Download Chapter 02

chapter two
The Economic,
Social, and
Regulatory
Aspects of
Advertising
McGraw-Hill/Irwin
Essentials of Contemporary Advertising
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Objectives
 Discuss the impact of advertising on the
economy
 Debate the validity of the various social
criticisms of advertising
 Explain the difference between social
responsibility and ethics in advertising
2-2
Objectives
 Describe how government agencies
regulate advertising to protect both
consumers and competitors
 Discuss the activities of nongovernment
organizations in fighting fraudulent and
deceptive advertising
2-3
Economic Advertising
Controversies
 How does advertising affect the value of
products?
 Does it cause higher or lower prices?
 Does it promote competition or
discourage it?
 How does it affect consumer demand?
2-4
Societal Advertising
Controversies
 Does advertising make us more
materialistic?
 Does it force us to buy things we don’t
need?
 Does it reach us subliminally in ways we
can’t control?
 How does it affect art and culture of our
society?
2-5
Responsibility and
Control For Advertising
 What is the proper role for participants
in the marketing process?
 How much latitude should marketers
have in the products they promote and
how they advertise them?
 What is the proper role of government?
 What laws should we have to protect
consumers?
2-6
Exhibit 2-1 Per Capita Ad Spending
A country’s
level of ad
spending is
typically
proportional
to its
standard of
living
2-7
Exhibit 2-2
Economic Effect of Advertising
The
economic
effect of
advertising is
like the
opening
break shot in
billards
2-8
Economic Effects of
Advertising




Value of Products
Prices
Competition
Consumer Demand
 Consumer Choice
 Business Cycle
 Abundance Principle
2-9
Added Value
 Links brand image to the product
 Educates consumers about product
uses
 Satisfies psychic and symbolic wants
and needs
2-10
Effect on Prices
 Advertising is paid for by the buying
consumer
 Amount spent on advertising is typically
small compared to total cost of product
 Advertising is part of a mass-distribution
system
 In industries subject to price regulation,
advertising has no effect on prices
2-11
Effect on Consumer Demand
Stimulates
primary demand
Influences
Selective demand
2-12
Social Impact of Advertising
Deception
Subliminal Advertising
Value System
Proliferation of Advertising
Use of Stereotypes
Offensiveness
2-13
Deception in Advertising:
Puffery
 Levels of Puffery
– Best
– Best possible
– Better
– Especially good
– Good
– Subjective
qualities
2-14
Social Responsibility
Doing what society
views as best for the
welfare of people in
general or for a
specific community
of people
2-15
Advertisers’ Social
Responsibility
Organizations
like the AAF
and the AAAA
provide pro
bono services
for charitable
organizations
and public
agencies.
2-16
Current Regulatory Issues
Freedom of Commercial Speech
Tobacco Advertising
Advertising to Children
Consumer Privacy
2-17
When can commercial
speech be regulated?
 The 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?
2-18
The Tobacco Advertising
Controversy
 Are restrictions on tobacco advertising a
violation of the First Amendment?
 The website, www.tobacco.org, features
a history of tobacco advertising
2-19
Advertising to Children
 How far must
advertisers go to
ensure that children
are not misled by ads?
 Children’s Advertising
Review Unit (CARU)
reviews and evaluates
child-directed
advertising
2-20
CARU’s Guidelines for
Advertising to Children
 Consider audience
maturity
 Realize power of
imagination
 Promote childappropriate products
only
 Consider advertising
as a learning tool
 Support parent-child
relationships
 Avoid stereotyping
 Promote positive
behavior
2-21
Regulating Organizations
Federal Trade Commission
Food and Drug Administration
Federal Communications
Commission
Patent and Trademark Office
2-22
The Federal Trade Commission
2-23
What is Deception?
 Any ad that contains misrepresentation,
omission, or any other practice that can
mislead a significant number of
reasonable consumers is considered
deceptive by the FTC
 Unfair advertising occurs when a
consumer is unjustifiably injured or
there is a violation of public policy
2-24
Commercial Break 2-A: Unfair and
Deceptive Advertising Practices
 False promises
 Incomplete
description
 False and
misleading
comparisons
 Bait-and-switch
offers
 Visual distortions
and false
demonstrations
 False testimonials
 Partial disclosure
 Small-print
qualifications
2-25
What information does the FTC
consider?
Substantiation
Endorsements/
Testimonials
Affirmative
disclosure
2-26
Remedies Enforced by the FTC
 Consent decree
 Cease-and desist
order
 Corrective
advertising
Apple recently
received a ceaseand-desist order to
halt use of the
iPod commercial
featuring singer,
Enimem.
2-27
FDA’s Role in Advertising
The FDA strives to
ensure that
consumers have
complete
information by
ensuring that
products are labeled
truthfully
2-28
The FCC and Advertising
 The FCC seeks to protect the public’s
interest and to encourage media
competition
 It controls the airing of obscenity and
profanity and can restrict the products
advertised and the content of ads
2-29
Patent and Trademark Office
 Patents
 Trademarks
–®
–™
 Copyright
–©
2-30
Other Sources of Regulation
 State and local
governments
 Better Business
Bureau
 National Advertising
Review Council
 Regulation by media
 Regulation by
consumer groups
 Self-regulation
2-31
Key Terms_1




Abundance principle
Added value
Affirmative disclosure
Broadcast standards
department
 Cease-and-desist
order
 Comparative
advertising





Consent decree
Consumer advocate
Consumerism
Copyright
Corrective
advertising
 Deceptive
advertising
 Endorsements
2-32
Key Terms_2








Ethical advertising
Externalities
Intellectual property
Limen
Patent
Primary demand
Privacy rights
Puffery








Selective demand
Social responsibility
Stereotypes
Subliminal
advertising
Substantiation
Testimonials
Trademark
Unfair advertising
2-33