Chapter 24 Economic, Social, and Legal Effects of Advertising Kleppner’s Advertising Procedure, 18e Lane * King * Reichart

Learning Objectives_1 List three eras of advertising criticism. Identify economic arguments for and against advertising. Explain the difference between inadvertent and intentional social roles of advertising. Identify social criticisms of advertising. Explain the difference between issue-advocacy and cause-related advertising. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Learning Objectives_2 Describe the FTC’s role in advertising regulation. Discuss the components of the Central Hudson Four-Part Test. List three negative consequences of comparison advertising. Discuss the primary roles of the NARC, NARB, and the CARU in supporting advertising regulation. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

History of Advertising Criticism Era of Exaggerated Claims, 1865-1900 Era of Public Awareness, 1900-1965 Era of Social Responsibility, 1965-present Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Economic Arguments For Advertising Provides consumers with information Supports news and entertainment media, provides social benefits and employment Encourages continued product improvements Permits companies to achieve economies of scale in production Contributes to economy by increasing consumption Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Exhibit 24.2 Advertising Enables More Choices for Consumers Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Exhibit 24.3 Advertising Enhances Competition Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Economic Arguments Against Advertising Intent of advertising is to persuade, not inform Advertising mostly creates switching behavior rather than new consumption Advertising may emphasize emotion over price competition High rate of expenditures makes it difficult for new products to enter market Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Social Role of Advertising Inadvertent Social Role: Social Agenda Overt Social Role: Social Change Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Exhibit 24.4 Social Causes Promoted with Advertising Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Social Criticisms of Advertising Privacy Concerns Product Placement Influence on Obesity Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Social Criticisms Ad content Product categories Excess Societal influence Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Exhibit 24.7 The Ad Council Addresses Many Social Issues Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Cause-Related Marketing The Home Depot Foundation supports non-profit organizations. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Tactical Categories of CRM Transactional programs Message promotions Licensing programs Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Exhibit 24.9 Causes That Matter Most to Global Consumers Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Advertising Influence on Editorial Decisions Withholding advertising as an attempt to control editorial decisions Advertiser-financed productions Product placement Advertorials Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Constraints on Advertising Laws and regulations of legally constituted bodies such as Congress and the Federal Trade Commission Control by media through guidelines for advertising acceptability Self-regulation by advertising agencies using various trade practice recommendations and codes of conduct Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Federal Trade Commission Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Determining Deception in Advertising There must be representation, omission, or practice likely to mislead consumers. The act or practice must be considered from the perspective of a reasonable consumer. The representation, omission, or practice must be material. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Steps in FTC Enforcement_1 A claim of deceptive practices is given to the FTC. The FTC begins investigation with a request for substantiation. If the FTC finds the practice to be unsubstantiated, a complaint is issued. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Steps in FTC Enforcement_2 If advertiser refuses to sign consent decree, a cease and desist order is issued. FTC may request that the advertiser run corrective advertisements. If a company cannot reach an agreement with the FTC, it will move to the Federal Court of Appeals. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Common Areas of FTC Inquiry Environmental Claims “Free” Claims Made in the USA Claims Advertising as a Contract Testimonials Fact vs Puffery Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

The Robinson-Patman Act and Cooperative Advertising 1890 Federal Sherman Antitrust Act 1914 Clayton Antitrust Act 1936 Robinson-Patman Act Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Responsibilities of the FDA Extending control to cosmetics/therapeutic devices Requiring new drugs to be shown safe Providing safe tolerances be set for unavoidable poisonous substances Authorizing standards of identity, quality, and fill-of-container for foods Authorizing factory inspections Adding the remedy of court injunctions Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Exhibit 24.14 Pharmaceutical Marketers Invest Billions in Advertising Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Central Hudson Four-Part Test Is the commercial expression eligible for First Amendment protection? Is the government interest asserted in regulating the expression substantial? If the first two tests are met, the Court considers if the regulation of advertising imposed advances the cause asserted. If met, the Court must decide if the regulation is more extensive than necessary to serve the government’s interest. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Major Provisions of the CAN-SPAM Act It bans false or misleading header information. It prohibits deceptive subject lines. It requires that your e-mail give recipients an opt-out method. It requires that commercial e-mail be identified as an advertisement and include the sender’s valid physical postal address. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Legal Principles Concerning Corporate Speech Spending money to speak does not result in loss of First Amendment rights. Speaking on commercial subjects does not entail loss of First Amendment rights. Speaking for economic interests does not entail loss of First Amendment rights. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Problems Cited for Comparison Advertising Risk of promoting competitive brands. May appear unfair to consumers and damage reputation of brand using it. May precipitate lawsuits by companies who feel their brands were unfairly disparaged. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Advertising Clearance Process The advertising clearance process refers to the internal process of clearing ads for publication and broadcast, conducted primarily by ad agencies and clients. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

The AAF Promotes Truth in Advertising Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

The BBB Promotes Self-Regulation Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Exhibit 24.21 The NARC Review Process Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

NAD’s Primary Challenges Product Testing Pricing Consumer Perception Testimonial Evidences Taste/ Sensory Claims Demonstrations Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

The Children’s Advertising Unit of the NAD Product presentations and claims Sales pressure Disclosures and disclaimers Comparative claims Endorsements and promotions Premiums, sweepstakes Safety Interactive media Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

For Discussion What are the arguments for advertising? What are those against? What is the role of the Advertising Council in encouraging social advertising? Why is substantiation the foundation of FTC enforcement? Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall