Chapter 3
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin

Chapter Overview
Identifies and explains economic, social, ethical, and legal issues advertisers must consider
3-2

Chapter Objectives
Classify two types of social criticisms of advertising
Explain social responsibility and ethics
Discuss court rulings that affect freedom of speech
Describe how federal agencies protect consumers, competitors
Use economic model to discuss advertising effects on society
Understand how governments regulate advertising
Define regulatory roles of state/local government
Discuss how other agencies fight fraudulent and deceptive ads
3-3

Advertising Controversies
Does advertising . . .
Affect product value?
Cause higher or lower prices?
Make us buy things we don’t need?
Affect us subliminally?
Affect demand?
Influence choices?
Encourage materialism?
Promote or discourage competition?
Debase language?
Affect art and culture?
3-4

Free Market Economic Principles
Selfinterest
Many buyers
& sellers
Complete information
Absence of externalities
3-5

Economic Impact: Global
There is a positive relationship between advertising expenditures and personal wealth
3-6

Economic Impact: Billiards Model
3-7

Affected Areas
Product
Value
Prices &
Competition
Implies quality
Enhances image
Educates consumers
Ads paid for by consumer
Promotes mass production
Price drop or support
3-8

Affected Areas
Consumer Demand Consumer Choice
Primary
Product category
Secondary
Particular brand
Encourages unique products, services
New, better brands dominate
Wider choices for consumers
3-9

Abundance Principle
In an economy that produces more goods & services than can be consumed, advertising:
Keeps consumers informed about alternatives ( complete information )
Allows companies to compete more effectively ( self-interest )
3-10

Social Impact: Criticisms
Short-term Manipulative Arguments
Deception
Unfair
Practices
Puffery
False promises
Incomplete descriptions
False comparisons
Bait-and-switch
Visual distortions
False demonstrations
False testimonials
Partial disclosure
Small-print qualifications
3-11

Social Impact: Criticisms
Long-term Macro Arguments
Stereotyping Offensive
Proliferation Social impact
3-12

An Example of Puffery
Claiming a
Yamaha outboard actually leave a trail in stormlashed waters is legal because it is unbelievable
3-13

Social Responsibility and Ethics
An advertiser can act unethically or irresponsibly… without breaking any laws!
3-14

Social Responsibility and Ethics
Ethical = morally right
Socially Responsible = society views as best
Promote well-being
Draw crowds to events
Responsible advertising can...
Influence elections
Promote harmony, stability
3-15

Social Responsibility and Ethics
Public service announcement from the Ad
Council about
Multiple Sclerosis
3-16

Interrelated Components of Ethics
Traditional actions of people in a society or community
Philosophical rules society sets to justify past or future actions
Attitudes, feelings, and beliefs of personal value system
3-17

Levels of Ethical Responsibility
3-18

How Government Regulates
National
Legislative, executive, judiciary
State
Governor, attorney general, various departments
Municipal
Mayor, city manager, police chief, courts, city attorney
3-19

Pitfalls of International Regulation
•Varies from country to country
•Restrictions on what is said , shown , done
•Bans on specific products
•Time slot restrictions
•Bans on coupons, premiums, tie-in offers
•Prohibition of paid placements in shows
•Arbitrary rulings
•Pre-approval requirements
3-20

Current U.S. Regulatory Issues
Supreme Court: “speech” or
“commercial speech”
Tobacco Controversy
Advertising to Children
Consumer Privacy
3-21

Speech: Central Hudson Test
• Does the commercial speech at issue concern a lawful activity?
• Will the restriction of commercial speech serve the asserted government interest substantially?
• Does the regulation directly advance the government interest asserted?
• Is the restriction no more than necessary to further the interest asserted?
3-22

Federal Regulation: Agencies
FTC FDA FCC
Patent &
Trademark
Office
Library of
Congress
Deceptive, unfair, comparative ads
Nutritional
Labeling &
Education
Act (NLEA)
Broadcast media licensing
Intellectual property
Copyrights
“works of authorship”
3-23

Federal Regulation: Trademarks
CocaCola’s trademark look is retained through use of similar letterforms and style, even with different alphabets
3-24

State & Local Regulation
Printer’s Ink guidelines: untrue, deceptive, misleading
“Little FTC” consumer protection acts
National marketers comply with states’ laws
Local govt. regulation: city and county consumer protection agencies
3-25

Nongovernment Regulation o Better Business Bureau (BBB) o National Advertising Review Council (NARC) o o
National Advertising Division (NAD)
National Advertising Review Board (NARB) o Regulation by the media o Regulation by consumer groups o Self-regulation
3-26

Self-Regulation: Agencies & Associations
Advertising
Agencies
Industry-Wide
Associations
Research and verify claims & comparative data before use
Liable for misleading/fraudulent claims
May use in-house legal counsel
American Association of
Advertising Agencies (AAAA)
American Advertising Federation
(AAF)
Assoc. of National Advertisers (ANA)
3-27

Self-Regulation: AAF Principles
3-28