chapter 02 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. The Economic, Social and Regulatory Aspects of Advertising

2-3 Chapter 2 Objectives Discuss the impact of advertising on the economy Debate the validity of the various social criticisms of advertising Describe how government agencies regulate advertising to protect both consumers and competitors Explain the difference between social responsibility and ethics in advertising Discuss the activities of nongovernment organizations in fighting fraudulent and deceptive advertising

2-4 Controversies EconomicSocietal affect product value? make us more materialistic? increase prices? discourage competition? affect demand? make us buy things we don’t need? debase language? affect art? affect us subliminally? influence consumer choice? Does advertising...

2-5 Economic Impact: Principles Self-interest Complete information Absence of externalities Many buyers & sellers

2-6 Economic Impact: Per Capita Ad Spending

2-7 Economic Impact: Billiards Model

2-8 Economic Impact: Four Affected Areas Product Value -Communicates brand image -Educates customers -Associates w/ desirable image

2-9 Economic Impact: Four Affected Areas Product Value Prices & Competition -Communicates brand image -Educates customers -Associates with desirable image Increase: -Branding -Ad costs Decrease: -Competition -Efficiency

2-10 Economic Impact: Four Affected Areas Product Value Prices & Competition Consumer Demand -Communicates brand image -Educates customers -Associates with desirable image Increase: -Branding -Ad costs Decrease: -Competition -Efficiency Primary: -Product Category Secondary: -Particular Brand

2-11 Economic Impact: Four Affected Areas Product Value Prices & Competition Consumer Demand Consumer Choice -Communicates brand image -Educates customers -Associates with desirable image Increase: -Branding -Ad costs Decrease: -Competition -Efficiency Primary: -Product Category Secondary: -Particular Brand Product differentiation

2-12 Economic Impact: Abundance Principle In an economy that produces more goods & services than can be consumed, advertising: Self-interest Complete information Absence of externalities Many buyers & sellers Allows more- effective competition Stimulates competition Keeps consumers informed Self- regulates to keep market free & open

2-13 Social Impact: Two Types of Criticism Short-term manipulative arguments Deception: puffery, nonproduct facts, bias, inaccuracy ProliferationStereotypingOffensive Social impactImpacts values Long-term macro arguments Subliminal myth

2-14 Average person views 500 to 1000 commercial messages per day The more ads a consumer views, the less effective each one is More media choices equals more exposure to ads FCC has considered commercial time limits on TV The Proliferation of Advertising

2-15 Offensive Advertising Tobacco Controversy Consumer Privacy Supreme Court: “speech” or “commercial speech” Advertising to Children

2-16 Public service announcement from The U.S. Department of Health & Human Services Social Responsibility and Ethics

2-17 Social Responsibility and Ethics Promote well-being Promote harmony & stability Influence elections Draw crowds to events Responsible advertising can... Ethical: morally right Socially Responsible: what society views as best

2-18 Leclerc addresses the issue of pollution Social Responsibility and Ethics

2-19 Current U.S. Regulatory Issues Tobacco Controversy Consumer Privacy Supreme Court: “speech” or “commercial speech” Advertising to Children

2-20 Federal Regulation: Agencies Nutritional Labeling & Education Act (NLEA) Broadcast media licensing Deceptive, unfair, & comparative ads FCCFTCFDA Intellectual property Patent & Trademark Office Copyrights “works of authorship” Library of Congress

2-21 Federal Regulation: FDA Disclosure This ad for Revolution, a topical parasiticide for dogs and cats, has a long disclosure

2-22 State & Local Regulation Different states have different regulations governing advertising Local govt. regulation: city & county consumer protection agencies National marketers comply with states’ laws

2-23 Nongovernment Regulation  Better Business Bureau (BBB)  National Advertising Review Council (NARC)  National Advertising Division (NAD)  National Advertising Review Board (NARB)  Regulation by the media  Regulation by consumer groups

2-24 Self-Regulation: Agencies & Associations Research and verify claims & comparative data before use Liable for misleading or fraudulent claims American Association of Advertising Agencies (AAAA) Agency Responsibilities Industry-Wide Associations Some maintain in-house legal counsel American Advertising Federation (AAF) Association of National Advertisers (ANA)

2-25 Self-Regulation: AAF Principles Insert ex. 3-6, p. 93, AAF Advertising Principles Position = 0.4” horizontal, 1.5” vertical Size = 8.2” WIDE Resolution = 300 dpi

2-26 Government Restraints on International Advertisers  Foreign governments often regulate advertising more strictly than in the United States  Some governments ban specific products  Many countries prohibit puffery  Many European countries ban coupons, premiums and free tie-ins  Across Europe, paid product placements in television programs are typically prohibited