Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Chapter 20 Regulation of Advertising and Promotion

Advertising Controls Self Regulation State Regulation Federal Regulation

Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Regulation and Control of Advertising  Regulatory concerns  Nature and content of the ad  Potential of the ad to offend, exploit, mislead, and/or deceive consumers  Self regulation: Voluntary internal regulation practiced and promoted within an industry 3

Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Self-Regulation by Trade Associations  Industries prone to controversy develop their own advertising guidelines  Many professions maintain guidelines through local, state, and national organizations 4

Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Self-Regulation by Businesses  Better Business Bureau (BBB): Promotes fair advertising and selling practices across industries at the local level  Council of Better Business Bureaus: Provide effective control over advertising practices at the national level 5

Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Advertising Self-Regulatory Council (ASRC)  Earlier known as the National Advertising Review Council (NARC)  Mission - To sustain high standards of truth and accuracy in national advertising  Advertising Accountability Program - Regulates online behavioral advertising (OBA) across the Internet 6

Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. National Advertising Division of the Council of Better Business Bureaus (NAD)  Examines product performance, superiority, scientific and technical claims  Has lawyers to scrutinize all types of media to find misleading advertisements  Helps various industries to develop effective self- regulatory programs 7

Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. National Advertising Review Board (NARB)  Appealed for additional review by advertisers who disagree with NAD’s findings  Composed of advertising professionals and prominent public interest members 8

CARU Activities General activities Review and evaluate child-directed advertising in all media Oversee online privacy issues that affect children Advise advertisers and agencies Maintain self-regulatory guidelines for children’s advertising

Mission of the ERSP Discourage advertising and marketing in the electronic retailing industry that contains unsubstantiated claims Enhance consumer confidence in electronic retailing Demonstrate a commitment to meaningful and effective self-regulation

Self-Regulation by Advertising Associations Actively Monitoring and Policing Advertising Practices American Association of Advertising Agencies American Advertising Federation Advertisers Agencies Media Advertising Clubs

Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Advertising Associations  American Association of Advertising Agencies (AAAA) - Issues guidelines for specific types of advertising  American Advertising Federation (AAF)  Has standards for truthful and responsible advertising  Involved in advertising legislation  Influences agencies to abide by its code and principles 12

Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Self-Regulation by Media Have requirements and restrictions depending on the size and nature of the publication Some test the products advertised and offer refunds if they are later found to be defective Newspapers and magazines Major TV networks have incorporated the NAB codes into their standards All commercials intended for airing on a network or an affiliate has to be reviewed Network standards change constantly Television and radio 13

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)

Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Major Divisions of the FTC Seeks to prevent business practices that restrain competition Enforces antitrust laws Bureau of Competition Provides economic analysis and support to antitrust and consumer protection investigations Analyzes the impact of government regulation on competition and consumers Bureau of Economics Protects consumers against unfair, deceptive, or fraudulent practices Investigates and litigates practices alleged to be unfair to consumers Bureau of Consumer Protection 15

Deceptive Advertising Perspective of reasonable consumer Likelihood of misleading consumer Materiality – misrepresentation or practice is likely to affect consumers’ purchase decision

Puffery Bayer – “The wonder drug that works wonders” BMW – “The ultimate driving machine” Nestlé – “The very best chocolate” Snapple – “Made from the best stuff on earth”

Ways the FTC Handles Deceptive Advertising FTC programs to prevent deceptive advertising Affirmative Disclosure Advertising Substantiation FTC programs to deal with deceptive advertising after it occurs Cease-and-Desist Orders Consent Orders Corrective Advertising

Additional Federal Regulatory Agencies Federal Communications Commission Food and Drug Administration U.S. Postal Service Bureau of Alcohol, Tobacco, and Firearms Additional federal regulatory agencies and departments that regulate advertising and promotion

Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. The Lanham Act  Prohibits any false description or representation  To win a false advertising lawsuit containing a comparative claim, one must prove that:  False statements have been made about the advertiser’s or one’s product  Ads deceived or had the tendency to deceive a substantial segment of the audience  Deception was material or meaningful and can influence purchase decisions  Falsely advertised products or services are sold in interstate commerce  One will incur loss of sales or of goodwill as a result of the false statements 20

Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. National Association of Attorneys General (NAAG)  Regulates:  Airfare advertising  Car-rental price advertising  Advertising dealing with nutrition and health claims in food ads 21

Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Regulation of Sales Promotion  Contests and sweepstakes - Marketers must ensure that:  Contest or sweepstake cannot be classified as lottery  Full disclosure of the promotion is made  Premium  Marketers should list its value as the price at which the merchandise is sold  Trade allowances  Should follow the stipulations of the Robinson-Patman Act 22

Regulation of Direct Marketing Telephone Consumer Protection Act Pay-per-call Rule FTC “Do-not-call” Registry Telemarketing faces increased regulation FTC & US Postal Service police direct-response ads closely Self-regulation occurs through various industry groups

Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Marketing on the Internet  Undisclosed profiling of consumers by web marketers is a major concern  Network Advertising Initiative (NAI)  Created by companies that collect Internet usage data  Provides self-regulatory codes  Children’s Online Privacy Protection Act (COPPA): Restricts collecting information from children via the Internet 24

Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Regulation of Social Media  Safeguarding of personal information  Guidelines for online endorsements  Online endorsers and bloggers must disclose any material connection to company or brand  Paid endorsers posting on social media and e- commerce sites  Must identify themselves as such

Anti-Spamming Legislation  CAN-SPAM Act of rules  Conspicuous notice of the right to opt-out  A functioning Internet-based mechanism that a recipient may use to opt out of future commercial e- mail messages  Clear and conspicuous identification that the message is an advertisement  A valid physical postal address for the sender