Thursday, 17 April 2014

Day 227: The consumer-driven marketing professor

By the end of a day and a half of listening to the testimony of University of Toronto business professor, David Allan Soberman, I felt I deserved a course credit for Marketing 101. 

His elaboration of marketing principles was mostly delivered to the reading level of first year university students or TED-talk audiences. All of it seemed intended to present the marketing activities of his client, JTI-Macdonald as the appropriate actions of marketing professionals. 

Introducing Mr. Soberman

Before a witness is accepted as an "expert", he is interviewed (by both sides) about his credentials and background. Through the questions put to Mr. Soberman on Wednesday afternoon, we learned much that might explain his view on the world.

To begin with, he spent his formative years at Queens' University in Kingston, where both his parents were professors and where he received his first qualifications (Engineering '81 and MBA '83). I remember well Queens in those years, and Mr. Soberman's contented capitalism is certainly evocative of that time and place. 

Secondly, Mr. Soberman's professional experience as a marketer was at companies whose operations are also of public health concern: Nabisco and Molsons. At the first he sold candy to kids (Bonkers and Bubble Yum), and at the second he sold beer to young adults (Coors). He said nothing to suggest that he thought that these products or the way they were marketed might be problematic.

Thirdly, he has an apparently deep belief that marketing makes the world a happier place as it encourages people to put a higher value on the things they use. ("Trying to create higher levels of satisfaction, the theory being that you make society better."

He illustrated this tenet with a story from his own experience in being asked by his son for a Canada Goose winter jacket. He explained that the makers of this brand are able to sell their goods for several hundred dollars more than other jackets of similar quality. Through the "image they have created, people like it."  The difference in value was real, he said, and you could tell "when you look at the smile on my son's face."  In his analysis, people benefit when they become willing to pay more for goods.  

His fresh-faced enthusiasm for making people want stuff and his boyish voice (he is a very young 54!) made me think more than once of the white-shirted young men who occasionally knock at my door wondering if I have an unmet need for salvation.

The plaintiffs made no objection to Mr. Soberman's credentials. If anything, they seemed pleased to have the industry's perspective validated by such a person. (They sat quietly, responding to questions and comments with small smiles and few objections!)

Mr. Soberman's Report

JTI-Macdonald engaged Mr. Soberman to reply to Richard Pollay, the marketing professor engaged by the plaintiffs. 

Like other experts engaged by JTI-Macdonald, Mr. Soberman was recruited by the UK-based law firm, Freshfields. Like the other defence experts, his assigned task was apparently not communicated in writing. 
He seems to have applied his own market research skills to the development of his work for this trial: he reported several meetings to learn more about his clients needs before eventually honing in the product he would provide to them.

In more than 50 pages of small print, he addresses 3 questions:
(a) did the company try to get minors or non-smokers to start smoking, and, if so, did it work.
(b) is the argument of brand-switching credible.
(c) were "light" cigarettes marketed in misleading ways or to prevent smokers from quitting

He covered a lot of ground before providing the expected answers -- "no", "yes", "no" . He read the proceedings, several trial transcripts, Mr. Pollay's report and all the documents referred to in it. JTI-Macdonald also provided him several hundred additional documents.

Taking a swing at Mr. Pollay

In comparison with the verbal assault by JTI-Macdonald counsel, Doug Mitchell, last year, Mr. Soberman's criticisms of Mr. Pollay are diplomatically put. Nonetheless, his clear message is that the plaintiffs expert is no expert in marketing and should not be given much credence. 

Mr. Pollay apparently does not cite relevant models of consumer psychology, mis-states how advertisements are received by consumers, does not understand what a mature market is, interprets tobacco ads in the wrong temporal or regulatory context, and basis his conclusions on irrelevant examples from the United States.

"[Mr. Pollay's] report tells  a story, but the story that it tells has a number of shortcomings. The definitions or concepts that he argues seem to be contradictory to what I would call generally accepted marketing theory would say about certain things."

The decision to smoke is not formed by advertising

Mr. Soberman does not share the view of the World Health Organization and others that young people are particularly vulnerable to tobacco advertising.

If young people decide to smoke, he says, they do not do so as a result of exposure to tobacco ads. Intead, this is a behaviour that comes through a high level of emotional involvement and after considerable thought. In his report he writes: "The evidence is thus that the process of becoming a regular smoker occurs over many months and is an extended decision, rather than the spontaneous response to a particular piece of marketing."

Because people only "pay attention to ads for material we are interested in," young people who notice cigarette ads are already thinking about smoking.

Consumers don't believe ads

Mr. Soberman expressed no concern about lifestyle advertising for cigarettes. People are skeptical about advertising from a very young age, they take the credibility of the source of the information into consideration, and they have to see a lot of ads before it will have any impact. 

He said that Mr. Pollay's concerns about cigarette ads being associated with vitality and health showed that he improperly understood how people interpret advertisements.

"One of the things that struck me as being the most far fetched when I read his report was the assertion that people process this lifestyle advertising literally – which is that they think that if you see an ad with someone engaging in an activity or looking like they are having a good time then by using the activity the same thing will happen to you. These types of comments permeate the report. They are completely inconsistent with my understanding of how people process advertising. people are used to seeing advertising and processing advertising."

His report cites examples of other products whose ads showed that literal interpretation was inappropriate. These included Tiger Wood's promotions for Titleist golf balls and former sex-kitten Farah Fawcett's promotion for Mercury Cougar cars.

"People know that if they use a Titleist golf ball, they will not hit the ball as far or as straight as Tiger Woods does in the commercials."
  "There is no evidence to believe that viewers actually inferred they would meet and spend time with Ms. Fawcett or a live cougar were they to purchase a Mercury Cougar."

Smoking as risky behaviour 

In contrast to tobacco advertising, the messages that might factor into young people smoking, he said, might come from government when it warned about the dangers of smoking. These messages might backlash "in so far that it communicates the risks of smoking" to young people who are interested in taking risks.

Justice Riordan may have thought that Mr. Soberman was missing the point.

He asked the witness whether tobacco ads might not generate interest in risk-taking by youth, and cited ads which showed skiiers contemplating a dangerous run.

"You are not interpreting the ad in the way that the person who sees the ad would think about it'" Mr. Soberman answered. "Advertising operates at a level where people aren't thinking about it too much."
No impact on consumption

As Mr. Heckman had done earlier this week, Mr. Soberman cited endogeneity as the reason that advertising was sometimes improperly related to an increase in tobacco use. He relied on the same studies as the previous witness to conclude that "advertising doesn’t seem to have an effect on tobacco prevalence."

Brand choice

Mr. Soberman was firm that the only reasons that JTI-Macdonald marketed its brands was to encourage smokers to try their brands, to maintain brand loyalty among existing smokers, and to increase the brand equity. Moreover, they had no choice but to do so: as the smallest tobacco company they had to advertise or die.

He came at this conclusion from several angles: his reading of their marketing reports, his own experience as a marketer, modern theories of marketing, the return on business investment. 

He calculated that each percentage point of the Canadian market, expressed in 2010 dollars, was worth $9 million to JTI-Macdonald or any other company. (He did not use the same method to calculate the costs to Canada of each percentage point of the tobacco market -- $170 million in 2002!)

Advertising "added value" to a brand, encouraging smokers to be willing to pay more for their cigarettes. Just as people are willing to pay more for Coca Cola than a generic soft drink, they are willing to pay more for brand name cigarettes than for generic brands. The "brand equity" produced by advertising lasts over time, but not indefinitely -- the ads must be sustained.

The prisoner's dilemma

He appealed to game theory to explain why tobacco companies were compelled to advertise even though it might not be in their collective interest to do so. The "prisoner's dilemma", explained why they would be prepared to lose money in advertising.

Although his phenomenon has been used to explain why American companies adopted a voluntary ban on television ads in the early 1970s, Mr. Soberman said that companies would still be expected to fight against ad bans even with knowledge of this dilemma. 

"It does not capture the full richness of the market. Image marketing allows them to create brand equity and generate significant profits. In a world where you cannot market at all, the images become very week. This changes dimension from image to pricing, which is generally bad for firms."

Facts? Opinions?

Mr. Mitchell raised a number of allegations that have been made against JTI-Macdonald and asked Mr. Soberman to reply to them. Their adherence to the voluntary code. Their market research on young people. Their marketing of light cigarettes. The impact of spill-over advertisements. Their controversial campaign for Tempo cigarettes.

A good half of Mr. Soberman's testimony was on general marketing practices, and he drew on these to interpret documents from JTI's records to refute each of these suggestions, i.e. "My findings would be that the evidence I reviewed indicates that the marketing of JTI-Macdonald was in all cases directed towards people who were 18 years of age or older."

There was much in these questions and answers that made him sound more like a fact witness for the company than as an expert witness for the court -- a point that plaintiff lawyer, Bruce Johnston, put to Justice Riordan at the end of the day.  

Mr. Soberman's testimony continues on Tuesday and Wednesday next week.