Copyright © 2012 McGraw-Hill Companies, Inc., All right reversed McGraw-Hill/Irwin 20 Regulation of Advertising and Promotion

Advertising Controls Self Regulation State Regulation Federal Regulation 20-2

Self-Regulation of Advertising Gatekeepers Advertising industry Businesses Media Trade associations Goals Maintain consumer trust and confidence Limit government interference Protect all parties from litigation 20-3

Local, State, and Federal Regulation Local and Industry Groups Better Business Bureau (BBB) National Advertising Review Council (NARC) Distilled Spirits Council (DISCUS) American Medical Association (AMA) State and Federal Agencies Federal Trade Commission (FTC) Federal Communications Commission (FCC) Food and Drug Administration (FDA) U.S. Postal Service (USPS) 20-4

Self-Regulation by Advertisers & Agencies Protective measures Company guidelines, standards, policies Corporate attorneys Substantiating ad claims Agency-client contracts Creative review boards Specialized lawyers 20-5

Self-Regulation by Trade Associations Affected products and services Liquor & alcoholic beverages Pharmaceuticals Products for children Legal & medical services Attorneys at Law 20-6

Liquor Advertising on TV 60 million underage viewers 20-7

Liquor Advertising on TV 20-8

Self-Regulation by Businesses Better Business Bureau (BBB) Promotes fair advertising and selling practices across all industries Handles consumer complaints Supported by dues of the member firms Uses negative publicity to curb abuses BBB national investigative arms National Advertising Division (NAD) Children’s Advertising Review Unit (CARU) Electronic Retailing Self-Regulation Program (ERSP) 20-9

The National Advertising Review Council 20-10

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 20-11

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 20-12

Self-Regulation by Advertising Associations Actively Monitoring and Policing Advertising Practices American Association of Advertising Agencies American Advertising Federation Advertisers Agencies Media Advertising Clubs 20-13

Self-Regulation by Media Many magazines refused this ad 20-14

TV Network Guidelines for Children’s Ads 20-15

Appraising Self-Regulation Can be more stringent standards than those imposed by legislation Encourages truthful, ethical, responsible advertising Effective regulatory mechanism Preferable to government intervention 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 Critics 20-16

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) 20-17

Advertising and the First Amendment 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 Speech must be balanced against competing interests such as advertising of harmful products 20-18

Federal Trade Commission Three Major Divisions Consumer Protection Economics Competition Wheeler Lea Amendment (1938) Made Deceptive Practices Unlawful Created By FTC Act (1914) 20-19

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 20-20

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” 20-21

Deceptive Advertising Perspective of reasonable consumer Likelihood of misleading consumer Materiality – misrepresentation or practice is likely to affect consumers’ purchase decision 20-22

Ways the FTC Handles Deceptive Ads 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 20-23

Advertising Substantiation Weight-loss marketers must substantiate their claims 20-24

Federal Regulation by the FTC 1970’s FTC is powerful, active regulator FTC becomes less active 1980’s and 1990’s Focus on telemarketing and Internet privacy 2000 to 2009 Asks for increased powers to protect consumers against financial fraud 2010 to present 20-25

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 20-26

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 20-27

The Nutrition Labeling and Education Act Labels must be easy for consumers to understand 20-28

The U.S. Postal Service The U.S. Postal Service has control over ads that involve… Lotteries Obscenity Fraud 20-29

Bureau of Alcohol, Tobacco, and Firearms The BATF… Enforces liquor laws Develops regulations Collects taxes on liquor sales Regulates liquor advertising Imposes sanctions 20-30

Suing Competitors Under the Lanham Act Ad deceived a substantial segment of the audience Deception was “material” or meaningful and is likely to influence purchasing decisions Falsely advertised products or services are sold in interstate commerce You were, or likely will be, injured as a result of the false statements (loss of sales or loss of goodwill) False statements have been made about the advertiser’s product or your product Must be proven to win a false advertising suit 20-31

Suing Competitors 20-32

State Regulations 20-33

Regulation of Sales Promotion Cannot misrepresent their value Cannot be a lottery Rules & details must be fully disclosed Care must be taken with special audiences Contests/Sweepstakes Premiums 20-34

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 20-35

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 20-36

Protecting Consumers from Unwanted Calls Created by the FTC to allow consumers to limit the calls they receive from telemarketers Excludes 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 20-37

Internet Marketing Issues Privacy Issues Marketing to Children Unsolicited s (SPAM) 20-38

Children’s Online Privacy Protection Act Places restrictions on collecting information from children via the Internet Enacted to protect the privacy of children when they are using the Internet Privacy policies must be on home page and area where data is collected 20-39

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 20-40

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 messages Clear and conspicuous identification that the message is an advertisement A valid physical postal address for the sender 20-41