chapter two The Economic, Social, and Regulatory Aspects of Advertising McGraw-Hill/Irwin Essentials of Contemporary Advertising Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

2-2 Objectives  Discuss the impact of advertising on the economy  Debate the validity of the various social criticisms of advertising  Explain the difference between social responsibility and ethics in advertising

2-3 Objectives  Describe how government agencies regulate advertising to protect both consumers and competitors  Discuss the activities of nongovernment organizations in fighting fraudulent and deceptive advertising

2-4 Economic Advertising Controversies  How does advertising affect the value of products?  Does it cause higher or lower prices?  Does it promote competition or discourage it?  How does it affect consumer demand?

2-5 Societal Advertising Controversies  Does advertising make us more materialistic?  Does it force us to buy things we don’t need?  Does it reach us subliminally in ways we can’t control?  How does it affect art and culture of our society?

2-6 Responsibility and Control For Advertising  What is the proper role for participants in the marketing process?  How much latitude should marketers have in the products they promote and how they advertise them?  What is the proper role of government?  What laws should we have to protect consumers?

2-7 Exhibit 2-1 Per Capita Ad Spending A country’s level of ad spending is typically proportional to its standard of living

2-8 Exhibit 2-2 Economic Effect of Advertising The economic effect of advertising is like the opening break shot in billards

2-9 Economic Effects of Advertising  Value of Products  Prices  Competition  Consumer Demand  Consumer Choice  Business Cycle  Abundance Principle

2-10 Added Value  Links brand image to the product  Educates consumers about product uses  Satisfies psychic and symbolic wants and needs

2-11 Effect on Prices  Advertising is paid for by the buying consumer  Amount spent on advertising is typically small compared to total cost of product  Advertising is part of a mass-distribution system  In industries subject to price regulation, advertising has no effect on prices

2-12 Effect on Consumer Demand Stimulates primary demand Influences Selective demand

2-13 Deception Subliminal Advertising Value System Proliferation of Advertising Use of Stereotypes Offensiveness Social Impact of Advertising

2-14 Deception in Advertising: Puffery  Levels of Puffery –Best –Best possible –Better –Especially good –Good –Subjective qualities

2-15 Social Responsibility Doing what society views as best for the welfare of people in general or for a specific community of people

2-16 Advertisers’ Social Responsibility Organizations like the AAF and the AAAA provide pro bono services for charitable organizations and public agencies.

2-17 Current Regulatory Issues Freedom of Commercial Speech Tobacco Advertising Advertising to Children Consumer Privacy

2-18 When can commercial speech be regulated?  The Central Hudson test –Does the commercial speech at issue concern a lawful activity? –Will the restriction of commercial speech serve the asserted government interest substantially? –Does the regulation directly advance the government interest asserted? –Is the restriction no more than necessary to further the interest asserted?

2-19 The Tobacco Advertising Controversy  Are restrictions on tobacco advertising a violation of the First Amendment?  The website, features a history of tobacco advertisingwww.tobacco.org

2-20 Advertising to Children  How far must advertisers go to ensure that children are not misled by ads?  Children’s Advertising Review Unit (CARU) reviews and evaluates child-directed advertising

2-21 CARU’s Guidelines for Advertising to Children  Consider audience maturity  Realize power of imagination  Promote child- appropriate products only  Consider advertising as a learning tool  Support parent-child relationships  Avoid stereotyping  Promote positive behavior

2-22 Regulating Organizations Federal Trade Commission Food and Drug Administration Federal Communications Commission Patent and Trademark Office

2-23 The Federal Trade Commission

2-24 What is Deception?  Any ad that contains misrepresentation, omission, or any other practice that can mislead a significant number of reasonable consumers is considered deceptive by the FTC  Unfair advertising occurs when a consumer is unjustifiably injured or there is a violation of public policy

2-25 Commercial Break 2-A: Unfair and Deceptive Advertising Practices  False promises  Incomplete description  False and misleading comparisons  Bait-and-switch offers  Visual distortions and false demonstrations  False testimonials  Partial disclosure  Small-print qualifications

2-26 What information does the FTC consider? Substantiation Endorsements/ Testimonials Affirmative disclosure

2-27 Remedies Enforced by the FTC  Consent decree  Cease-and desist order  Corrective advertising Apple recently received a cease- and-desist order to halt use of the iPod commercial featuring singer, Enimem.

2-28 FDA’s Role in Advertising The FDA strives to ensure that consumers have complete information by ensuring that products are labeled truthfully

2-29 The FCC and Advertising  The FCC seeks to protect the public’s interest and to encourage media competition  It controls the airing of obscenity and profanity and can restrict the products advertised and the content of ads

2-30 Patent and Trademark Office  Patents  Trademarks –® –™  Copyright –©

2-31 Other Sources of Regulation  State and local governments  Better Business Bureau  National Advertising Review Council  Regulation by media  Regulation by consumer groups  Self-regulation

2-32 Key Terms_1  Abundance principle  Added value  Affirmative disclosure  Broadcast standards department  Cease-and-desist order  Comparative advertising  Consent decree  Consumer advocate  Consumerism  Copyright  Corrective advertising  Deceptive advertising  Endorsements

2-33 Key Terms_2  Ethical advertising  Externalities  Intellectual property  Limen  Patent  Primary demand  Privacy rights  Puffery  Selective demand  Social responsibility  Stereotypes  Subliminal advertising  Substantiation  Testimonials  Trademark  Unfair advertising