Regulation of Advertising and PromotionRegulation of Advertising and Promotion

21

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