Overview of Economic, Social, & Regulatory Aspects of Advertising SBM 338 Lanny Wilke

What is Advertising? “The structured and composed nonpersonal communication of information, usually paid for and usually persuasive in nature, about products (goods, services, and ideas) by identified sponsors through various media” –Arens & Schaefer (2007)

In English… A structured form of communication employing both verbal and nonverbal elements that are composed to fill specific space and time formats Typically directed toward groups of people (mass communication). Most is paid for by sponsors. Usually persuasive. Identifies the sponsor. Reaches us through a channel of communication.

The Role of Advertising in Business Part of the marketing process. The only business function whose primary role is to bring in revenue.

What is Marketing? “an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders.” -Arens & Schaefer (2007)

Advertising and the Marketing Process DAGMAR Awareness Comprehension Conviction action

Free Market Economics & Advertising Self-Interest Complete Information Many buyers and sellers Absence of externalities (social costs)

Functions & Effects of Advertising in a Free Economy Seven functions of advertising To identify products and differentiate them from others. To communicate information about the product, its features, and its place of sale. To induce consumers to try new products and to suggest reuse.

Seven functions of advertising (contd) To stimulate the distribution of the product. To increase product use. To build value, brand preference, and loyalty. To lower the overall cost of sales.

The Evolution of Advertising as an Economic Tool The Preindustrial Age The Industrializing Age The Industrial Age The Postindustrial Age The Interactive Age

Controversies About Advertising Public criticism Advertising’s effect on prices Promote or discourage competition? Affect on overall consumer demand. Effects on consumer choice and the overall business cycle Societal effects More materialistic? Forces us to buy things we don’t need? Reach us subliminally? Debase our language?

The Economic Impact of Advertising Effect on the Value of Products Effect on Prices Effect on Competition Effect on Consumer Demand

The Economic Impact of Advertising (Cont’d) Effect on Consumer Choice Effect on the Business Cycle The Abundance Principle

The Social Impact of Advertising Deception in Advertising The Subliminal Advertising Myth The Effect of Advertising on Our Value System

The Social Impact of Advertising (Cont’d) The Proliferation of Advertising The Use of Stereotypes in Advertising Offensiveness in Advertising

Social Responsibility & Advertising Ethics Advertisers’ Social Responsibility Ethics of Advertising

Current Regulatory Issues Affecting U.S. Advertisers Freedom of Commercial Speech The Tobacco Advertising Controversy The Issue of Advertising to Children Consumer Privacy

Federal Regulation of Advertising in North America The U.S. Federal Trade Commission Defining Deception Defining Unfairness Comparative Advertising Investigating Suspected Violations Remedies for Unfair or Deceptive Advertising

Federal Regulation of Advertising in North America (Cont’d) The Food and Drug Administration (FDA) The food we eat is safe The cosmetics we (NO, NOT ME) use won’t hurt us The medicines and therapeutic devices we buy are safe and effective.

Federal Regulation of Advertising in North America (Cont’d) The Federal Communications Commission (FCC) Jurisdiction over radio, television, telephone, satellite and cable TV, and the Internet Responsible for protecting the public interest and encouraging competition

Federal Regulation of Advertising in North America (Cont’d) The Patent and Trademark Office and the Library of Congress Registers and protects intellectual property. Patents Trademarks Copyrights

State and Local Regulation By State Governments By Local Governments

Non-government Regulation The Better Business Bureau (BBB) The National Advertising Review Council (NARC) Regulation by the Media Television Radio Magazines Newspapers

Non-government Regulation (Cont’d) Regulation by Consumer Groups Self-Regulation by Advertisers and Ad Agencies

Government Restraints on International Advertisers Some foreign governments are more authoritarian Some restrict or ban ads for specific products Many countries prohibit puffery Many European countries ban coupons, premiums, free tie-in offers, etc. In Europe, TV ads must be kept completely separate from the programs and be clearly recognizable as such.

Our next topic… Marketing Objectives