Economics Expert Allowed to Opine on Consumer Preferences

Plaintiffs alleged that Defendant Sazerac Company, Inc. ("Sazerac") engaged in a scheme of liquor look-alike. Specifically, they say that Sazerac designed the malt-based version of its Southern Comfort-branded alcohol line ("Southern Comfort Malt") to resemble the whiskey version it sells under the same name ("Southern Comfort Whiskey").

Sazerac sought to exclude the testimony of Plaintiffs' expert witnesses: Dr. Andrea Lynn Matthews and Dr. William Robert Ingersoll.

Marketing Expert Witness

Dr. Andrea Lynn (Phillips) Matthews holds a Master’s degree in Survey Research and Methodology from the University of Nebraska – Lincoln and a Ph.D. from the same institution in Business (Marketing). She is currently an Associate Professor of Marketing in the Barton School of Business at Wichita State University. Matthews has coauthored multiple academic publications in the fields of marketing and survey methodology.

Get the full story on challenges to Andrea Lynn Matthews’ expert opinions and testimony with an in-depth Challenge Study.

Economics Expert Witness

William Robert Ingersoll has a Ph.D. in Economics from the University of Arizona, with specializations in Microeconomic Theory, Econometrics, and Industrial Organization.

Want to know more about the challenges William Robert Ingersoll has faced? Get the full details with our Challenge Study report.

Discussion by the Court

A. Sazerac's Motion to Exclude Matthews's Testimony is Denied

Sazerac took aim at two studies conducted by Matthews—the first focused on "assessing consumer perceptions of the type of alcohol in" Southern Comfort Malt (the "Perception" study), the second designed to determine "the extent to which consumers preferred to purchase alcoholic beverages that contain distilled spirits versus malt-based alcohol" (the "Preference" study). But its arguments amount to flyspecking; Sazerac argued that anything it would have done differently renders Matthews's work unreliable and inadmissible.

Sazerac first challenges the population Matthews surveyed. It says that this population—New Yorkers over the age of 21 who have purchased any alcoholic beverage in the past 12 months—"violates the primary tenet of survey research that the survey population should be comprised of consumers likely to purchase the product at issue." In Sazerac's view, because the surveys include responses from purchasers of any alcoholic beverage rather than just purchasers of drinks in the Southern Comfort line, the population surveyed is overbroad, and both studies should be excluded. The Court disagreed. As an initial matter, whether or not respondents previously purchased Southern Comfort products, it would seem like alcohol purchasers in general would be a reasonable consumer group to test for preferences and perceptions, given that they are the audience that Sazerac is targeting to buy its products. And for another thing, the studies specifically compare the results of the surveyed population to the results of those individuals "who had previously purchased Southern Comfort branded products."

The Perception Study

Sazerac next brought several charges against Matthews' Perception study. First, Sazerac contended that the study is unreliable because it (a) did not approximate "real-world" conditions where consumers would be purchasing the product in "a grocery or convenience store," and (b) lacked a control group. But the Perception study began by asking respondents "to imagine that they were at the convenience store," and it did include a control group. Sazerac then challenged (1) the study's use of a "blurry," "static image" of a 50 ml bottle of Southern Comfort Malt, which is curved in design, unlike the 100 and 355 ml versions of the drink, and (2) the wording of the study's answer choices, which Sazerac argued improperly led participants to select certain answers over others (that is, the wording created a "demand effect"). These challenges (which are supported only by citation to Sazerac's own expert reports) did not impugn the "reliability" of the study, at least for purposes of threshold admissibility.

As to the image of Southern Comfort Malt, it is not so blurry as to justify throwing out the entire study. This is a factual dispute that can be properly put before a jury. The same logic applies to the fact that the image shown in the survey was of a curved bottle rather than a flat one—the jury will have all the bottles before it at trial and can decide whether differences among the bottles render the survey undependable. And notably, despite the difference in bottle shape, the 50 ml version has a label that shares many elements with the labels on the 100 and 355 ml bottles, such as the typeface and relative sizes of the adorning text.

As to the form of the survey’s questions, while it is of course important to minimize demand effects—those “cues from [a] survey[‘s] procedures and questions” that “steer” respondents “to the desired response”—the alleged problem here (inclusion of a proposed answer that is longer than others) is not enough to render the study unreliable.

The Preference Study

Finally, Sazerac brought three challenges against Matthews's Preference study. These arguments largely suffer from the same problems as those brought against her Perception study— they contest certain aspects of the survey's format, but don't raise issues so serious as to compromise the reliability of the study.

First, Sazerac argued that "the preference study is based on a leading question" because it describes Alcohol A as "containing whiskey" and Alcohol B as "not containing whiskey." In other words, Sazerac protests that the study "describes what Alcohol A contains while emphasizing what Alcohol B does not contain." But as stated above, the potential "demand effect" this question may have generated speaks only to the survey's probative value.

Second, Sazerac complained that the survey asks participants to choose between two products that are described by both their ABV and their alcohol type (whiskey vs. malt), and that, as a result, "the survey cannot reliably answer . . . if respondents prefer spirit-based Southern Comfort . . . because of the ABV or because of the type of base alcohol." But Sazerac does not offer a clear explanation for why this makes the survey "meaningless." Southern Comfort Malt is different from Southern Comfort Whiskey on both dimensions. And the two factors (ABV and alcohol type) are generally linked. Putting both variables together is a natural fit.

Finally, Sazerac claimed that "the Preference Study assumes away the importance of convenience" by "instructing respondents to 'imagine' that both a 'Whiskey' product and a 'Malt Beverage' product were sold at the same store" before asking them which product they would purchase, if any. According to Sazerac, this instruction makes the survey unreliable because "the pertinent question is whether consumers would or would not place a higher value on spirit-based Southern Comfort that required a trip to a liquor store with limited operating hours than they would on malt-based Southern Comfort available where and when they wanted to purchase it." But as explained above, the purpose of the study was to examine the "extent to which consumers preferred to purchase alcoholic beverages that contain distilled spirits versus malt-based alcohol" in general. And as explored below, Sazerac's challenge improperly assumes that consumers necessarily know where they can and cannot buy liquor—a question of fact that is hotly disputed by Plaintiffs.

B. Sazerac's Motion to Exclude Ingersoll's Testimony is Denied

Sazerac also sought to exclude Ingersoll's testimony, arguing that he is unqualified, that his testimony would not assist a jury in understanding the evidence, and that his testimony is based on unreliable principles and methods. Specifically, it found fault with the "conjoint survey" Ingersoll conducted.

Here, Ingersoll's survey showed survey respondents a set of "products" and asked them which product, if any, they preferred. Each product was given corresponding "attributes"—brand name, alcohol type, size, and price—with varying "levels." For instance, a respondent might have been asked whether they preferred Product #1, Product #2, or neither, where Product #1 is a 3.4 oz malt-based drink that is sold under the fictional "First Choice" brand at $2.02, and Product #2 is a 1.7 oz whiskey-based drink that is sold under the "Southern Comfort" brand at $1.33. By asking thousands of such questions and "using a Hierarchical Bayes . . . estimation," Ingersoll claims that he can discover whether a customer's misperception that Southern Comfort Malt is Southern Comfort Whiskey results in a price premium. After analyzing the results of his survey, Ingersoll concluded that "a belief that the alcohol type used [in a bottle of Southern Comfort] is Whisky (Distilled Spirit), when it was actually Malt, would result in 8.8% of the price being a price premium due to that belief." In other words, Ingersoll found that "purchasers [of Southern Comfort Malt] faced a market price that [would] have been at least 8.8% lower had the deceptive label not been used."

i. Ingersoll is qualified

Sazerac first argued that, because "Ingersoll had never conducted a conjoint survey prior to this matter," he is unqualified "to testify regarding conjoint surveys—including his own."

But even though he may not have conducted this exact type of survey in the past, the Court agreed with Plaintiffs that Ingersoll need "not possess experience tailored to the precise . . . process that is the subject matter of the dispute."

Rather, his training and knowledge in similar subjects can serve to qualify him to conduct this type of study. Ingersoll is a statistician who holds a PhD in economics and specializes in econometrics and behavioral economics. He has been trained "in the creation and analysis of discrete choice models." He thus is equipped to conduct a choice-based conjoint survey, which is sometimes referred to as a discrete choice experiment.

Moreover, Sazerac failed to explain why conducting a conjoint survey is so difficult that an experienced statistician, like Ingersoll, would be unable to competently perform one—particularly after sufficient preparation (he read multiple books and academic papers on the subject). For instance, while it's perhaps fair to say that an experienced bicyclist wouldn't be able to ride a motorcycle, despite the similarities between the two vehicles, it's something else entirely to say that such a bicyclist wouldn't be able to ride a tricycle. And Sazerac failed to explain why a conjoint survey is the former, not the latter.

ii. Ingersoll's methodology is reliable

Next, Sazerac argued that Ingersoll's survey "employed improper methodologies" and is thus unreliable.

First, just as it did with Matthews's survey, Sazerac contended that Ingersoll's survey is "entirely irrelevant" because the population surveyed wasn't limited to "actual purchasers of Southern Comfort Malt or even reasonably prospective purchasers of Southern Comfort Malt." Instead, survey respondents were "residents of the state of New York over the age of 21 who had purchased Southern Comfort" (either Malt or Whiskey) "for their own personal consumption in the last 12 months." The Court disagreed that purchasers of "Southern Comfort" branded drinks are not "reasonably prospective purchasers" of Southern Comfort Malt. If, indeed, customers of Southern Comfort Whiskey are likely to mistake Southern Comfort Malt for their drink of choice, it seems reasonable to conclude that they constitute prospective purchasers of Southern Comfort Malt. At the very least, it does not make the survey's results "entirely irrelevant."

Second, Sazerac presses that the survey "ignored the importance of convenience, rendering [its] results meaningless." Specifically, it highlights that the survey didn't indicate whether the products were in convenience stores or liquor stores (remember, it only tested for brand name, alcohol type, and size). Therefore, because "it is likely" that consumers who purchase Southern Comfort Malt value it "more highly than [Southern Comfort Whiskey] precisely because the malt-based version is more convenient and available for purchase," the survey, according to Sazerac, tells us nothing and is "entirely irrelevant." The survey, however, did show something relevant: it shows, at least arguably, that consumers place a premium on whiskey over malt irrespective of brand name or size. While Sazerac is free to introduce evidence that any such preference is outweighed by a customer's penchant for convenience, this argument is more appropriately presented as part of a battle of the experts at trial.

Finally, Sazerac brought a series of challenges in passing—each little more than a paragraph long—claiming that "Ingersoll's survey is rife with severe methodological flaws." But these arguments are supported solely by reference to Sazerac's own expert reports and do not show methodological flaws that, even taken together, call for the exclusion of Ingersoll's testimony. For instance, Sazerac contended that, because the survey "does not define" what "malt" is, the results of the survey do not "reliably measure respondents' relative valuations of [Southern Comfort Malt] (which uses a flavorless malt alcohol base and tastes the same as [Southern Comfort Whiskey])." This argument—that the uniqueness of the malt in Southern Comfort Malt means a consumer's preference for "whiskey" over generic "malt" is meaningless—is not a winning one at this stage of litigation. Malt is malt. If Sazerac wishes to argue that the specific version it uses justifies the price it charges, it can present that case to the jury. But the claim that survey participants associate the word "malt" with a variant of "beer" merely highlights that consumers associate malt with a purportedly lower quality drink. If anything, this supports, rather than undermines, Plaintiffs' claims of injury.

iv. Ingersoll's survey reflects a price premium

In a final effort to exclude Ingersoll's survey, Sazerac contends that "even if it reliably measured relative consumer preferences for [Southern Comfort Whiskey] and [Southern Comfort Malt] . . . such preferences do not equate to a price premium."

It raised two arguments in support: (a) that Ingersoll did not consider supply-side factors and (b) that his assumptions were contrary to the evidence.

Sazerac has raised its supply-side-based argument before. Sazerac stated that "Ingersoll's model is fatally flawed because it measures only consumers' willingness to pay, and not the supply-side factors that impact a product's price." But the Court continued to agree that "relying on real-world historical pricing data suffices to account for supply-side factors in a 'classical mislabeling' case." And contrary to Sazerac's arguments, this is a "classical mislabeling case."

It need not be the case that "y" is the exact hypothetical product (the same in every way but lacking the alleged mislabeling) for a conjoint survey to account for supply-side factors. (Indeed, it's only the rare case where a company sells two versions of the same product, one with a deceptive label and one without.) Rather, "y" need only reflect the prices of "similarly labeled products." And here, Ingersoll did exactly that by basing the survey on "prices that occurred in the real world" as relayed from data obtained from Circana, a consumer data company.

Finally, Sazerac claimed that "even if demand for [Southern Comfort Malt] were to fall 8.8 percent," the price would remain the same given that the company "line-prices" its malt- and whiskey-based products (meaning that it prices the products the same) and because "Sazerac faces constraints that prevent it from reducing" prices. In support, Sazerac cited comments by Sazerac's Executive Chairman, Mark Brown. The jury, however, might discount Brown's testimony, especially given that he is a Sazerac insider. Indeed, the jury could determine that Sazerac prices Southern Comfort Malt and Southern Comfort Whiskey the same not because it "line prices" its products, but because it is trading on customers' erroneous belief that Southern Comfort Malt is Southern Comfort Whiskey (that is, after all, Plaintiffs' theory of the case). Similarly, the jury could determine that the "constraints" testified to by Brown either don't exist or aren't strong enough to prevent Sazerac from reducing its prices on Southern Comfort Malt should demand fall the way Ingersoll predicts it would.

Held

The Court denied Sazerac's motion to exclude the testimony of the Plaintiffs' expert witnesses, Dr. Andrea Lynn Matthews and Dr. William Robert Ingersoll.

Key Takeaway

An expert need not be precluded from testifying merely because he or she does not possess experience tailored to the precise product or process that is the subject matter of the dispute.

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