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AEM 4550: Economics of Advertising Prof. Jura Liaukonyte LECTURE 12: Advertising Content and Comparative Advertisement

Lecture Plan  HW3, HW4,  Next class: Discuss Exam 2; Guest Lecture  Advertising Content  Expert Testimonials  Celebrities  Humor  Comparative Advertising  Advertising Regulation  Model of comparative advertising

Credence Attribute Advertising  Usually comes with a third party testimonials  E.g. “dentists recommend”  “doctor recommends”  “experts agree” etc. WHY?

Experts Lend Authority to an Appeal

Celebrities  ~ 25% of ads have celebrities in them  The general belief among advertisers is that advertising messages delivered by celebrities: ◦ provide a higher degree of appeal, attention and possibly message recall than those delivered by non-celebrities. ◦ affect the credibility of the claims made, ◦ increase the memorability of the message, and may provide a positive effect that could be generalized to the brand ◦ Despite the potential benefits they can provide, celebrity advertising increases the marketers' financial risk. ◦ Using celebrities are an unnecessary risk unless they are very logically related to the product

Endorsement by a “Celebrity Expert”

The celebrity’s behavior may pose a risk to the company The target audience may not be receptive to celebrity endorsers The celebrity may be overexposed, reducing his or her credibility The celebrity may overshadow the product being endorsed The target audience may not be receptive to celebrity endorsers The celebrity may be overexposed, reducing his or her credibility The celebrity may overshadow the product being endorsed Risks of Using Celebrities

Any examples of risky endorsements?

What does empirical research say about celebrity endorsement effect?  Elberse and Jeroen (2011) look at stock market valuation and sales data for a number of athlete endorsements.  With a celebrity endorsement stocks go up roughly 0.25%, on average.  Sales, on the other hand, go up by an average of 4%.  These sales boosts can be recharged by a career triumph -- a Grand Slam for Roger Federer, an Olympic Gold Medal for Michael Phelps.  A caveat: The sales benefits diminish with each win, while the stock-return effects stay constant;  investors, it seems, are more impressed with an athlete's staying power than consumers.

What does empirical research say about celebrity endorsement effect?  So, what accounts for this celebrity effect?  Endorsements could be a signal of quality  But the modern consumer is sophisticated. They know money's changing hands.  At a deeper level, we seem to crave connection to the famous and the powerful.

What does empirical research say about celebrity endorsement effect?  Newman, Diesendruck and Bloom (2011) look at why people are willing to pay exorbitant amounts of money for objects once owned by famous people.  E.g., President Kennedy's golf clubs or even Saddam Hussein's Rolex  Resale Appeal? That's circular reasoning. Why does the next person want to buy it?  Study tested how much people would be willing to pay for various objects that had been handled by either a celebrity the participants admired or someone famous they considered evil.  For likeable celebrities, the more handling of the object the more it was worth to people.  In contrast, with evil celebrities, the more the person touched the object or used it, the less people wanted anything to do with it.

Fear Appeals Fear Appeals Comparative Ads Comparative Ads Fear Appeals Fear Appeals Comparative Ads Comparative Ads Message Appeal Options Humor Appeals Humor Appeals May stress physical danger or threats to health May identify social threats: disapproval or rejection May backfire if the level of threat is too high May stress physical danger or threats to health May identify social threats: disapproval or rejection May backfire if the level of threat is too high May be especially useful for new brands Often used for brands with small market share Frequently used in political advertising May be especially useful for new brands Often used for brands with small market share Frequently used in political advertising They can attract and hold attention They are often the best remembered They put the consumer in a positive mood They can attract and hold attention They are often the best remembered They put the consumer in a positive mood

Comparative Advertising Definition: Mentioning/showing the competitor in your ad by way of comparison (and typically how we are better) History: Early 80’s FTC lifts the ban on CA to enhance the provision of choice-making information to consumers. Legal issues: Advantages must be substantiated Used offensively (attack) or defensively (“fight back”) Great for newly launched products with small (or zero) market share that offer a distinct edge over the competition. The confusion aspect: Which brand was advertised???!, though consumers may remember attributes advertised.

Comparative Advertising, cont. Political ads –Negative information tends to outweigh positive information –Typically more effective to besmirch the opponent than to praise one’s self. Exception: Negative tit-for-tat exchanges (“mudslinging”) usually wind up helping neither candidate. Too much attacking results in negative perceptions of the attacking brand.

Negative Political Ads: Research Not much evidence that that negative campaigning is an effective means of winning votes. It tends to be more memorable and stimulate knowledge about the campaign. There is no reliable evidence that negative campaigning depresses voter turnout. Though it does slightly lower feelings of political efficacy, trust in government, and possibly overall public mood.

Fear Appeals Fear has facilitating effects and inhibiting effects. –Facilitation = motivation to approach/avoid something –Inhibition = discouragement from approaching/avoiding something Moderate fear appeals work best by encouraging facilitation and minimizing inhibition. –Too much fear: the audience tunes out the message Low credibility or elaboration of harmful consequences is hedonically unpleasant. –Too little fear: the audience isn’t motivated enough to do anything.

Humor Appeals: Pros and Cons

Pros and Cons of Using Humor Does not aid persuasion in general Aids attention and awareness ProsCons May harm recall and comprehension May harm complex copy registration Does not aid source credibility Is not effective in bringing about sales May wear out faster than non-humorous ads May aid retention of the message Creates a positive mood and enhances persuasion May aid name and simple copy registration May serve as a distracter, reducing counterarguing Does not aid persuasion in general Aids attention, awareness and repeat attention May harm recall and comprehension May harm complex copy registration Humor is not universal Good “universal” humor is hard to produce! May aid retention of the message Creates a positive mood and enhances persuasion May aid name and simple copy registration May serve as a distracter, reducing counterarguing Company seen as clever – carries over to products

Humor and Ad effectiveness Gelb and Zinkhan: Humor was negatively related to advertising recall Positively related to brand attitude Not directly related to purchase probability or choice behavior Any effect that humor may have on purchase probability or choice behavior appears to be mediated through brand attitude.

Current Regulatory Issues Affecting U.S. Advertisers Tobacco advertising Consumer Privacy Advertising to children

Regulatory Aspects of Advertising Areas of advertising regulation:  Deception and unfairness  Representation or omission that can mislead  Judged from perspective of consumer  Advertising to children

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 No Costumes or Props Not Available With the Toy Can ’ t Use “ Only ” or “ Just ” in Regard to Price Generally No Celebrity Endorsements No Exhortative Language, Such As “ Ask Mom to Buy” Must Not Over Glamorize Product Some TV Network Guidelines for Children ’ s Advertising

Key Regulatory Agents  Government Regulation  Federal Trade Commission (FTC)  Wide range of regulatory programs and remedies  Federal Communications Commission (FCC)  Food and Drug Administration (FDA)  Bureau of Alcohol, Tobacco, and Firearms

Federal Regulation of Advertising in North America Federal Trade Commission (FTC) Defining deception Defining unfairness Comparative advertising Investigating violations Remedies for unfair or deceptive advertising Consent decree Cease-and-desist order Corrective advertising

Key Regulatory Agents--FTC FTC Programs and Remedies  Advertising Substantiation Program  Affirmative Disclosure  Consent Order  Cease and Desist Order  Affirmative Disclosure  Corrective Advertising  Control of Celebrity Endorsements

Lanham Act  The Lanham (Trademark) Act (title 15, chapter 22 of the United States Code) is a piece of legislation that contains the federal statutes of trademark law in the United States. The Act prohibits a number of activities, including:  trademark infringement,  trademark dilution,  false advertising.

False statements have been made about advertiser ’ s product or your product 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 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 The falsely advertised products or services are sold in interstate commerce The deception was “ material ” or meaningful and is likely to influence purchasing decisions The ads actually deceived or had the tendency to deceive a substantial segment of the audience Suing a competitor under the Lanham Act Elements Required To Win a False Advertising Suit Under the Lanham Act Elements Required To Win a False Advertising Suit Under the Lanham Act

Key Regulatory Agents (con’t) Industry Self-Regulation  National Advertising Review Board (NARB)  State and Local Better Business Bureaus  Ad Agencies and Associations  Media Organizations

Sources of NAD Cases 66% 15% 5% 14% Consumer Challenges Local BBB Challenges NAD Monitoring Competitor Challenges

NAD Review 

Key Regulatory Agents (con’t) Internet Self-Regulation  No industry-wide trade association has emerged to date  Global Dialogue on Electronic Commerce (GBDe) is emerging as a governing body  Little progress has been made to address consumers’ complaints

Modeling Comparative Advertising (optional material – Prof. J. Liaukonyte’s research) OPTIONAL and not on the test!