1. The Economic, Social, and Regulatory Aspects of Advertising
Chapter 02
McGraw-Hill/Irwin
Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Learning Objectives LO1: Describe advertising’s impact on the economy.
LO2: Examine the validity of various social criticisms of advertising.
LO3: Explain differences between social responsibility & ethics in advertising.
LO4: Describe how government agencies regulate advertising to protect both consumers & competitors.
LO5: Discuss the activities of nongovernment organizations in fighting fraudulent & deceptive advertising.
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3. Corn Flakes & Michael Phelps
Issue: Phelps was photographed engaging in an illegal activity
Some Companies rescinded sponsorships others did not.
Which companies did the right thing?
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4. Issues in Advertising Many Controversies about Advertising
Advertising is a highly visible activity.
Companies risk public criticism & attack if their advertising is offensive or the products don’t measure up.
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5. The Economic Impact of Advertising
Advertising accounts for 2% of the US’s GDP
The level of advertising investment in a country is directly proportional to its standard of living.*
Advertising sets up a chain reaction of economic events
The effect is like a break shot in billiards: hard to predict, affecting many.
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6. The Effect on the Value of Products
Advertising gives brands added value
Advertising creates associations that help consumers satisfy needs & wants
FTC/Supreme Court: Advertising increases competition & helps lower prices
Advertising can stimulate demand
Advertising doesn’t restrict competition
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7. The Effect on Prices Important points on advertising costs & pricing
Advertising is a small part of a product’s cost.
Advertising enables mass-production, which lowers the cost per unit of products.
Regulated industries see no price increase associated with advertising. When deregulated, advertising often causes lower prices.
In retail, advertising contributes to both higher & lower prices.
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8. The Effect on Consumers & Businesses
Primary Demand for a product category
Secondary Demand for a specific brand
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9. The Social Impact of Advertising
Advertising is visible & gets criticized frequently
Is advertising deceptive and/or manipulative?
Does advertising degrade our value system?
Is there too much Advertising?
Does advertising propagate stereotypes?
Is some advertising unnecessarily offensive?
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10. Social Responsibility & Advertising Ethics
Where laws and regulation end, ethics begin
Ethical Advertising means doing what the advertiser and advertiser’s peers believe is right
Social Responsibility means doing what society views as best for the welfare of the people or specific community
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11. U.S. Regulatory Advertising Issues
Freedom of Commercial Speech
Commercial speech is protected.
The Tobacco Industry
Advertising to Children
Advertising should not intentionally deceive children.
Consumer Privacy
Increased interactive advertising has made this a growing consumer concern.
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12. Federal Regulation of the Advertising Industry
Many government agencies protect consumers
FTC (Federal Trade Commission)
FCC (Federal Communications Commission)
ATF (Bureau of Alcohol, Tobacco, and Firearms)
USPS (US Postal Service)
FDA (Food & Drug Administration)
LOC (Library of Congress)
US Patent and Trademark Office
Many state & local governments also regulate
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13. State & Local Regulation of the Advertising Industry
All states have “little FTC acts”
State legislation for advertising is often based on the truth-in-advertising statute developed by Printer’s Ink.
Any maker of an ad found to contain “untrue, deceptive, or misleading” material is guilty of a misdemeanor.
Often states work together to investigate & prosecute violations
Many localities also have consumer protection agencies.
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14. Nongovernment Regulation
The Better Business Bureau (BBB)
Media Regulation
The National Advertising Review Council (NARC)
Consumer Advocate Groups
Self-Regulation
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15. International Advertising Regulation
Foreign Governments often regulate differently than the United States
Most countries are more restrictive
Different countries have different legal environments
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