Regulation of Advertising and Promotion 21 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Regulation of Advertising and

Promotion

Regulation of Advertising and

Promotion

21

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Advertising is Regulated Through…

SelfRegulation

SelfRegulation

Federal Regulation

Federal Regulation

State RegulationState Regulation

Direct Mail Under Attack

Many Ads Are Review by Law Firms

Self-Regulation of Advertising

Advertisers and Agencies

Advertisers and Agencies

Industry TradeAssociations

Industry TradeAssociations

MediaMediaBusiness (BBB)NARB

Business (BBB)NARB

Voluntary self regulation by the advertising industry, business, and media to maintain consumer trust and confidence and limit

government interference

Voluntary self regulation by the advertising industry, business, and media to maintain consumer trust and confidence and limit

government interference

Malt Beverages Advertised on Television

*Click outside of the video screen to advance to the next slide

Liquor Advertising on TV

The National Advertising Review Council

Sources of NAD Cases

51%

46%

3%

1%

0 10 20 30 40 50 60

Consum erchallenges

Local BBBchallenges

NAD m onitoring

Com petitorchallenges

Mission of the ERSP

To discourage advertising and marketing in the electronic retailing industry that

contains unsubstantiated claims

To discourage advertising and marketing in the electronic retailing industry that

contains unsubstantiated claims

To demonstrate a commitment to meaningful and effective self-regulation

To demonstrate a commitment to meaningful and effective self-regulation

To enhance consumer confidence in electronic retailing

To enhance consumer confidence in electronic retailing

TV Network Guidelines for Children’s Ads

No shots under one second in length

Must not over glamorize product

No exhortative language, such as “Ask mom to buy…”

Generally no celebrity endorsements

Can’t use “only” or “just” in regard to price

Generally no comparative or superiority claims

No costumes or props not available with the toy

Three-second establishing shot of toy in relation to child

Advertising Self-Regulation

Can result in more stringent standardsthan those imposed by legislation

Encourages truthful, ethical and responsible advertising

Effective regulatory mechanism

Preferable to government intervention

Perspective of Advertisers, Agencies,

Media

Perspective of Advertisers, Agencies,

Media

Takes too long to resolve complaints

Problems with budgeting and staffing

Lack of power or authority

Self-serving to advertiser and media

PerspectiveOf Critics

PerspectiveOf Critics

Test Your Knowledge

Which of the following is a common complaint often lodged about the self-regulation of advertising?

A) The NAD/NARB has a limited budget and staff.

B) It takes the National Advertising Division a long time to resolve a complaint.

C) Self-regulation is viewed as being self- serving to the advertising industry.

D) Self-regulation lacks the power and authority to be a viable alternative to government regulation.

E) All of the above.

Federal Regulation of Advertising

Federal Communications

Commission (FCC)

Federal Communications

Commission (FCC)

Food and Drug Administration

(FDA)

Food and Drug Administration

(FDA)

U.S. Postal Service

U.S. Postal Service

Bureau of Alcohol Tobacco, and

Firearms

Bureau of Alcohol Tobacco, and

Firearms

Federal Trade Commission

(FTC)

Federal Trade Commission

(FTC)

Advertising and the First Amendment

Speech promoting acommercial transactionis protected but must

be truthful

Speech promoting acommercial transactionis protected but must

be truthful

Freedom of speech orexpression is the most basic

federal law that governsadvertising and promotion

Freedom of speech orexpression is the most basic

federal law that governsadvertising and promotion

Speech must bebalanced against competinginterests such as advertising

of harmful products

Speech must bebalanced against competinginterests such as advertising

of harmful products

Federal Trade Commission

Three Major DivisionsThree Major Divisions

•Consumer Protection

•Economics•Competition

•Consumer Protection

•Economics•Competition

Wheeler Lea Amendment (1938)

Made Deceptive Practices Unlawful

Wheeler Lea Amendment (1938)

Made Deceptive Practices Unlawful

Created By FTC Act (1914)

Created By FTC Act (1914)

The Concept of Unfairness

Could not reasonably be avoided by consumers

Could not reasonably be avoided by consumers

Causes substantial physical or economic injury to

consumers

Causes substantial physical or economic injury to

consumers

Must not be outweighed by countervailing benefits to consumers or competition

Must not be outweighed by countervailing benefits to consumers or competition

Deceptive Advertising: Key Elements

Perspective of reasonable consumer

Perspective of reasonable consumer

Likelihood of misleading consumer

Likelihood of misleading consumer

Materiality – misrepresentation or

practice is likely to affect consumers’

purchase decision

Materiality – misrepresentation or

practice is likely to affect consumers’

purchase decision

Puffery: Some Examples

Bayer – “The wonder drug that works wonders”

BMW – “The ultimate driving machine”

Nestle – “The very best chocolate”

Snapple – “Made from the best stuff on earth”

Presentations that praise the item to be sold with subjective opinions, superlatives, or exaggerations,

vaguely and generally, stating no specific facts

Ways the FTC Handles Deceptive Ads

AffirmativeDisclosure

AffirmativeDisclosure

AdvertisingSubstantiationAdvertising

Substantiation

FTC Programs to Prevent Deceptive Advertising

FTC Programs to Prevent Deceptive Advertising

Cease andDesist OrdersCease and

Desist OrdersCorrectiveAdvertisingCorrectiveAdvertising

FTC Programs to Deal With Deceptive Advertising After It Occurs

FTC Programs to Deal With Deceptive Advertising After It Occurs

Federal Regulation by the FTC

1970’s1970’s

FTC is powerful, active regulator

FTC is powerful, active regulator

Improvements Act passed

Improvements Act passed

1980

FTC becomes less active

FTC becomes less active

1980’s and 1990’s

Focused on enforcing existing regs

Focused on enforcing existing regs

2000 to present

Additional Federal Regulatory Agencies

The Federal Communications

Commission

The Federal Communications

CommissionThe Food and Drug

AdministrationThe Food and Drug

Administration

The U.S. Postal Service

The U.S. Postal Service

Bureau of Alcohol, Tobacco, and

Firearms

Bureau of Alcohol, Tobacco, and

Firearms

Additional Federal Regulatory Agencies and Departments That Also Regulate

Advertising and Promotion

Additional Federal Regulatory Agencies and Departments That Also Regulate

Advertising and Promotion

Test Your Knowledge

The _____ is a federal agency that was founded in 1934 to regulate broadcast communications that include the radio, television, telephone, and telegraph industries.

A) Federal Trade Commission

B) Federal Communications Commission

C) Fairness Doctrine

D) U.S. Postal Service

E) National Association of Broadcasters

The Nutrition Labeling and Education Act

The U.S. Postal Service

The U.S. Postal Service has control over ads that involve…

The U.S. Postal Service has control over ads that involve…

LotteriesLotteries

ObscenityObscenity

FraudFraud

Bureau of Alcohol, Tobacco, and Firearms

The BATF…The BATF…

Enforces liquor lawsEnforces liquor laws

Develops regulationsDevelops regulations

Collects taxes on liquor salesCollects taxes on liquor sales

Regulates liquor advertisingRegulates liquor advertising

Imposes sanctionsImposes sanctions

Suing Competitors Under the Lanham Act

The ads actually deceived or had the tendency to deceive a substantial segment of the audience

The ads actually deceived or had the tendency to deceive a substantial segment of the audience

The deception was “material” or meaningful and is likely to influence purchasing decisions

The deception was “material” or meaningful and is likely to influence purchasing decisions

The falsely advertised products or services are sold in interstate commerceThe falsely advertised products or services are sold in interstate commerce

You have been or likely will be injured as a result of the false statements, either by loss of sales or loss of goodwill

You have been or likely will be injured as a result of the false statements, either by loss of sales or loss of goodwill

False statements have been made about advertiser’s product or your productFalse statements have been made about advertiser’s product or your product

Elements Required To Win a

FalseAdvertising

SuitUnder the Lanham Act

Elements Required To Win a

FalseAdvertising

SuitUnder the Lanham Act

Suing Competitors

State Regulation

In addition to recognizing decisions by the federal courts regarding false or deceptive practices, many states have special controls and regulations governing the advertising of specific industries or practices.

In addition to recognizing decisions by the federal courts regarding false or deceptive practices, many states have special controls and regulations governing the advertising of specific industries or practices.

Regulation of Sales Promotion

Cannot misrepresent their value

Cannot misrepresent their value

Cannot require purchase to enter

Cannot require purchase to enter

Rules and details must be disclosed to consumers

Rules and details must be disclosed to consumers

Care must be taken with special audiences, like

children

Care must be taken with special audiences, like

children

Contests and SweepstakesContests and Sweepstakes

PremiumsPremiums

Regulation of Trade Allowances

Must not violate any stipulations of the

Robinson-Patman Act

Must not violate any stipulations of the

Robinson-Patman Act

Co-op funds must be equal and non-discriminatory

Co-op funds must be equal and non-discriminatory

Trade AllowancesTrade Allowances

Regulation of Direct Allowances

Telephone Consumer Protection Act of 1991

Pay-per-call Rule

Development of “Do-not-call” Registry by FTC

Telemarketing faces increased regulation including…

Telemarketing faces increased regulation including…

FTC and US Postal Service police direct-response advertising closelyFTC and US Postal Service police

direct-response advertising closely

Self-regulation occurs through various industry groups

Self-regulation occurs through various industry groups

Protecting Consumers from Unwanted Calls

Created by the FTC to allow consumers to limit the calls they

receive from telemarketers

Does not cover calls from political organizations, charities, telephone

surveyors, or companies with which the consumer has an

existing relationship

Companies calling consumers on the registry subject to fine of up to

$11,000 per incident

Over 145 million consumers registered since October 2003.

Internet Marketing Issues

Banning unsolicited emails

(SPAM)

Banning unsolicited emails

(SPAM)

Privacy issues such as

profiling and collecting personal

information

Privacy issues such as

profiling and collecting personal

information

Protecting children when

they are online

Protecting children when

they are online

Children’s Online Privacy Protection Act

Places restrictions on collectinginformation from children via

the Internet

Places restrictions on collectinginformation from children via

the Internet

Enacted to protect the privacyof children when they are

using the Internet

Enacted to protect the privacyof children when they are

using the Internet

Privacy policies must be posted on home pages

and area where informationis collected

Privacy policies must be posted on home pages

and area where informationis collected