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Regulation of Advertising and Promotion Regulation of Advertising and Promotion 21 McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Regulation of Advertising and PromotionRegulation of Advertising and Promotion
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McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Advertising Regulation
Self Regulation
Federal Regulation
State Regulation
Advertising is regulated through:Advertising is regulated through:
Self-Regulation of Advertising
SelfSelf--regulation is done byregulation is done by::Advertisers and Agencies
Trade Associations
Businesses - BBBNational Advertising Review Board
Media
Voluntary self regulation by the advertising industry to maintain consumer trust and confidencemaintain consumer trust and confidence and limit limit
government interferencegovernment interference
The NAD is an important self-regulatory body
Sources of NAD Cases (2001)
66%
15%
5%
14%
0 20 40 60 80
Consumer Challenges
Local BBB Challenges
NAD Monitoring
Competitor Challenges
Decisions on NAD Cases (2001)
60%
15%
7%
0 25 50 75 100
Referred to Government
Substantiated
Modified/Discontinued
TV Network Guidelines for Children’s Advertising
Must not over glamorize product
No exhortative language, such as “Ask Mom to buy
No realistic war settings
Generally no celebrity endorsements
Can’t use “only” or “just” in regard to price
Show only two toys per child or maximum of six per commercialYes
5-sec. “island” showing product against plain background at end
Animation restricted to one-third of a commercial
Generally no comparative or superiority claims
No costumes or props not available with the toy
No child or toy can appear in animated segments
Three-second establishing shot of toy in relation to child
No shots under one second in length
Must show distance a toy can travel before stopping on its own
4As Policy on Comparative Ads
1. The intent and connotation of the ad should be to inform and never to discredit or unfairly attack competitor, competing products, or services.
2. When a competitive product is named, it should be one that exists in the marketplace as significant competition.
3. The competition should be fairly and properly identified but never in a manner or tone of voice that degrades the competitive product or service.
4. The advertising should compare related or similar properties or ingredients of the product, dimension to dimension, feature to feature.
5. The identification should be for honest comparison purposes and not simply to upgrade by association.
4As Policy on Comparative Ads
6. If a competitive test is conducted, it should be done by an objective testing source, preferably an independent one, so that there will be no doubt as to the veracity of the test.
7. In all cases the test should be supportive of all claims made in the advertising that are based on the test.
8. The advertising should never use partial results or stress insignificant differences to cause the consumer to draw an improper conclusion.
9. The property being compared should be significant in terms of value or usefulness of the product to the consumer.
10. Comparatives delivered through the use of testimonials should not imply that the testimonial is more than one individuals thought unless that individual represents a sample of the majority viewpoint.
Appraising Self-regulation of advertising
Advertisers, agencies and the media view self-regulation as an effective mechanism and preferable to government interventionConcerns over self-regulation
Time needed to resolve complaintsBudgeting and staffing limitationsLack of power or authority Self-serving to advertisers and media
Questioning the effectiveness of media self-regulation of liquor advertising
Federal Regulation of Advertising
The First AmendmentFreedom of speech or expressionCommercial speech protected
Federal Trade Commission Act (1914)Created the FTC to help enforce antitrust laws
Wheeler-Lea Amendment of 1938Amended FTC Act to make unfair or deceptive practices unlawful
Concept of Unfairness
Basis for determining unfairness Basis for determining unfairness is that a trade practice:is that a trade practice:
1. Causes substantial physical or economic injury to consumers
2. Could not be reasonably avoided by consumers
3. Must not be outweighed by countervailing benefits to consumers or competition
Three key elements of deception:Likelihood of misleading consumerPerspective of reasonable consumerMateriality – information will influence consumer choice
Definition of deceptive advertising by the FTC:“The commission will find deception if there is a The commission will find deception if there is a
misrepresentation, omission, or practice that is likely to misrepresentation, omission, or practice that is likely to mislead the consumer acting reasonably in the circumstances mislead the consumer acting reasonably in the circumstances
to the consumer’s detriment.”to the consumer’s detriment.”
Puffery
Examples of puffery:Bayer – “The wonder drug that works wonders”
BMW – “The ultimate driving machine”Nestle – “The very best chocolate”
Snapple – “Made from the best stuff on earth”
Advertising or other sales presentations which praise the item to be sold with subjective opinions,
superlatives, or exaggerations, vaguely and generally, stating no specific facts
FTC Programs Addressing Deceptive Advertising
Affirmative disclosureAffirmative disclosureRequires advertisers to include information in their ads so consumers will be aware of all consequences, conditions, and limitations
Advertising substantiationAdvertising substantiationAdvertisers provide supporting documentation for their claims as proof the claims are truthful
Cease and desist ordersCease and desist ordersStop the claim until resolved with FTC
Corrective advertisingCorrective advertisingRun additional advertising designed to remedy the deception contained in previous ads
FTC Complaint ProcedureEarly Stage
Consumer
Advertiser orcommissionrejects order
Advertiser agreesor negotiates
Case resolved
Reviewed bycommissioners
Dismissed
Proposed complaintand consent order
written
StaffInvestigations
Dismissed
Competitor FTC StaffConsumer
Advertiser orcommissionrejects order
Advertiser agreesor negotiates
Case resolved
Reviewed bycommissioners
Dismissed
Proposed complaintand consent order
written
StaffInvestigations
Dismissed
Competitor FTC Staff
FTC Complaint ProcedureLate Stage
Case resolved
Advertiser andFTC agree
Appealscourt
Hearing beforecommissioners
Dismissed
Advertiser orFTC apeal
If substantial evidence ofviolation, cease and desist
order written by ALJ
Dismissed
Hearing beforeAdministrative Law
Judge (ALJ)
Advertiser orcommissionrejects order
Case resolved
Advertiser andFTC agree
Appealscourt
Hearing beforecommissioners
Dismissed
Advertiser orFTC apeal
If substantial evidence ofviolation, cease and desist
order written by ALJ
Dismissed
Hearing beforeAdministrative Law
Judge (ALJ)
Advertiser orcommissionrejects order
Other Federal Agencies That Regulate Advertising and Promotion
Federal Communications CommissionFederal Communications Commission– Jurisdiction over broadcast communications; radio,
television, telephone, and telegraph industries
Food and Drug AdministrationFood and Drug Administration– Authority over labeling, packaging, branding,
ingredient listing, and advertising of packaged food and drug products
U.S. Postal ServiceU.S. Postal Service– Control over advertising that uses mail and ads that
involve lotteries, obscenity, or fraud
Bureau of Alcohol, Tobacco & FirearmsBureau of Alcohol, Tobacco & Firearms– Enforces laws, develops regulations, and responsible
for tax collection for the liquor industry
The Lanham Act
The Lanham ActLanham Act prohibits any false description or representation including words or other symbols tending
falsely to describe or represent the same
Companies/ brands that have been involved in Lanham Act cases include:
• Alpo and Ralston Purina dog food• Gillette and Wilkinson razor blades• Prego and Ragu spaghetti sauce• Duracell and Energizer batteries
Elements required to win a false advertising lawsuit under the Lanham Act
1.False statements have been made about advertiser’s product or your product
2.The ads actually deceived or had the tendency to deceive a substantial segment of the audience
3.The deception was “material” or meaningful and is likely to influence purchasing decisions
4.The falsely advertised products or services are sold in interstate commerce
5.You have been or likely will be injured as a result of the false statements, either by loss of sales or loss of goodwill
State Regulation of Advertising
In addition to federal rules and regulations, advertisers must concern themselves with state and local laws and regulations
The National Association of Attorneys General (NAAG) has been involved with:
Airfare advertisingCar rental price advertisingNutrition and health claims advertising
Regulation of other sales promotion
• Contests and sweepstakes– Cannot be classified as a lottery– Cannot be required to give up something of value to
participate (consideration)
• Premiums– Cannot misrepresent their value– Must take care with special audiences (kids)
• Trade Allowances– Must be available on proportionally equal terms
Regulation of Direct Marketing
FTC and US Postal Service police direct-response advertising closely
Telemarketing faces increased regulation including the:
Telephone Consumer Protection Act of 1991
Pay-per-call rule
Development of “do-not-call” registry by FTC
Self-regulation occurs through various industry groups
Regulation of marketing on the Internet
Restrictions have been proposed with regard to privacy including:
Banning unsolicited email, Disclosing marketers identity, Giving consumers the right to bar marketers from selling or sharing personal informationChildren’s Online Privacy and Protection Act (COPPA) – places restrictions on collecting information from children over the internet
