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

Advertising is Regulated Through… Self Regulation Federal Regulation State Regulation

Direct Mail Under Attack

Many Ads Are Review by Law Firms

Self-Regulation of Advertising Advertisers and Agencies Industry Trade Associations Industry Trade Associations Media Business (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

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

Mission of the ERSP 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 enhance consumer confidence in electronic retailing

TV Network Guidelines for Children’s AdsAds 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 standards than those imposed by legislation Encourages truthful, ethical and responsible advertising Effective regulatory mechanism Preferable to government intervention 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 Perspective Of Critics Perspective Of 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) Food and Drug Administration (FDA) U.S. Postal Service Bureau of Alcohol Tobacco, and Firearms Federal Trade Commission (FTC)

Advertising and the First Amendment Speech promoting a commercial transaction is protected but must be truthful Speech promoting a commercial transaction is protected but must be truthful Freedom of speech or expression is the most basic federal law that governs advertising and promotion Freedom of speech or expression is the most basic federal law that governs advertising and promotion Speech must be balanced against competing interests such as advertising of harmful products Speech must be balanced against competing interests such as advertising of harmful products

Federal Trade Commission Three Major Divisions Consumer Protection Economics Competition Consumer Protection Economics Competition Wheeler Lea Amendment (1938) Made Deceptive Practices Unlawful Created By FTC Act (1914)

The Concept of Unfairness Could not reasonably be avoided by consumers Causes substantial physical or economic injury to consumers Must not be outweighed by countervailing benefits to consumers or competition

Deceptive Advertising: Key Elements Perspective of reasonable 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

PufferyPuffery: Some ExamplesSomeExamples 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 AdsAds Affirmative Disclosure Affirmative Disclosure Advertising Substantiation Advertising Substantiation FTC Programs to Prevent Deceptive Advertising FTC Programs to Prevent Deceptive Advertising Cease and Desist Orders Cease and Desist Orders Corrective Advertising Corrective Advertising 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’s FTC is powerful, active regulator Improvements Act passed 1980 FTC becomes less active 1980’s and 1990’s Focused on enforcing existing regs 2000 to present

Additional Federal Regulatory Agencies The Federal Communications Commission The Food and Drug Administration The U.S. Postal Service Bureau of Alcohol, Tobacco, and Firearms 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… Lotteries Obscenity Fraud

Bureau of Alcohol, Tobacco, and Firearms The BATF… Enforces liquor laws Develops regulations Collects taxes on liquor sales Regulates liquor advertising Imposes sanctions

Suing Competitors Under the Lanham Act 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 False statements have been made about advertiser’s product or your product Elements Required To Win a False Advertising Suit Under the Lanham Act Elements Required To Win a False Advertising Suit Under 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.

Regulation of Sales Promotion Cannot misrepresent their value Cannot require purchase to enter Rules and details must be disclosed to consumers Care must be taken with special audiences, like children Contests and Sweepstakes Premiums

Regulation of Trade Allowances Must not violate any stipulations of the Robinson-Patman Act Co-op funds must be equal and non-discriminatory Trade 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… FTC and US Postal Service police direct-response advertising closely 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 s (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 collecting information from children via the Internet Places restrictions on collecting information from children via the Internet Enacted to protect the privacy of children when they are using the Internet Enacted to protect the privacy of children when they are using the Internet Privacy policies must be posted on home pages and area where information is collected Privacy policies must be posted on home pages and area where information is collected