chapter twoThe Economic,

Social, and Regulatory Aspects of Advertising

McGraw-Hill/IrwinEssentials of Contemporary Advertising Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

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Objectives

Discuss the impact of advertising on the economy

Debate the validity of the various social criticisms of advertising

Explain the difference between social responsibility and ethics in advertising

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Objectives

Describe how government agencies regulate advertising to protect both consumers and competitors

Discuss the activities of nongovernment organizations in fighting fraudulent and deceptive advertising

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Economic Advertising Controversies

How does advertising affect the value of products?

Does it cause higher or lower prices?

Does it promote competition or discourage it?

How does it affect consumer demand?

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Societal Advertising Controversies

Does advertising make us more materialistic?

Does it force us to buy things we don’t need?

Does it reach us subliminally in ways we can’t control?

How does it affect art and culture of our society?

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Responsibility and Control For Advertising

What is the proper role for participants in the marketing process?

How much latitude should marketers have in the products they promote and how they advertise them?

What is the proper role of government? What laws should we have to protect

consumers?

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Exhibit 2-1 Per Capita Ad Spending

A country’s level of ad

spending is typically

proportional to its

standard of living

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Exhibit 2-2 Economic Effect of Advertising

The economic effect of advertising is like the opening break shot in billards

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Economic Effects of Advertising

Value of Products Prices Competition Consumer Demand

Consumer Choice Business Cycle Abundance Principle

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Added Value

Links brand image to the product Educates consumers about product

uses Satisfies psychic and symbolic wants

and needs

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Effect on Prices

Advertising is paid for by the buying consumer

Amount spent on advertising is typically small compared to total cost of product

Advertising is part of a mass-distribution system

In industries subject to price regulation, advertising has no effect on prices

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Effect on Consumer Demand

Stimulates primary demand

Influences Selective demand

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DeceptionDeception

Subliminal AdvertisingSubliminal Advertising

Value SystemValue System

Proliferation of AdvertisingProliferation of Advertising

Use of StereotypesUse of Stereotypes

OffensivenessOffensiveness

Social Impact of Advertising

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Deception in Advertising: Puffery

Levels of Puffery

– Best– Best possible– Better– Especially good– Good– Subjective

qualities

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Social Responsibility

Doing what society views as best for the welfare of people in general or for a specific community of people

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Advertisers’ Social Responsibility

Organizations like the AAF and the AAAA provide pro bono services for charitable organizations and public agencies.

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Current Regulatory Issues

Freedom of Commercial SpeechFreedom of Commercial Speech

Tobacco AdvertisingTobacco Advertising

Advertising to ChildrenAdvertising to Children

Consumer PrivacyConsumer Privacy

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When can commercial speech be regulated?

The Central Hudson test– Does the commercial speech at issue concern a

lawful activity?– Will the restriction of commercial speech serve the

asserted government interest substantially?– Does the regulation directly advance the

government interest asserted?– Is the restriction no more than necessary to further

the interest asserted?

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The Tobacco Advertising Controversy

Are restrictions on tobacco advertising a violation of the First Amendment?

The website, www.tobacco.org, features a history of tobacco advertising

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Advertising to Children

How far must advertisers go to ensure that children are not misled by ads?

Children’s Advertising Review Unit (CARU) reviews and evaluates child-directed advertising

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CARU’s Guidelines for Advertising to Children

Consider audience maturity

Realize power of imagination

Promote child-appropriate products only

Consider advertising as a learning tool

Support parent-child relationships

Avoid stereotyping Promote positive

behavior

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Regulating Organizations

Federal Trade Commission

Food and Drug Administration

Federal Communications Commission

Patent and Trademark Office

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The Federal Trade Commission

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What is Deception?

Any ad that contains misrepresentation, omission, or any other practice that can mislead a significant number of reasonable consumers is considered deceptive by the FTC

Unfair advertising occurs when a consumer is unjustifiably injured or there is a violation of public policy

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Commercial Break 2-A: Unfair and Deceptive Advertising Practices

False promises Incomplete

description False and

misleading comparisons

Bait-and-switch offers

Visual distortions and false demonstrations

False testimonials Partial disclosure Small-print

qualifications

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What information does the FTC consider?

Substantiation

Endorsements/Testimonials

Affirmative disclosure

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Remedies Enforced by the FTC

Consent decree Cease-and desist

order Corrective

advertising

Apple recently received a cease-

and-desist order to halt use of the

iPod commercial featuring singer,

Enimem.

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FDA’s Role in Advertising

The FDA strives to ensure that consumers have complete information by ensuring that products are labeled truthfully

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The FCC and Advertising

The FCC seeks to protect the public’s interest and to encourage media competition

It controls the airing of obscenity and profanity and can restrict the products advertised and the content of ads

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Patent and Trademark Office

Patents Trademarks

– ®

– ™ Copyright

– ©

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Other Sources of Regulation

State and local governments

Better Business Bureau

National Advertising Review Council

Regulation by media Regulation by

consumer groups Self-regulation

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Key Terms_1

Abundance principle Added value Affirmative disclosure Broadcast standards

department Cease-and-desist

order Comparative

advertising

Consent decree Consumer advocate Consumerism Copyright Corrective

advertising Deceptive

advertising Endorsements

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Key Terms_2

Ethical advertising Externalities Intellectual property Limen Patent Primary demand Privacy rights Puffery

Selective demand Social responsibility Stereotypes Subliminal

advertising Substantiation Testimonials Trademark Unfair advertising