Regulations and Ethical Concerns Chapter 14 Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 14-1

Chapter Objectives 1.What legal restrictions apply to marketing communications? 2.Which governmental agency is most responsible for enforcing laws regarding IMC programs? 3.What enforcement tactics can be used to make organizations comply with marketing communications laws? 4.Are the major complaints about unethical marketing activities fair charges? 5.How should the concepts of ethics, morals, and social responsibility apply to marketing communications programs? Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 14-2

A Salty Situation Humans need sodium Concern about sodium content of foods Health concerns about sodium Food industry slow to respond Salt provides flavor Salt preserves food Fast-foods and restaurants Consume more than 3,000 milligrams/day Low salt foods Lays Campbell’s Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 14-3

Chapter Overview Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall Legal environment Marketing communication regulations Federal Trade Commission Industry oversight of marketing Ethics and social responsibility Ethical concerns Responding to ethical challenges Social responsibility 14-4

Regulatory Agencies Federal Trade Commission (FTC) Food & Drug Administration (FDA) Federal Communications Commission (FCC) US Postal Service (USPS) Bureau of Alcohol, Tobacco, and Firearms (ATF) Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 14-5

Federal Trade Commission (FTC) Created in 1914 by passage of Federal Trade Commission Act. Original intent was to enforce anti-trust laws. FTC authority expanded in 1938 with Wheeler-Lea Amendment. Given power to  Stop unfair and deceptive advertising practices  Levy fines Granted FTC access to courts to enforce their decisions. Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 14-6

Unfair and Deceptive Marketing Practices An advertisement or communication is deceptive or misleading if:  A substantial number of people or typical person is left with false impression or misrepresentation.  The misrepresentation induces people or the typical person to make a purchase. Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 14-7

Deception versus Puffery Puffery  An exaggerated statement  Not factual statement Claim is a factual statement Puffery statements include  Best, greatest, and finest  Better – puffery or claim? Papa John’s – “Better ingredients, better pizza” Hunt’s – “Only the best tomatoes grow up to be Hunt’s” Progresso – “Discover the better taste of Progresso” Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 14-8

Substantiation of Claims Claim or promise must be substantiated Endorser must be truthful Must represent endorser’s personal experience or opinion Expert endorsement must be based on legitimate tests Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 14-9

Substantiation of Claims Principles Used by FTC and Courts Consumers read ads broadly Evidence must be for actual product Evidence from accepted experts FTC and courts will consider totality of evidence Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 14-10

Consumers Businesses Congress Media FTC Investigations Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 14-11

FTC Actions 1.Consent order  Company agrees to stop, but does not admit guilt 2.Administrative complaint  Filed if no consent order agreement  Formal proceeding  Administrative judge  Both sides submit evidence  Cease and desist order Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 14-12

FTC Actions (Continued) 1.Consent order  Administrative complaint 2.Cease and desist order 3.Full Commission 4.U.S. Court of Appeals 5.U.S. Supreme Court Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 14-13

FTC Alternative Actions Court system to stop unfair and deceptive practices  Company violates a cease and desist order  Actions of company so severe immediate action is needed Other legal entities, such as state/federal attorney generals Corrective advertising  Used rarely  Used when discontinuing false ads is not enough Trade regulation rulings  Applies to entire industry  Holds public hearing  Accepts both oral and written arguments Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 14-14

Industry Regulations Council of Better Business Bureau  Bureau keeps record of complaints  Provide summary report on companies Agencies of the CBBB  National Advertising Division (NAD)  National Advertising Review Board (NARB)  Children’s Advertising Review Unit (CARU) Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 14-15

National Advertising Division (NAD) Receives complaints Role is to investigate validity of complaint Collects information and evaluates  If guilty, requests discontinuation of ad  No legal authority Most companies abide by ruling Hears cases a year Rulings  Ad not fully substantiated – 50% to 60%  Ad fully substantiated - less than 5% Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 14-16

National Advertising Review Board (NARB) Appeal from NAD or not resolved Advertising professionals and civic leaders Order similar to “Consent Order” of FTC Appeals or refusals to accept go to FTC Business-to-business disputes common Only 4 referrals to FTC in last 25 years Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 14-17

Children’s Advertising Review Unit (CARU) Cases involving children 12 and under Online privacy practices of Web sites Operates similar to the NAD Prescreens ads directed to children (2005) Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 14-18

Advantages of Industry Regulations Lower cost. Faster resolution. Heard by attorneys and business professionals with experience in advertising. Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 14-19

Ethics and Social Responsibility Morals – beliefs or principles individuals hold about what is right and wrong. Ethics – moral principles that serve as guidelines for individuals and organizations. Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 14-20

Concerns and Criticisms of Marketing 1.Cause people to buy more than they can afford. 2.Overemphasizes materialism 3.Increases the costs of goods and services. 4.Perpetuates stereotypes 5.Make unsafe products, such as alcohol and tobacco, seem attractive. 6.Often offensive. 7.Advertising to children is unethical. Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 14-21

Ethical Issues in Marketing  Brand infringement  Medical marketing  Gifts and bribery  Spamming and cookies Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 14-22

Responding to Ethical Challenges Hedonism Homeostasis Law Religion Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 14-23

Ethical Frameworks Utilitarianism Individualism Rights approach Justice approach Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 14-24

Models of Social Responsibility Invisible hand of the marketplace Government duty Ethical or enlightened management Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 14-25

Ethics Programs Ethics training programs Codes of ethics Ethics consulting systems  Ethical hotlines  Whistle-blower Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 14-26

International Implications Legal systems vary Common law Civil law Theocratic law Ethics and moral Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 14-27