1. & Advertising Society nEconomics l The effects of advertising on our economy n Ethics l The effects of advertising on our society n Regulation l Our attempts to manage those effects

2. Power or Information? Market Power lAdvertising lPersuades consumer to purchase one brand over another more often l Excess brand profits l Higher barriers to entry and more market power l More advertising leads to greater brand loyalty l Reduce quality/raise price l Reduced consumer sovereignty l Monopoly Market Information l Advertising lIncreased consumer knowledge l More substitute products consumers can consider l Lower barriers to entry by new brands l Reduced market power for any individual brand l Better pricing/distribution more product innovation l Optimal brand profits, consumer choice, and price benefits

3. What do you think? n Advertising = Market Power n Advertising = Market Information n Or both?

4. Some Economic Questions: n How does advertising affect the price of a new car? n How does advertising affect the price of a latté from Starbucks? n How does advertising affect the way that you spend your money?

5. Some Economic Questions: n Can ads make people buy things they don’t want or need? n Can ads make people more materialistic? n Are the benefits of advertising worth the annoyance?

6. n Ads destroy freedom of choice n Ads give consumers more choices An Ethical Debate nAds simply reflect the “real world” n Ads = freedom of speech nAds destroy democracy/media nAdvertising warps social values

7. 3 Ethical Issues: 1) Advocacy l What does the advertising advocate? 2) Accuracy l How accurate is the advertising? l Some of this depends on susceptibility of the audience (i.e., kids). 3) Acquisitiveness lWhat is the overall effect? lDoes it make us more materialistic?

8. 5 Controversial Issues: 1) Puffery"Nothing beats a Bud” 2) DecencySexual innuendo, violence 3) StereotypingPortrayals of housewives, seniors, racial groups 4) ChildrenViolence, dangerous acts, unhealthy habits 5) ControversyCondoms, alcohol, fashion

9. Regulation - 2 Main Purposes Regulation - 3 Main Areas n Purpose for advertising regulation l To protect competition l To protect consumers from economic or physical harm n Regulations are concerned with l Deceptive or unfair content l How advertising is delivered l Protection of susceptible groups (kids, etc.)

10. 5 FTC Concerns: 1) Deception Must lead to material injury. 2) ComparisonsMust substantiate with statistically significant data. 3) EndorsementsMust be qualified; must use product. 4) Demonstrations Must be accurately depicted. 5) “Bait & Switch”Product must be available.

11. 4 Possible Remedies for Deceptive Ads: 1) Consent Decree 2) Cease & Desist 4) Consumer RedressFTC mandates reimbursement. FTC asks advertiser to stop. FTC mandates new ads to correct false perceptions. 3) Corrective Ads FTC gets court order to force advertiser to stop.

12. 6 Government Regulatory Groups: 1) FDA Packaging and labeling 2) FCCBroadcast advertising 3) Postal ServiceMagazines, direct mail 4) ATFLiquor labeling, advertising 5) Patent OfficeTrademarks 6) Library of Congress Copyrights

13. 2 Industry Watchdogs 1) NAD (National Advertising Division) - Part of Better Business Bureau 2) National Advertising Review Board - Represents advertisers and agencies - A division of the NAD n Compliance is strictly voluntary

14. Big Questions n What do you think is the biggest benefit of advertising? n What do you think is the biggest problem with advertising? n What do you think is the best example of bad advertising? n What do you think is the best example of good advertising?