Chap21 Regulation Of Advertising And Promotion

1. Regulation of Advertising and Promotion Regulation of Advertising and Promotion 21
McGraw-Hill/Irwin© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

2. Advertising Regulation
¾Self Regulation ¾Federal Regulation ¾State Regulation
Advertising is regulated through: Advertising is regulated through:

3. Self-Regulation of Advertising
SelfSelf
--
regulation is done by regulation is done by
::
¾Advertisers and Agencies ¾Trade Associations ¾Businesses - BBB
ƒNational Advertising Review Board
¾Media
Voluntary self regulation by the advertising industry to
maintain consumer trust and confidence maintain consumer trust and confidenceand limit limit
government interference government interference

4. The NAD is an important self-regulatory body

5. Sources of NAD Cases (2001)
66%
15%
5%
14%
020406080
Consumer Challenges
Local BBB Challenges
NAD Monitoring
Competitor Challenges

6. Decisions on NAD Cases (2001)
60%
15%
7%
0
25
50
75
100
Referred to Government
Substantiated
Modified/Discontinued

7. TV Network Guidelines for Children’s
Advertising
Must not over glamorize product
No exhortative language, such as “Ask Mom to buy
No realistic war settings
Generally no celebrity endorsements
Can’t use “only” or “just” in regard to price
Show only two toys per child or maximum of six per commercial
Yes
5-sec. “island” showing product against plain background at end
Animation restricted to one-third of a commercial
Generally no comparative or superiority claims
No costumes or props not available with the toy
No child or toy can appear in animated segments
Three-second establishing shot of toy in relation to child
No shots under one second in length
Must show distance a toy can travel before stopping on its own

8. 4As Policy on Comparative Ads
1. The intent and connotation of the ad should be to
inform and never to discredit or unfairly attack
competitor, competing products, or services.
2. When a competitive product is named, it should be
one that exists in the marketplace as significant
competition.
3. The competition should be fairly and properly identified
but never in a manner or tone of voice that degrades
the competitive product or service.
4. The advertising should compare related or similar
properties or ingredients of the product, dimension to
dimension, feature to feature.
5. The identification should be for honest comparison
purposes and not simply to upgrade by association.

9. 4As Policy on Comparative Ads
6. If a competitive test is conducted, it should be done by
an objective testing source, preferably an independent
one, so that there will be no doubt as to the veracity of
the test.
7. In all cases the test should be supportive of all claims
made in the advertising that are based on the test.
8. The advertising should never use partial results or
stress insignificant differences to cause the consumer to
draw an improper conclusion.
9. The property being compared should be significant in
terms of value or usefulness of the product to the
consumer.
10. Comparatives delivered through the use of
testimonials should not imply that the testimonial
is more than one individuals thought unless that
individual represents a sample of the majority
viewpoint.

10. Appraising Self-regulation of advertising
¾Advertisers, agencies and the media
view self-regulation as an effective
mechanism and preferable to
government intervention
¾Concerns over self-regulation
ƒTime needed to resolve complaints ƒBudgeting and staffing limitations ƒLack of power or authority ƒSelf-serving to advertisers and media

11. Questioning the effectiveness of media sel
f
-
regulation of liquor advertising

12. Federal Regulation of Advertising
¾The First Amendment
ƒFreedom of speech or expression ƒCommercial speech protected
¾Federal Trade Commission Act (1914)
ƒCreated the FTC to help enforce antitrust laws
¾Wheeler-Lea Amendment of 1938
ƒAmended FTC Act to make unfair or deceptive
practices unlawful

13. Concept of Unfairness
Basis for determining unfairness Basis for determining unfairness
is that a trade practice: is that a trade practice:
1. Causes substantial physical or
economic injury to consumers
2. Could not be reasonably avoided by
consumers
3. Must not be outweighed by
countervailing benefits to consumers
or competition

14. Three key elements of deception: ¾
Likelihood of misleading consumer
¾
Perspective of reasonable consumer
¾
Materiality –
i
nformation will influence
consumer choiceDefinition of deceptive advertising by the FTC
:
“
The commission will find deception if there is a The commission will find deception if there is a
misrepresentation, omission, or practice that is likely to misrepresentation, omission, or practice that is likely to
mislead th
e consumer acting reasonably in
the circumstances
mislead th
e consumer acting reasonably in
the circumstances
to the consumer’s detriment.” to the consumer’s detriment.”

15. Puffery
Examples of puffery: Bayer –
“
The wonder drug that works wonders”
BMW
–“
The ultimate driving machine
”
Nestle
–“
The very best chocolate”
Snapple
–“
Made from the best stuff on earth”
Advertising or other sales presentations which
praise the item to be sold
with subjective opinions,
superlatives, or exaggerations, vaguely and
generally, stating no specific facts

16. FTC Programs Addressing Deceptive
Advertising
Affirmative disclosure Affirmative disclosure
¾Requires advertisers to include information in
their ads so consumers will be aware of all
consequences, conditions, and limitations
Advertising substantiation Advertising substantiation
¾Advertisers provide supporting documentation
for their claims as proof the claims are truthful
Cease and desist orders Cease and desist orders
¾Stop the claim until resolved with FTC
Corrective advertising Corrective advertising
¾Run additional advertising designed to remedy
the deception contained in previous ads

17. FTC Complaint Procedure Early Stage
Consumer
Advertiser or
commission
rejects order
Advertiser agrees
or negotiates
Case resolved
Reviewed by
commissioners
Dismissed
Proposed complaint
and consent order
written
Staff
Investigations
Dismissed
Competitor
FTC Staff
Consumer
Advertiser or
commission
rejects order
Advertiser agrees
or negotiates
Case resolved
Reviewed by
commissioners
Dismissed
Proposed complaint
and consent order
written
Staff
Investigations
Dismissed
Competitor
FTC Staff

18. FTC Complaint Procedure Late Stage
Case resolvedAdvertiser and
FTC agree
Appeals
court
Hearing before
commissioners
Dismissed
Advertiser or
FTC apeal
If substantial evidence of
violation, cease and desist
order written by ALJ
Dismissed
Hearing before
Administrative Law
Judge (ALJ)
Advertiser or
commission
rejects order
Case resolvedAdvertiser and
FTC agree
Appeals
court
Hearing before commissioners
Dismissed
Advertiser or
FTC apeal
If substantial evidence of
violation, cease and desist
order written by ALJ
Dismissed
Hearing before
Administrative Law
Judge (ALJ)
Advertiser or
commission
rejects order

19. Other Federal Agencies That Regulate
Advertising and Promotion
Federal Communications Commission Federal Communications Commission
– Jurisdiction over broadcast communications; radio,
television, telephone, and telegraph industries Food and Drug Administration Food and Drug Administration
– Authority over labeling, packaging, branding,
ingredient listing, and advertising of packaged food
and drug products
U.S. Postal Service U.S. Postal Service
– Control over advertising that uses mail and ads that
involve lotteries, obscenity, or fraud Bureau of Alcohol, Tobacco & Firearms Bureau of Alcohol, Tobacco & Firearms
– Enforces laws, develops regulations, and responsible
for tax collection for the liquor industry

20. The Lanham Act
The
Lanham Act Lanham Act
prohibits any false description or
representation including words or other symbols tending
falsely to describe or represent the same Companies/ brands that have been
involved in Lanham Act cases include: •
A
lpo and Ralston Purina dog food
•
G
illette and Wilkinson razor blades
•
P
rego and Ragu spaghetti sauce
•
D
uracell and Energizer batteries

21. Elements required to win a false advertising
lawsuit under the Lanham Act
1.False statements have been made about advertiser’s
product or your product
2.The ads actually deceived or had the tendency to
deceive a substantial segment of the audience
3.The deception was “material” or meaningful and is likely
to influence purchasing decisions
4.The falsely advertised products or services are sold in
interstate commerce
5.You have been or likely will be injured as a result of the
false statements, either by loss of sales or loss of
goodwill

22. State Regulation of Advertising
¾In addition to federal rules and regulations,
advertisers must concern themselves with
state and local laws and regulations
¾The National Association of Attorneys General (NAAG) has been involved with:
¾Airfare advertising ¾Car rental price advertising ¾Nutrition and health claims advertising

23. Regulation of other sales promotion
• Contests and sweepstakes
– Cannot be classified as a lottery – Cannot be required to give up something of value to
participate (consideration)
•Premiums
– Cannot misrepresent their value – Must take care with special audiences (kids)
•Trade Allowances
– Must be available on proportionally equal terms

24. Regulation of Direct Marketing
¾FTC and US Postal Service police direct-
response advertising closely
¾Telemarketing faces increased regulation including the:
¾Telephone Consumer Protection Act of 1991 ¾Pay-per-call rule ¾Development of “do-not-call” registry by FTC
¾Self-regulation occurs through various industry groups

25. Regulation of marketing on the Internet
Restrictions have been proposed with
regard to privacy including:
ƒBanning unsolicited email,
ƒDisclosing marketers identity,
ƒGiving consumers the right to bar
marketers from selling or sharing
personal information
ƒChildren’s Online Privacy and Protection
Act (COPPA) – places restrictions on
collecting information from children over
the internet