Chapter
14
Regulations and Ethical Concerns
CHAPTER OUTLINE
Unfair and Deceptive Marketing Practices
The Wheeler-Lea Amendment (1938) to Section 5 of the FTC Act prohibits false and
misleading advertising, when:
 A substantial number of people, or the “typical person,” is left with a false
impression or misrepresentation that relates to the product
 The misrepresentation induces people or the “typical person” to make a purchase
Deception versus Puffery
Puffery exists when a firm makes an exaggerated claim about its products or services, without
making an overt attempt to deceive or mislead. Terms normally associated with puffery
include words such as “best,” “greatest,” and “finest.” Deception occurs when a firm makes a
claim that is untrue, false, or misleading. Puffery is acceptable, but deception is not.
Substantiation of Marketing Claims
Marketers must be able to substantiate claims through competent and reliable evidence.
The FTC assumes consumers read ads broadly and do not pay attention to find print and
qualifying language.
Substantiation evidence must be for the exact product being tested, not a substitute.
Evidence should come from experts in the relevant area.
The FTC will consider the totality of the evidence, not just one study.
Industry Oversight of Marketing Practices
As shown in Figure 14.3, the common industry agencies for regulating marketing
communications are:
1. Better Business Bureau, which is a resource available to both consumers and
295
businesses to report unethical business practices or unfair treatment.
2. National Advertising Division of the Better Business Bureau (NAD), for situations
in which there are complaints about advertising or some aspect of marketing
communications.
3. National Advertising Review Board (NARB) is utilized when the NAD does not
resolve a complaint or the advertiser appeals the decision of the NAD.
4. Children's Advertising Review Unit (CARU), which investigates and monitors all
forms of advertising directed toward children under the age of 12.
Figure 14.4 lists the CARU guidelines for advertising to children.
Ethics and Social Responsibility
Morals are beliefs or principles that individuals hold concerning what is right and what is
wrong.
Ethics are moral principles that serve as guidelines for both individuals and organizations.
Ethics and Advertising
Figure 14.6 lists some of the major concerns and criticisms regarding advertising.
Two of the common complaints are that:
1. advertising causes people to buy more than they can afford
2. overemphasizes materialism
Critics also argue that advertising increases the costs of goods and services.
Perpetuating Stereotypes
The basic question is whether market segmentation leads to stereotyping.
Advertising Unsafe Products
Ethical issues revolve around advertising of alcohol and tobacco.
Offensive Advertisements
There has been social commentary that some products should not be advertised because
they are sensitive gender issues.
Others complain about the misuse of children in advertising, placing them in sexually
suggestive situations.
Advertising to Children
296
The primary ethical debate is in regard to the volume of commercials targeted at children.
Marketing and Ethics
Figure 14.7 lists four key areas where ethical issues in marketing exist.
Brand Infringement
Creating a brand that is close to a successful brand is infringement (Korrs, Victor's Secret).
Domain squatting and cyber squatting are attempts to profit from well-known names by
buying the domain name and reselling it to the person who should have it.
Medical Marketing and Advertising
Problem areas include that advertising of drugs in general, advertising drugs related to
sexual dysfunction, and the marketing of herbs and supplements.
Gifts and Bribery in Business-to-Business Marketing Programs
The sizes of gifts create ethical questions. Bribes are legal in some countries and not in
others.
Internet Marketing: Spamming and Cookies
Tracking of consumer surfing habits creates both legal and moral questions.
Interstitial advertising intrudes on a person using the Internet.
Responding to Ethical Challenges
Philosophies of life that affect ethical reasoning:
 hedonism - maximize pleasure, minimize pain
 homeostasis - seek balance
The law offers guidelines by geographic area.
Religions offer the Golden rule.
Ethical Frameworks
Figure 14.8 list four ethical frameworks.
Utilitarianism means making decisions based on the greatest good for the greatest number.
Individualism is the degree to which society values personal goals, personal autonomy,
privacy over group loyalty, commitments to group norms, involvements in collective
297
activities social cohesiveness, and intense socialization - leading to the search for personal
self-interest
Rights approach makes ethical decisions based on fundamental rights.
Justice approach honor fairness and consistency through distributive justice (fairness of
rewards, punishments, and outcomes) and procedural justice (consistent application of rules
and protocols).
Social Responsibility
Social responsibility is the obligation of an organization to be ethical, responsible, and
responsive to needs of members in the organization as well as the larger society.
Social Responsibility Perspectives
The three perspectives are listed in Figure 14.9.
Invisible hand of the marketplace argues that competition eliminates any product or
corporate practice that is harmful or inappropriate.
Governmental duty states that government is obligated to create legislation and agencies
that emphasize ethics and social responsibility.
Ethical or Enlightened Management suggests that managers can and should be trusted to
create an ethical environment with an enlightened sense of employee and customer wellbeing.
Ethics Programs
Ethics training programs can take place in college or as part of the corporate world.
Codes of ethics can be developed by individual companies and professional organizations.
Ethics consulting can take place through hot-lines and other outside sources.
REVIEW QUESTIONS
1. When does an ad or message become false or misleading?
An ad or message becomes false or misleading when:
 A substantial number of people or the “typical person” is left with a false
impression or misrepresentation that relates to the product.
 The misrepresentation induces people or the typical person to make a
purchase.
298
2.
What is puffery? Should a company use a great deal of puffery in its ads? Why
or why not?
Puffery is when a firm makes an exaggerated claim about its goods or services,
without making an overt attempt to deceive or mislead. Puffery is certainly legal, but it
can also be in that gray area of the law and be subject to challenges. It may turn out to
be costly to defend puffery statements before the FTC or NAD.
3.
What does substantiation mean? How does a company know it has met the
substantiation test in an advertisement?
Substantiation means claims can be proven through competent and reliable evidence.
The FTC assumes consumers read ads broadly and do not pay attention to find print
and qualifying language. Substantiation evidence must be for the exact product being
tested, not a substitute. Evidence should come from experts in the relevant area. The
FTC will consider the totality of the evidence, not just one study.
How does the Children's Advertising Review Unit operate?
4.
The CARU investigates and monitors all forms of advertising in all media directed
toward children younger than 12 years of age. It also monitors only privacy practices
of Web sites that involve children younger than 13 years of age.
5.
Define ethics and morals.
Morals are beliefs or principles that individuals hold concerning what is right and
what is wrong. Ethics are moral principles that serve as guidelines for both
individuals and organizations.
6.
Identify the types of ethical complaints that are raised regarding advertising.
1.
2.
3.
4.
5.
6.
7.
7.
Two of the common complaints are that:
advertising causes people to buy more than they can afford
overemphasizes materialism
Critics also argue that advertising increases the costs of goods and services.
perpetuates stereotypes
advertising features unsafe products
some ads are offensive
advertising to children is too pervasive
What is brand infringement?
Creating a brand that is close to a successful brand is infringement (Korrs, Victor's
Secret).
8.
What types of ethical issues have been raised regarding medical marketing and
299
advertising?
Problem areas include that advertising of drugs in general, advertising drugs related
to sexual dysfunction, and the marketing of herbs and supplements.
9.
Name the three types of ethics programs that can be used to help marketing
professionals cope with moral challenges.
Ethics training programs can take place in college or as part of the corporate world.
Codes of ethics can be developed by individual companies and professional
organizations. Ethics consulting can take place through hot-lines and other outside
sources.
300