2 Chapter Overview Legal environment Ethics and social responsibility Marketing communication regulationsFederal Trade CommissionIndustry oversight of marketingEthics and social responsibilityEthical concernsResponding to ethical challengesSocial responsibility
3 Intent Protect companies from each other Protect consumers Market accessPredatory practicesProtect consumersMisleading promotionsDeceptive packagingProduct safetyProtect societyEnvironment, corporate citizenship
4 Regulatory Agencies Federal Trade Commission (FTC) Food & Drug Administration (FDA)Federal Communications Commission (FCC)US Postal Service (USPS)Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATFE)
5 Federal Trade Commission (FTC) Created in 1914Originally to enforce anti-trust laws.Authority expanded with Wheeler-Lea Amendment in 1938.Given power toStop unfair and deceptive advertising practicesLevy finesUse courts to enforce their decisions.
6 Unfair and Deceptive Marketing Practices An advertisement or communication is deceptive or misleading if:A substantial number of people or typical person is left with false impression or misrepresentation.The misrepresentation induces people or the typical person to make a purchase.
7 Deception versus Puffery An exaggerated statementNot factual statement -- Examples:Best, greatest, and finestBetter – puffery or claim?Papa John’s – “Better ingredients, better pizza”Hunt’s – “Only the best tomatoes grow up to be Hunt’s”Progresso – “Discover the better taste of Progresso”Claim is a factual statement
8 Substantiation of Claims Claim or promise must be substantiatedEndorser must be truthfulMust represent endorser’s personal experience or opinionExpert endorsement must be based on legitimate tests
9 Substantiation of Claims Principles Used by FTC and Courts Consumers read ads broadlyEvidence must be for actual productEvidence from accepted expertsFTC and courts will consider totality of evidence
10 FTC InvestigationsInvestigation can be instigated by many stakeholdersConsumersBusinessesCongressMedia
11 FTC Actions Consent order Administrative complaint Company agrees to stop, but does not admit guiltAdministrative complaintFiled if no consent order agreementFormal proceedingAdministrative judgeBoth sides submit evidenceCease and desist order
12 FTC Actions 2 Hearing before Commission U.S. Court of Appeals U.S. Supreme Court
13 FTC Alternatives Courts Corrective advertising Company violates a cease and desist orderActions of company so severe immediate action is neededCorrective advertisingUsed rarelyUsed when discontinuing ads is not enoughTrade regulation rulingsApplies to entire industryHolds public hearingAccepts both oral and written arguments
14 Industry (self) Regulation Council of Better Business BureauBureau keeps record of complaintsProvide summary report on companiesAgencies of the CBBBNational Advertising Division (NAD)National Advertising Review Board (NARB)Children’s Advertising Review Unit (CARU)
15 National Advertising Division (NAD) Industry (self) RegulationNational Advertising Division (NAD)Receives complaints, investigates validityIf guilty, requests discontinuation of adNo legal authority95% of companies abide by rulingHears cases a yearRulingsAd not fully substantiated – 50% to 60%Ad fully substantiated - less than 5%
16 National Advertising Review Board (NARB) Industry (self) RegulationNational Advertising Review Board (NARB)Appeal from NAD or not resolvedAdvertising professionals and civic leadersOrder similar to “Consent Order” of FTCAppeals/refusals go to FTCOnly 4 referrals to FTC in last 25 years
17 Children’s Advertising Review Unit Industry (self) RegulationChildren’s Advertising Review UnitCARUChildren 12 and underOnline privacy practices of Web sitesOperates similar to the NADPrescreens ads directed to children (2005)14-17
18 CARU Guidelines for Advertising to Children Ads for toys should not create unreasonable expectation. Toys should look and act as they would if a child was playing with it.Ads should not blur between fantasy and reality.Ads should have clear and visible disclosures about what items come with a toy and what do not.Items that require adult supervision must be shown with adults supervising the child.Products and ad content should be appropriate for children.The CARU has issued some guidelines for advertising to children. These guidelines are based on the concept that children cannot reason as adults and therefore advertisers need to be careful about what they say. It is easy to blur fantasy and reality in an ad, but a child normally cannot see the distinction.Fig. 14-4Source: Adopted from Wayne Keeley, “Toys and the Truth,” Playthings, Vol. 106, No. 2 (February 2008), p. 8.
19 Advantages of Industry Regulations Lower cost.Faster resolution.Heard by attorneys and business professionals with experience in advertising.Not bound by law
20 Ethics and Social Responsibility Morals – beliefs or principles individuals hold about what is right and wrong.Ethics – moral principles that serve as guidelines for individuals and organizations.
21 Concerns and Criticisms of Marketing Cause people to buy more than they can afford.Overemphasizes materialismIncreases the costs of goods and services.Perpetuates stereotypesMake unsafe products, such as alcohol and tobacco, seem attractive.Often offensive.Advertising to children is unethical.
22 Ethical Issues in Marketing Brand infringementMedical marketingGifts and briberySpamming and cookies
23 Ethical Issues in Marketing Stereotypes men, women, and minoritiesIs segmentation the same as stereotyping?Era of political correctness- Unethical, bad business or reality?
24 Models of Social Responsibility Invisible hand of the marketplaceGovernment dutyEthical or enlightened management
25 Deception versus Puffery Ad making a claim.Ad using puffery?14-25
26 To substantiate its claim that Kleenex is softer the company conducted touch tests involving consumers.Substantiating that Kleenex is “made with 24% more cottony, soft fiber,” as the ad claims, would require some type of lab test.14-26