Copyright © 2012 McGraw-Hill Companies, Inc., All right reversedMcGraw-Hill/Irwin

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Regulation of Advertisingand Promotion

Advertising Controls

SelfRegulation

StateRegulation

Federal Regulation

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Self-Regulation of Advertising

• Gatekeepers• Advertising industry• Businesses• Media• Trade associations

• Goals• Maintain consumer trust and confidence• Limit government interference• Protect all parties from litigation

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Local, State, and Federal Regulation

• Local and Industry Groups• Better Business Bureau (BBB)• National Advertising Review Council (NARC)• Distilled Spirits Council (DISCUS)• American Medical Association (AMA)

• State and Federal Agencies• Federal Trade Commission (FTC)• Federal Communications Commission (FCC)• Food and Drug Administration (FDA)• U.S. Postal Service (USPS)

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Self-Regulation by Advertisers & Agencies

• Protective measures• Company guidelines,

standards, policies• Corporate attorneys• Substantiating ad claims• Agency-client contracts• Creative review boards• Specialized lawyers

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Self-Regulation by Trade Associations

• Affected products and services• Liquor & alcoholic

beverages• Pharmaceuticals• Products for

children• Legal & medical

services

Attorneys at Law

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Liquor Advertising on TV

60 million underage viewers

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Liquor Advertising on TV

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Self-Regulation by Businesses

• Better Business Bureau (BBB)• Promotes fair advertising and selling

practices across all industries• Handles consumer complaints• Supported by dues of the member firms• Uses negative publicity to curb abuses

• BBB national investigative arms• National Advertising Division (NAD)• Children’s Advertising Review Unit (CARU)• Electronic Retailing Self-Regulation

Program (ERSP)22-9

The National Advertising Review Council

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CARU Activities

• General activities• Review and evaluate child-directed

advertising in all media• Oversee online privacy issues that affect

children• Advise advertisers and agencies• Maintain self-regulatory guidelines

for children’s advertising

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Mission of the ERSP

Discourage advertising and marketing in the electronic retailing industry that

contains unsubstantiated claims

Enhance consumer confidence in electronic retailing

Demonstrate a commitment to meaningful and effective self-regulation

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Self-Regulation by Advertising Associations

Actively Monitoring and Policing

Advertising Practices

American Association of Advertising Agencies

American AdvertisingFederation

Advertisers

Agencies

Media

Advertising Clubs

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Self-Regulation by Media

Many magazines refused this ad

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TV Network Guidelines for Children’s Ads

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Appraising Self-Regulation

Can be more stringent standardsthan those imposed by legislation

Encourages truthful, ethical, responsible advertising

Effective regulatory mechanism

Preferable to government intervention

Advertisers, Agencies,

Media

Takes too long to resolve complaints

Problems with budgeting and staffing

Lack of power or authority

Self-serving to advertiser and media

Critics

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Federal Regulation of Advertising

Federal Communications

Commission (FCC)

Food and Drug Administration

(FDA)

U.S. Postal Service

Bureau of Alcohol Tobacco, and

Firearms

Federal Trade Commission

(FTC)

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Advertising and the First Amendment

Speech promoting acommercial transactionis protected but must

be truthful

Freedom of speech orexpression is the most basic

federal law that governsadvertising and promotion

Speech must bebalanced against competinginterests such as advertising

of harmful products

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Federal Trade Commission

Three Major Divisions

•Consumer Protection

•Economics•Competition

Wheeler Lea Amendment (1938)

Made Deceptive Practices Unlawful

Created By FTC Act (1914)

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The Concept of Unfairness

Could not reasonably be avoided by consumers

Could not reasonably be avoided by consumers

Causes substantial physical or economic injury to consumers

Causes substantial physical or economic injury to consumers

Must not be outweighed by countervailing

benefits to consumersor competition

Must not be outweighed by countervailing

benefits to consumersor competition

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Puffery

Bayer – “The wonder drug that works wonders”

BMW – “The ultimate driving machine”

Nestlé – “The very best chocolate”

Snapple – “Made from the best stuff on earth”

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Deceptive Advertising

Perspective of reasonable consumer

Likelihood of misleading consumer

Materiality – misrepresentation orpractice is likely to affect consumers’purchase decision

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Ways the FTC Handles Deceptive Ads

FTC programs to prevent deceptive

advertising

AffirmativeDisclosure

Advertising Substantiation

FTC programs to deal with deceptive

advertisingafter it occurs

Cease-and-Desist Orders

ConsentOrders

CorrectiveAdvertising

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Advertising Substantiation

Weight-loss marketers

must substantiate their claims

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Federal Regulation by the FTC

1970’s

FTC is powerful, active regulator

FTC becomes less active

1980’s and 1990’s

Focus on telemarketingand Internet privacy

2000 to 2009Asks for increasedpowers to protectconsumers against

financial fraud

2010 to present

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Additional Federal Regulatory Agencies

Federal Communications

Commission

Federal Communications

CommissionFood and Drug AdministrationFood and Drug Administration

U.S. Postal ServiceU.S. Postal ServiceBureau of Alcohol,

Tobacco, and Firearms

Bureau of Alcohol, Tobacco, and

Firearms

Additional federal regulatory agenciesand departments that regulate

advertising and promotion

Additional federal regulatory agenciesand departments that regulate

advertising and promotion

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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

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The Nutrition Labeling and Education Act

Labels must be easy for

consumers to understand

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The U.S. Postal Service

The U.S. Postal Service has control over ads that involve…

The U.S. Postal Service has control over ads that involve…

LotteriesLotteries

ObscenityObscenity

FraudFraud

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Bureau of Alcohol, Tobacco, and Firearms

The BATF…

Enforces liquor laws

Develops regulations

Collects taxes on liquor sales

Regulates liquor advertising

Imposes sanctions

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Suing Competitors Under the Lanham Act

Ad deceived a substantial segment of the audience

Deception was “material” or meaningful andis likely to influence purchasing decisions

Falsely advertised products or servicesare sold in interstate commerce

You were, or likely will be, injured as a result of the false statements (loss of sales or loss of goodwill)

False statements have been made about the advertiser’s product or your product

Must be proven to win a false advertising suit

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Suing Competitors

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State Regulations

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Regulation of Sales Promotion

Cannot misrepresent their value

Cannot be a lotteryRules & details must

be fully disclosed

Care must be taken with special audiences

Contests/SweepstakesContests/Sweepstakes

PremiumsPremiums

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Regulation of Trade Allowances

Must not violate any stipulations of the

Robinson-Patman Act

Co-op funds must be equal and non-discriminatory

Trade AllowancesTrade Allowances

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Regulation of Direct Marketing

Telephone Consumer Protection Act

Pay-per-call Rule

FTC “Do-not-call” Registry

Telemarketing facesincreased regulation

FTC & US Postal Service police direct-response ads closely

Self-regulation occurs through various industry groups

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Protecting Consumers from Unwanted Calls

Created by the FTC to allow consumers to limit the calls they receive from telemarketers

Excludes calls from political organizations, charities, telephone surveyors, or companies with which the

consumer has an existing relationship

Companies calling consumers on the registrysubject to fine of up to $11,000 per incident

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Internet Marketing Issues

PrivacyIssues

Marketing to Children

Unsolicited Emails (SPAM)

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Children’s Online Privacy Protection Act

Places restrictions on collecting information from

children via the Internet

Enacted to protect the privacy of children when

they are using the Internet

Privacy policies must be on home page and area

where data is collected

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Regulation of Social Media

• Safeguarding of personal information• Guidelines for online endorsements

• Online endorsers and bloggers must disclose any material connection to company or brand

• Paid endorsers posting on social media and e-commerce sites• Must identify themselves as such

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Anti-Spamming Legislation

• CAN-SPAM Act of 2003 email rules

• Conspicuous notice of the right to opt-out

• A functioning Internet-based mechanism that a recipient may use to opt out of future commercial e-mail messages

• Clear and conspicuous identification that the message is an advertisement

• A valid physical postal address for the sender

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