture Canada
December 5,
Brian Zilkey
Agriculture Canada
December 9, 10, 11
AJ Liston
Health Canada
December 11, 12,
RS Pandeya
Agriculture Canada
December 16
Imperial Tobacco
December 17
James Hogg
UBC researcher
December 18
Jim Sinclair
Imperial Tobacco
December 19
Peter Hoult
January 13, 14, 15
Bill Rickert
Labstat/Health Canada
January 16
Kip Viscusi
Expert – warnings
January 20, 21
Dominique Bourget
Expert, Addiction
January 22, 23
John Davies
Expert, Addiction
January 27, 28
Keiran O’Connor
Expert, Addiction
January 29, 30
Sanford Barsky
Expert, disease assessment
February 17, 18
Dale Rice
Expert, disease assessment
February 18, 19
David Soberman
Expert, marketing
February 20, 24, 25
Laurentius Marais
Expert, epidemiology
March 10, 11, 12
Bertram Price
Expert, epidemiology
March 13, 17
Kenneth Mundt
Expert, epidemiology
March 18, 19
Stephen Young
Expert, warnings
March 20, 24
James Heckman
Expert, Advertising, Statistics
March 25, 26, 27
Additional government fact witnesses

April 9, 10, 14, 15, 16, 17
Possible class members

April 21 and on