Appendix Z:
Regulation of
Advertising
Practices
• Product promotion can easily
over-promise
• Even a conscientious
i i
marketer will face moral
dilemmas
Marketing Essentials, Kotler, Phillip 1984.
• Firms set policies and
guidelines for advertising
standards, pricing, and general
ethical standards
• employees and managers must
be made aware of them
Marketing Essentials, Kotler, Phillip 1984.
• In US, The Federal Trade
Commission in charge of
complaints of unfair competition
and false advertisement.
• Some role
l also
l for
f FCC
• Also, state Attorney General and
consumer protection agencies.
• Similarly, in other countries
1
FTC Advertising
Substantiation Requirement
• Advertisers must have a
reasonable basis for ad
claims.
l i
• Damages for false advertising
–3x damages if prove actual
harm
–Profits
P fit from
f
the
th offending
ff di add
–Attorneys’ fees
“Puffery” Permitted
• Exaggerated
boasting and
subjective
claims
l i upon
which no
reasonable
buyer would
rely
“Joe Isuzu”
Types of False Advertisement
• Misrepresentation
• Bait and switch
–advertise product with no
intention of selling, then
switch to higher priced item
• False price comparison
2
FTC Requirements for Internet
Ads
• Disclosures must be clear and
conspicuous
–Understandable to the intended
audience
–Volume and cadence, and visual
disclosures, must be of
sufficient duration
• (b) the representation, omission
or practice is examined from the
perspective of a consumer acting
reasonably in the circumstances,
to the consumer's detriment; (c)
the representation, omission or
practice must be a material one
Deception
Current FTC deception
definition is composed of three
elements:
• (a) There must be a
representation, omission or
practice that is likely to
mislead the consumer
• Practices found deceptive
include
–false verbal or written statements
–misleading price claims
–selling
lli dangerous
d
or defective
d f ti
products without adequate
disclosures
–not delivering promised services
–failing to meet warranty obligations
3
• FTC considers whether the
entire ad is likely to mislead
consumers acting reasonably
–Not necessaryy for the ad
actually to deceive
Self-Regulation
• Self-regulation by advertisers
and agencies
• Self-regulation
lf
l i by
b trade
d
associations
• Self-regulation by businesses
• To avoid legal problem,
media advertisers, and
agencies must all check the
ads. Theyy all can be held
responsible, including the
media outlet, if it should
have known, or if it acted
negligently.
Examples for Self-Regulation
of Promotions
• NAB - National Association of
Broadcasters
• MPAAMPAA Motion Pictures Assoc.
Assoc of
America
• National Advertising review Council
George E. Belch & Michael A. Belch, “Advertising and Promotion: An Integrated Marketing Communications
Perspective,” Fourth Edition, 1998, Irwin/McGraw-Hill
4
The NAD/NARB
The NAD/NARB
• 1971: four associations, the American
Advertising Federation (AAF), the
American Association of Advertising
Agencies
g
(AAAA),
(
), the Association of
National Advertisers (ANA), and the
Council of Better Business Bureaujoined forces to establish the National
Advertising Review Council
(NARC).
• The council has two operating
arms, the National Advertising
Division of the Council of Better
Business Bureaus and the National
Advertising Review Board.
• The NAD/NARB has become the
advertising industry’s primary selfregulatory mechanism.
George E. Belch & Michael A. Belch, “Advertising and Promotion: An Integrated Marketing Communications
Perspective,” Fourth Edition, 1998, Irwin/McGraw-Hill
George E. Belch & Michael A. Belch, “Advertising and Promotion: An Integrated Marketing Communications
Perspective,” Fourth Edition, 1998, Irwin/McGraw-Hill
The NAD/NARB
• Reviews complaints from
consumers and consumer
groups local BBBs
groups,
BBBs, and
competitors.
George E. Belch & Michael A. Belch, “Advertising and Promotion: An Integrated Marketing Communications
Perspective,” Fourth Edition, 1998, Irwin/McGraw-Hill
The NAD/NARB
• If the NAD and the advertiser
fail to resolve the controversy,
either can appeal to a five
person panel from the National
Advertising
d
i i Review
i Board.
d
• The NARB is composed of 85
advertising professionals and
prominent public-interest
members.
George E. Belch & Michael A. Belch, “Advertising and Promotion: An Integrated Marketing Communications
Perspective,” Fourth Edition, 1998, Irwin/McGraw-Hill
5
The NAD/NARB
• If the NARB panel agrees with the
NAD and rules against the advertiser,
the advertiser must discontinue the
advertising.
• If the advertiser refuses to comply,
comply the
NARB refers the matter to the
appropriate government agency and
indicates the fact in its public record.
George E. Belch & Michael A. Belch, “Advertising and Promotion: An Integrated Marketing Communications
Perspective,” Fourth Edition, 1998, Irwin/McGraw-Hill
The NAD/NARB
• The NARB has no power to
order an advertiser to modify
or stop running an ad and no
sanctions
ti
it can impose,
i
advertisers who participate in
an NAD investigation and
NARB appeal rarely refuse to
abide by the panel’s decision.
George E. Belch & Michael A. Belch, “Advertising and Promotion: An Integrated Marketing Communications
Perspective,” Fourth Edition, 1998, Irwin/McGraw-Hill
The NAD/NARB
• The NARB has no power to
order an advertiser to modify
or stop running an ad and no
sanctions
i
it
i can impose,
i
advertisers who participate in
an NAD investigation and
NARB appeal rarely refuse to
abide by the panel’s decision.
George E. Belch & Michael A. Belch, “Advertising and Promotion: An Integrated Marketing Communications
Perspective,” Fourth Edition, 1998, Irwin/McGraw-Hill
The NAD/NARB
• In 1996, of the 96 NAD investigations,
16 ad claims were substantiated, 5 were
referred to the government, and 75 were
modified or discontinued
• In 1993,
1993 for the first time in its history
history,
the NARB referred a matter to the
Federal Trade Commission following
an advertiser’s refusal to modify a
commercial in accordance with an
NARB decision.
George E. Belch & Michael A. Belch, “Advertising and Promotion: An Integrated Marketing Communications
Perspective,” Fourth Edition, 1998, Irwin/McGraw-Hill
6
Advertising Associations
• American Associations of
Advertising Agencies and the
American Advertising Federation
• AAAA, which is the major trade
association of the ad agency
business
• AAF consists of advertisers,
agencies, media, and numerous
advertising clubs
George E. Belch & Michael A. Belch, “Advertising and Promotion: An Integrated Marketing Communications
Perspective,” Fourth Edition, 1998, Irwin/McGraw-Hill
Federal Regulation of Advertising
• Federal Trade Commission
(FTC)
• 1938, Congress passed the
Wheeler-Lea Amendment.
George E. Belch & Michael A. Belch, “Advertising and Promotion: An Integrated Marketing Communications
Perspective,” Fourth Edition, 1998, Irwin/McGraw-Hill
Appraising Self-Regulation
• NAD may take six months to
a year to resolve a complaint
• Many do
d not believe
b li
advertising can or should be
controlled solely by selfregulation.
George E. Belch & Michael A. Belch, “Advertising and Promotion: An Integrated Marketing Communications
Perspective,” Fourth Edition, 1998, Irwin/McGraw-Hill
Federal Regulation of Advertising
• It has amended section 5 of the
FTC Act to read: “Unfair
methods of competition in
commerce and unfair or
deceptive acts or practices in
commerce are hereby declared to
be unlawful.”
George E. Belch & Michael A. Belch, “Advertising and Promotion: An Integrated Marketing Communications
Perspective,” Fourth Edition, 1998, Irwin/McGraw-Hill
7
Federal Regulation of Advertising
Federal Regulation of Advertising
• The amendment empowered the
FTC to act if there was evidence
off iinjury
j
to
t the
th public;
bli prooff off
injury to a competitor was not
necessary.
• The Wheeler-Lea Amendment also
gave the FTC the power to issue
cease-and-desist orders and levy
fi
fines
on violators.
i l
• It extended the FTC’s jurisdiction
over false advertising of foods,
drugs, cosmetics, and therapeutic
devices.
George E. Belch & Michael A. Belch, “Advertising and Promotion: An Integrated Marketing Communications
Perspective,” Fourth Edition, 1998, Irwin/McGraw-Hill
• Unfairness
• Deceptive Advertising
• Advertising Substantiation
George E. Belch & Michael A. Belch, “Advertising and Promotion: An Integrated Marketing Communications
Perspective,” Fourth Edition, 1998, Irwin/McGraw-Hill
George E. Belch & Michael A. Belch, “Advertising and Promotion: An Integrated Marketing Communications
Perspective,” Fourth Edition, 1998, Irwin/McGraw-Hill
Affirmative Disclosure
• Under its affirmative
disclosure requirement, the
FTC may require advertisers
to include certain types of
i f
information
i in
i their
h i ads
d so
consumers will be aware of all
the consequences, conditions,
and limitations associated with
the use of a product or service.
George E. Belch & Michael A. Belch, “Advertising and Promotion: An Integrated Marketing Communications
Perspective,” Fourth Edition, 1998, Irwin/McGraw-Hill
8
Affirmative Disclosure
• Fuel mileage claims in car
ads
• Cigarette ads must contain a
warning about the health
risks associated with
smoking.
George E. Belch & Michael A. Belch, “Advertising and Promotion: An Integrated Marketing Communications
Perspective,” Fourth Edition, 1998, Irwin/McGraw-Hill
Affirmative Disclosure
• More specificity from
advertisers is in regard to
country of origin claims.
• The FTC has been working
with marketers and trade
associations to develop a better
definition of what the “Made
in the USA” label means.
George E. Belch & Michael A. Belch, “Advertising and Promotion: An Integrated Marketing Communications
Perspective,” Fourth Edition, 1998, Irwin/McGraw-Hill
Additional Federal Regulatory
Agencies
• Consent and cease-and-desist
orders
• Corrective advertising
• The Federal Communications
Commission
• The U.S. Postal Service
• Bureau of Alcohol, Tobacco, and
Firearms
George E. Belch & Michael A. Belch, “Advertising and Promotion: An Integrated Marketing Communications
Perspective,” Fourth Edition, 1998, Irwin/McGraw-Hill
George E. Belch & Michael A. Belch, “Advertising and Promotion: An Integrated Marketing Communications
Perspective,” Fourth Edition, 1998, Irwin/McGraw-Hill
9
The Lanham Act
• Many companies are filing
lawsuits against competitors they
believe are making false claims.
• 1947 as the Lanham Trade-Mark
Trade Mark
Act to protect words, names,
symbols, or other devices adopted
to identify and distinguish a
manufacturer’s product
The Lanham Act
• The Lanham Act was amended
to encompass false advertising
by prohibiting “any false
d
description
i i or representation
i
including words or other
symbols tending falsify to
describe or represent the same.”
George E. Belch & Michael A. Belch, “Advertising and Promotion: An Integrated Marketing Communications
Perspective,” Fourth Edition, 1998, Irwin/McGraw-Hill
George E. Belch & Michael A. Belch, “Advertising and Promotion: An Integrated Marketing Communications
Perspective,” Fourth Edition, 1998, Irwin/McGraw-Hill
The Lanham Act
• While the FTC Act did not give
individual advertisers the
opportunity to sue a competitor
f ddeceptive
for
i advertising,
d
ii
civil
i il
suits are permitted under the
Lanham Act.
George E. Belch & Michael A. Belch, “Advertising and Promotion: An Integrated Marketing Communications
Perspective,” Fourth Edition, 1998, Irwin/McGraw-Hill
The Lanham Act
• U.S. district court fined Jartran a
record $20 million in punitive
damages on top of the $20 million
awarded to U-Haul International
to compensate for losses resulting
from ads comparing the
company’s prices and equipment
that were ruled deceptive.
George E. Belch & Michael A. Belch, “Advertising and Promotion: An Integrated Marketing Communications
Perspective,” Fourth Edition, 1998, Irwin/McGraw-Hill
10
The Lanham Act
• Wilkinson Sword and its
advertising agency were found
guilty of false advertising and
ordered to pay $953000 in
d
damages
to the
h Gillette
Gill
Co.
C
• Suing competitors for false claims
was made even easier with
passage of the Trademark Law
Revision Act of 1998.
George E. Belch & Michael A. Belch, “Advertising and Promotion: An Integrated Marketing Communications
Perspective,” Fourth Edition, 1998, Irwin/McGraw-Hill
State Regulation
• An important early
development in state regulation
of advertising was the adoption
in 44 states of the Printers Ink
model statutes as a basis for
advertising regulation.
George E. Belch & Michael A. Belch, “Advertising and Promotion: An Integrated Marketing Communications
Perspective,” Fourth Edition, 1998, Irwin/McGraw-Hill
Regulation of Other Promotional
Areas
State Regulation
• These statutes were drawn up in
1911 by Printers Ink, for many
years the major trade
publication of the advertising
i d t
industry.
• Many state attorneys general
(AGs) began to enforce state
laws regarding false and
deceptive advertising.
George E. Belch & Michael A. Belch, “Advertising and Promotion: An Integrated Marketing Communications
Perspective,” Fourth Edition, 1998, Irwin/McGraw-Hill
•
•
•
•
Contests and Sweepstakes
Premiums
Trade Allowances
Direct Marketing
George E. Belch & Michael A. Belch, “Advertising and Promotion: An Integrated Marketing Communications
Perspective,” Fourth Edition, 1998, Irwin/McGraw-Hill
11
Marketing on the Internet
• The restrictions include:
– Restrictions on unsolicited e-mail
that cannot be automatically
screened out.
– Disclosing
Di l i fully
f ll andd prominently
i tl
both the marketer’s identity and
the use. (proposed)
– Giving consumers the right to bar
marketers
George E. Belch & Michael A. Belch, “Advertising and Promotion: An Integrated Marketing Communications
Perspective,” Fourth Edition, 1998, Irwin/McGraw-Hill
12