21
Regulation of
Advertising and
Promotion
McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Advertising is Regulated Through…
Self
Regulation
Federal
Regulation
State Regulation
Direct Mail Under Attack
Many Ads Are Review by Law Firms
Self-Regulation of Advertising
Advertisers and
Agencies
Industry Trade
Associations
Voluntary self regulation by the advertising
industry, business, and media to maintain
consumer trust and confidence and limit
government interference
Business (BBB)
NARB
Media
Malt Beverages Advertised on Television
*Click outside of the video screen to advance to the next slide
Liquor Advertising on TV
The National Advertising Review Council
Sources of NAD Cases
Competitor
challenges
51%
NAD monitoring
46%
Local BBB
challenges
3%
Consumer
challenges
1%
0
10
20
30
40
50
60
Mission of the ERSP
To enhance consumer confidence
in electronic retailing
To demonstrate a commitment to meaningful
and effective self-regulation
To discourage advertising and marketing in
the electronic retailing industry that
contains unsubstantiated claims
TV Network Guidelines for Children’s Ads
Must not over glamorize product
No exhortative language, such as “Ask mom to buy…”
Generally no celebrity endorsements
Can’t use “only” or “just” in regard to price
Generally no comparative or superiority claims
No costumes or props not available with the toy
Three-second establishing shot of toy in relation to child
No shots under one second in length
Advertising Self-Regulation
Encourages truthful, ethical and
responsible advertising
Perspective of
Advertisers,
Agencies,
Media
Effective regulatory mechanism
Preferable to government intervention
Can result in more stringent standards
than those imposed by legislation
Takes too long to resolve complaints
Problems with budgeting and staffing
Lack of power or authority
Self-serving to advertiser and media
Perspective
Of Critics
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 takes the National Advertising Division
a long time to resolve a complaint.
C) Self-regulation is viewed as being selfserving 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.
Federal Regulation of Advertising
Federal
Communications
Commission
(FCC)
Federal Trade
Commission
(FTC)
Bureau of Alcohol
Tobacco, and
Firearms
Food and Drug
Administration
(FDA)
U.S. Postal
Service
Advertising and the First Amendment
Freedom of speech or
expression is the most basic
federal law that governs
advertising and promotion
Speech promoting a
commercial transaction
is protected but must
be truthful
Speech must be
balanced against competing
interests such as advertising
of harmful products
Federal Trade Commission
Created By FTC Act
(1914)
Wheeler Lea
Amendment (1938)
Made Deceptive
Practices Unlawful
Three Major Divisions
• Consumer
Protection
• Economics
• Competition
The Concept of Unfairness
Causes substantial physical
or economic injury to
consumers
Could not reasonably be
avoided by consumers
Must not be outweighed by
countervailing benefits to
consumers or competition
Deceptive Advertising: Key Elements
Likelihood of misleading
consumer
Perspective of reasonable
consumer
Materiality –
misrepresentation or
practice is likely to affect
consumers’
purchase decision
Puffery: Some Examples
Bayer –
“The wonder
drug that works
wonders”
Nestle –
“The very best
chocolate”
BMW –
“The ultimate
driving
machine”
Snapple –
“Made from
the best stuff
on earth”
Presentations that praise the item to be sold with
subjective opinions, superlatives, or exaggerations,
vaguely and generally, stating no specific facts
Ways the FTC Handles Deceptive Ads
FTC Programs to Prevent
Deceptive Advertising
Affirmative
Disclosure
Advertising
Substantiation
FTC Programs to Deal With
Deceptive Advertising After It Occurs
Cease and
Desist Orders
Corrective
Advertising
Federal Regulation by the FTC
1970’s
1980
FTC is powerful,
active regulator
Improvements Act
passed
1980’s and 1990’s
2000 to present
FTC becomes
less active
Focused on
enforcing existing regs
Additional Federal Regulatory Agencies
The Federal
Communications
Commission
The Food and Drug
Administration
Additional Federal Regulatory Agencies and
Departments That Also Regulate
Advertising and Promotion
Bureau of Alcohol,
Tobacco, and
Firearms
The U.S. Postal
Service
Test Your Knowledge
The _____ is a federal agency that was founded in
1934 to regulate broadcast communications 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
The Nutrition Labeling and Education Act
The U.S. Postal Service
The U.S. Postal Service has control over
ads that involve…
Lotteries
Obscenity
Fraud
Bureau of Alcohol, Tobacco, and Firearms
The BATF…
Enforces liquor laws
Develops regulations
Collects taxes on liquor sales
Regulates liquor advertising
Imposes sanctions
Suing Competitors Under the Lanham Act
Elements
Required
To Win a
False
Advertising
Suit
Under the
Lanham Act
False statements have been made about
advertiser’s product or your product
The ads actually deceived or had the
tendency to deceive a substantial segment
of the audience
The deception was “material” or
meaningful and is likely to influence
purchasing decisions
The falsely advertised products or services
are sold in interstate commerce
You have been or likely will be injured as a
result of the false statements, either by
loss of sales or loss of goodwill
Suing Competitors
State Regulation
In addition to recognizing decisions
by the federal courts regarding false
or deceptive practices, many states
have special controls and regulations
governing the advertising of specific
industries or practices.
Regulation of Sales Promotion
Contests and
Sweepstakes
Cannot require purchase
to enter
Rules and details must be
disclosed to consumers
Premiums
Cannot misrepresent
their value
Care must be taken with
special audiences, like
children
Regulation of Trade Allowances
Trade Allowances
Must not violate any
stipulations of the
Robinson-Patman Act
Co-op funds must be equal
and non-discriminatory
Regulation of Direct Allowances
Self-regulation occurs through
various industry groups
FTC and US Postal Service police
direct-response advertising closely
Telemarketing faces increased
regulation including…
Telephone Consumer Protection Act of 1991
Pay-per-call Rule
Development of “Do-not-call” Registry by FTC
Protecting Consumers from Unwanted Calls
Created by the FTC to allow
consumers to limit the calls they
receive from telemarketers
Does not cover calls from political
organizations, charities, telephone
surveyors, or companies with
which the consumer has an
existing relationship
Over 145 million consumers
registered since October 2003.
Companies calling consumers on
the registry subject to fine of up
to $11,000 per incident
Internet Marketing Issues
Banning
unsolicited emails
(SPAM)
Privacy issues
such as
profiling and
collecting personal
information
Protecting children
when
they are online
Children’s Online Privacy Protection Act
Enacted to protect the privacy
of children when they are
using the Internet
Places restrictions on collecting
information from children via
the Internet
Privacy policies must
be posted on home pages
and area where information
is collected
