McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 3 The Big Picture: Economic and Regulatory Aspects

3-2 Chapter Overview Identifies and explains economic, social, ethical, and legal issues advertisers must consider

3-3 Chapter Objectives Classify two types of social criticisms of advertising Use economic model to discuss advertising effects on society Explain social responsibility and ethics Understand how governments regulate advertising Discuss court rulings that affect freedom of speech Describe how federal agencies protect consumers, competitors Define regulatory roles of state/local government Discuss how other agencies fight fraudulent and deceptive ads

3-4 Advertising Controversies Affect product value? Encourage materialism? Affect us subliminally? Promote or discourage competition? Affect demand? Cause higher or lower prices? Debase language? Affect art and culture? Make us buy things we don’t need? Influence choices? Does advertising...

3-5 Free Market Economic Principles Self- interest Many buyers & sellers Complete information Absence of externalities

3-6 Economic Impact: Global There is a positive relationship between advertising expenditures and personal wealth

3-7 Economic Impact: Billiards Model

3-8 Economic Impact: Affected Areas Product Value Implies quality Enhances image Educates consumers Prices & Competition Ads paid for by consumer Promotes mass production Price drop or support

3-9 Consumer Choice Encourages unique products, services New, better brands dominate Wider choices for consumers Consumer Demand Primary Product category Secondary Particular brand Economic Impact: Affected Areas

3-10 Abundance Principle In an economy that produces more goods & services than can be consumed, advertising: Keeps consumers informed about alternatives (complete information) Allows companies to compete more effectively (self-interest)

3-11 Social Impact: Criticisms Short-term Manipulative Arguments Deception Unfair Practices Puffery False promises Incomplete descriptions False comparisons Bait-and-switch Visual distortions False demonstrations False testimonials Partial disclosure Small-print qualifications

3-12 Social Impact: Criticisms Stereotyping ProliferationSocial impact Offensive Long-term Macro Arguments Debase Language Materialism

3-13 An Example of Puffery Claiming a Yamaha outboard actually leave a trail in storm- lashed waters is legal because it is unbelievable

3-14 Social Responsibility and Ethics An advertiser can act unethically or irresponsibly… without breaking any laws!

3-15 Social Responsibility and Ethics Promote well-being Promote harmony, stability Influence elections Draw crowds to events Responsible advertising can... Ethical = morally right Socially Responsible = society views as best

3-16 Social Responsibility and Ethics Public service announcement from the Ad Council about Multiple Sclerosis

3-17 Interrelated Components of Ethics Traditional actions of people in a society or community Philosophical rules society sets to justify past or future actions Attitudes, feelings, and beliefs of personal value system

3-18 Levels of Ethical Responsibility

3-19 How Government Regulates State Governor, attorney general, various departments Municipal Mayor, city manager, police chief, courts, city attorney National Legislative, executive, judiciary

3-20 Pitfalls of International Regulation Varies from country to country Restrictions on what is said, shown, done Bans on specific products Time slot restrictions Bans on coupons, premiums, tie-in offers Prohibition of paid placements in shows Arbitrary rulings Pre-approval requirements

3-21 Current U.S. Regulatory Issues Supreme Court: “speech” or “commercial speech” Tobacco Controversy Advertising to Children Consumer Privacy

3-22 Speech: Central Hudson Test Does the commercial speech at issue concern a lawful activity? Will the restriction of commercial speech serve the asserted government interest substantially? Does the regulation directly advance the government interest asserted? Is the restriction no more than necessary to further the interest asserted?

3-23 Federal Regulation: Agencies FTC Deceptive, unfair, comparative ads FDAFCC Patent & Trademark Office Library of Congress Nutritional Labeling & Education Act (NLEA) Broadcast media licensing Intellectual property Copyrights “works of authorship”

3-24 Federal Regulation: Trademarks Coca-Cola’s trademark look is retained through use of similar letterforms and style, even with different alphabets

3-25 State & Local Regulation Printer’s Ink guidelines: untrue, deceptive, misleading National marketers comply with states’ laws Local govt. regulation: city and county consumer protection agencies “Little FTC” consumer protection acts

3-26 Nongovernment Regulation o Better Business Bureau (BBB) o National Advertising Review Council (NARC) o National Advertising Division (NAD) o National Advertising Review Board (NARB) o Regulation by the media o Regulation by consumer groups o Self-regulation

3-27 Self-Regulation: Agencies & Associations Advertising Agencies Research and verify claims & comparative data before use Liable for misleading/fraudulent claims May use in-house legal counsel Industry-Wide Associations American Association of Advertising Agencies (AAAA) American Advertising Federation (AAF) Assoc. of National Advertisers (ANA)

3-28 Self-Regulation: AAF Principles