Regulation of Advertising

and Promotion

© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Advertising is regulated through

Self
Self
Regulation
Regulation

Federal
Federal
Regulation
Regulation

State
State
Regulation
Regulation

© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

The Pharmaceutical Industry Has Developed
Advertising Guidelines

© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Many Marketers Have Their Ads Reviewed by
Law Firms

© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Self-regulation of Advertising

Advertisers
Advertisers and
and Industry
Industry Trade
Trade
Agencies
Agencies Associations
Associations

Voluntary
Voluntary self
self regulation
regulation by
by the
the advertising
advertising
industry,
industry, business,
business, and
and media
media toto maintain
maintain
consumer
consumer trust
trust and
and confidence
confidence and
and limit
limit
government
government interference
interference

Business
Business (BBB)
(BBB)
NARB Media
Media
NARB

© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

The National Advertising Review Council is
an Important Self-Regulatory Body

© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Sources of NAD Cases (2004)

Competitor
61%
challenges

NAD monitoring 32%

Local BBB
1%
challenges

Consumer
6%
challenges

0 10 20 30 40 50 60 70

© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Mission of the ERSP

To
To enhance
enhance consumer
consumer confidence
confidence in
in electronic
electronic
retailing
retailing

To
To demonstrate
demonstrate aa commitment
commitment to to meaningful
meaningful and
and
effective
effective self-regulation
self-regulation

To
To discourage
discourage advertising
advertising and
and marketing
marketing inin the
the
electronic
electronic retailing
retailing industry
industry that
that contains
contains
unsubstantiated
unsubstantiated claims
claims

© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Some TV Network Guidelines for
Children’s Advertising
Must
Must not
not over
over glamorize
glamorize product
product

No
No exhortative
exhortative language,
language, such
such as
as “Ask Mom
Mom to
“Ask mom
mom to buy…”
buy…”

Generally
Generally no
no celebrity
celebrity endorsements
endorsements

Can’t
Can’t use
use “only”
“only” or
or “just”
“just” in
in regard
regard to
to price
price

Generally
Generally
Generally
Generallyno
no
no
nocomparative
comparative
comparative or
or
comparative superiority
or
or superiority
superiority
superiorityclaims
claims
claims
claims

No
No costumes
costumes or
or props
props not
not available
available with
with the
the toy
toy

Three-second
Three-second establishing
establishing shot
shot of
of toy
toy in
in relation
relation to
to child
child

No
No shots
shots under
under one
one second
second in
in length
length

© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

 Appraising Self-Regulation
Encourages
Encourages truthful,
truthful, ethical
ethical and
and
responsible
responsible advertising
advertising
Perspective
Perspective of
of Effective
Effective regulatory
regulatory mechanism
mechanism
Advertisers,
Advertisers,
Agencies
Agencies and
and Preferable
Preferable to
to government
government intervention
intervention
Media
Media
Often
Often results
results in
in more
more stringent
stringent standards
standards
than
than those
those imposed
imposed by
by legislation
legislation

Takes
Takes too
too long
long to
to resolve
resolve complaints
complaints

Problems
Problems with
with budgeting
budgeting and
and staffing
staffing
Perspective
Perspective
Lack Of
Of Critics
Critics
Lack of
of power
power or
or authority
authority

Self-serving
Self-serving to
to advertiser
advertiser and
and media
media
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
 Test Your Knowledge
Which of the following is a common complaint often
lodged about the self-regulation of advertising?
A) The NAD/NARB has a limited budget and
staff.
B) It often takes the National Advertising
Division a long time to resolve a
complaint.
C) Self-regulation is viewed as being self-
serving to the advertising industry.
D) Self-regulation lacks the power and
authority to be a viable alternative to
government regulation.
E) All of the above are common complaints
often lodged about the self-regulation of
advertising.

© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

The Center For Science in the Public Interest
Opposes Liquor Advertising on TV

© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

 Federal Government Agencies Involved in
the Regulation of Advertising and Promotion

Federal
Federal
Communications
Communications
Commission
Commission
(FCC)
(FCC)

Federal
Federal Trade
Trade Food
Food and
and Drug
Drug
Commission
Commission Administration
Administration
(FTC)
(FTC) (FDA)
(FDA)

Bureau
Bureau of
of U.S.
U.S. Postal
Postal
Alcohol
Alcohol Tobacco,
Tobacco, Service
Service
and
and Firearms
Firearms

© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Advertising and the First Amendment

Freedom
Freedom of of speech
speech or
or
expression
expression is is the
the most
most basic
basic
federal
federal law
law that
that governs
governs
advertising
advertising andand promotion
promotion

Speech
Speech promoting
promoting aa
commercial
commercial transaction
transaction
is
is protected
protected but
but must
must
be
be truthful
truthful

Freedom
Freedom ofof speech
speech must
must
be
be balanced
balanced against
against competing
competing
interests
interests such
such as
as advertising
advertising
of
of harmful
harmful products
products

© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

 Federal Trade Commission

Created
Created By
By FTC
FTC Act
Act
(1914)
(1914)

Wheeler
Wheeler Lea
Lea
Amendment
Amendment (1938)
(1938)
Made
Made Deceptive
Deceptive
Practices
Practices Unlawful
Unlawful

Three
Three Major
Major Divisions
Divisions

••Bureau
Bureau ofof Consumer
Consumer
Protection
Protection
••Bureau
Bureau ofof Economics
Economics
••Bureau
Bureau ofof
Competition
Competition

© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

The Concept of Unfairness

Causes
Causes substantial
substantial physical
physical
or
or economic
economic injury
injury to
to
consumers
consumers

Could
Could not
not reasonably
reasonably be
be
avoided
avoided by
by consumers
consumers

Must
Must not
not be
be outweighed
outweighed by by
countervailing
countervailing benefits
benefits to
to
consumers
consumers oror competition
competition

© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Deceptive Advertising: Key Elements

Likelihood
Likelihood of
of misleading
misleading
consumer
consumer

Perspective
Perspective of
of reasonable
reasonable
consumer
consumer

Materiality
Materiality ––
misrepresentation
misrepresentation or or
practice
practice is
is likely
likely to
to affect
affect
consumers’
consumers’
purchase
purchase decision
decision

© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

 Puffery: Some Examples

Advertising
Advertising or
or other
other sales
sales presentations
presentations which
which praise
praise
the
the item
item to
to be
be sold
sold with
with subjective
subjective opinions,
opinions,
superlatives,
superlatives, or
or exaggerations,
exaggerations, vaguely
vaguely and
and generally,
generally,
stating
stating no
no specific
specific facts
facts

Bayer – BMW –
“The wonder “The ultimate
drug that works driving
wonders” machine”

Nestle – Snapple –
“The very best “Made from
chocolate” the best stuff
on earth”

© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Ways the FTC Deals With Deceptive
Advertising

FTC
FTC Programs
Programs to
to Prevent
Prevent
Deceptive
Deceptive Advertising
Advertising

Affirmative
Affirmative Advertising
Advertising
Disclosure
Disclosure Substantiation
Substantiation

FTC
FTC Programs
Programs to
to Deal
Deal With
With
Deceptive
Deceptive Advertising
Advertising After
After It
It Occurs
Occurs

Cease
Cease and
and Corrective
Corrective
Desist
Desist Orders
Orders Advertising
Advertising
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Federal Regulation by the FTC

1970’s
1970’s

FTC
FTC very
very powerful
powerful and
and active
active regulator
regulator

1980
1980
1980
1980

FTC
FTCImprovements
FTC
FTC Improvements Act
Improvements Act
Improvements passed
Actpassed
Act passed
passed

1980’s
1980’s and
and 1990’s
1990’s

FTC
FTC becomes
becomes less
less active
active

2000
2000 to
to present
present

FTC
FTC focused
focused on
on enforcement
enforcement of
of existing
existing regs
regs
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Additional Federal Regulatory Agencies

The
The Federal
Federal The
The Food
Food and
and Drug
Drug
Communications
Communications
Commission Administration
Administration
Commission

Additional
Additional Federal
Federal Regulatory
Regulatory Agencies
Agencies and
and
Departments
Departments That
That Also
Also Regulate
Regulate Advertising
Advertising
and
and Promotion
Promotion

Bureau
Bureau of
of Alcohol,
Alcohol, The
The U.S.
U.S. Postal
Postal
Tobacco,
Tobacco, and
and
Firearms Service
Service
Firearms

© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

 Test Your Knowledge
The _____ is a federal agency that was founded in
1934 to regulate broadcast communication that
include the radio, television, telephone, and telegraph
industries.
A) Federal Trade Commission
B) Federal Communications Commission
C) Fairness Doctrine
D) U.S. Postal Service
E) National Association of Broadcasters

© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

The Nutrition Labeling and Education Act

© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

 Suing a Competitor Under the Lanham Act

Elements False
False statements
statements have
have been
been made
made about
about
Elements advertiser’s
advertiser’s product
product or
or your
your product
product
Required
Required
To
To Win
Win aa False
False
Advertising
Advertising The
The ads
ads actually
actually deceived
deceived or
or had
had the
the
Suit tendency
tendency to deceive a substantial segment
to deceive a substantial segment
Suit of
of the
the audience
audience
Under
Under the
the
Lanham
Lanham Act Act The
The deception
deception was
was “material”
“material” or or
meaningful
meaningful and
and is
is likely
likely to
to influence
influence
purchasing
purchasing decisions
decisions

The
The falsely
falsely advertised
advertised products or services
products or services
are
are sold
sold in
in interstate
interstate commerce
commerce

You
You have
have been
been or or likely
likely will
will be
be injured
injured as
as aa
result
result of
of the
the false
false statements,
statements, either
either by
by
loss
loss of
of sales
sales oror loss
loss ofof goodwill
goodwill

© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

State Regulation

In
In addition
addition toto recognizing
recognizing decisions
decisions
by
by the
the federal
federal courts
courts regarding
regarding false
false
or
or deceptive
deceptive practices,
practices, many
many states
states
have
have special
special controls
controls and
and regulations
regulations
governing
governing thethe advertising
advertising of
of specific
specific
industries
industries or
or practices.
practices.

© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

 Regulation of Sales Promotion

Contests
Contests and
and
Sweepstakes
Sweepstakes

Rules
Rules and
and details
details must
must
Cannot
Cannot require
require be
be disclosed
disclosed to
to
purchase
purchase to
to enter
enter consumers
consumers

Premiums
Premiums

Care
Care must
must bebe taken
taken
Cannot
Cannot misrepresent
misrepresent with
with special
special audiences
audiences
their
their value
value such
such as
as children
children

© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

 Regulation of Trade Allowances

Trade
Trade Allowances
Allowances

Must
Must not
not violate
violate any
any Co-op
Co-op funds
funds must
must be
be
stipulations
stipulations of
of the
the equal
equal and
and non-
non-
Robinson-Patman
Robinson-Patman Act Act discriminatory
discriminatory

© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

 Regulation of Direct Marketing

Self-regulation
Self-regulation occurs
occurs through
through
various
various industry
industry groups
groups

FTC
FTC and
and US
US Postal
Postal Service
Service police
police
direct-response
direct-response advertising
advertising closely
closely

Telemarketing
Telemarketing faces
faces increased
increased
regulation
regulation including
including the
the

Telephone
Telephone Development
Consumer
Consumer Development ofof
Protection Pay-per-call
Pay-per-call Rule
Rule “Do-not-call”
“Do-not-call”
Protection Act
Act of
of Registry
Registry by
by FTC
FTC
1991
1991

© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

The FTC Protects Consumers
From Unwanted Calls
Created
Created by by the
the Federal
Federal Trade
Trade
Commission
Commission to to allow
allow consumers
consumers toto
limit
limit the
the calls
calls they
they receive
receive from
from
telemarketers
telemarketers

Does
Does not
not cover
cover calls
calls from
from political
political
organizations,
organizations, charities,
charities, telephone
telephone
surveyors,
surveyors, oror companies
companies with
with which
which
the
the consumer
consumer hashas an
an existing
existing
relationship
relationship

Took
Took effect
effect in
in October
October 2003.
2003. Over
Over
90
90 million
million consumers
consumers registered
registered

Companies
Companies calling
calling consumers
consumers on on
the
the registry
registry subject
subject to
to aa fine
fine of
of up
up
to
to $11,000
$11,000 per
per incident
incident
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
 Issues Regarding Marketing on the Internet

Privacy
Privacy issues
issues
Banning
Banning such
such as
as Protecting
Protecting children
children
unsolicited
unsolicited emails
emails profiling
profiling and
and when
when
(SPAM)
(SPAM) collecting
collecting personal
personal they
they are
are online
online
information
information
information

© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

 Test Your Knowledge
Which of the following statements accurately describes
how marketing on the Internet is regulated?
A) Database management is the only area of
Internet marketing that has caused the
FTC to examine the need for Internet
marketing regulation.
B) Voluntary industry codes are in place and
have eliminated any concerns that
consumers should have about Internet
marketing.
C) At the present time, states are providing
the regulatory bodies for monitoring
Internet marketing.
D) Currently marketing on the Internet is
not subject to any formal government
regulation.
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Children’s Online Privacy Protection Act

Enacted
Enacted toto protect
protect the
the privacy
privacy
of
of children
children when
when they
they are
are
using
using the
the Internet
Internet

Places
Places restrictions
restrictions on
on collecting
collecting
information
information from
from children
children via
via
the
the Internet
Internet

Privacy
Privacy policies
policies must
must
be
be posted
posted onon home
home pages
pages
and
and area
area where
where information
information
is
is collected
collected

© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin