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chapter 02 The Economic, Social and Regulatory Aspects of Advertising McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. 2-3 Chapter 2 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 Describe how government agencies regulate advertising to protect both consumers and competitors Discuss the activities of nongovernment organizations in fighting fraudulent and deceptive advertising 2-4 Controversies Does advertising . . . Economic affect product value? make us buy things we don’t need? Societal influence consumer choice? make us more materialistic? affect us subliminally? discourage increase prices? competition? debase language? affect art? affect demand? 2-5 Economic Impact: Principles Self-interest Complete information Many buyers & sellers Absence of externalities 2-6 Economic Impact: Per Capita Ad Spending 2-7 Economic Impact: Billiards Model 2-8 Economic Impact: Four Affected Areas Product Value -Communicates brand image -Educates customers -Associates w/ desirable image 2-9 Economic Impact: Four Affected Areas Product Value Prices & Competition -Communicates brand image Increase: -Educates customers -Ad costs -Associates with desirable image -Branding Decrease: -Competition -Efficiency 2-10 Economic Impact: Four Affected Areas Product Value Prices & Competition Consumer Demand -Communicates brand image Increase: Primary: -Branding -Educates customers -Ad costs -Product Category Decrease: Secondary: -Competition -Particular Brand -Associates with desirable image -Efficiency 2-11 Economic Impact: Four Affected Areas Product Value Prices & Competition Consumer Demand -Communicates brand image Increase: Primary: -Branding -Educates customers -Ad costs -Product Category Decrease: Secondary: -Competition -Particular Brand -Associates with desirable image -Efficiency Consumer Choice Product differentiation 2-12 Economic Impact: Abundance Principle In an economy that produces more goods & services than can be consumed, advertising: Allows moreeffective competition Stimulates competition Self-interest Many buyers & sellers Complete information Keeps consumers informed Absence of externalities Selfregulates to keep market free & open 2-13 Social Impact: Two Types of Criticism Short-term manipulative arguments Deception: puffery, nonproduct facts, bias, inaccuracy Subliminal myth Long-term macro arguments Proliferation Stereotyping Social impact Offensive Impacts values 2-14 The Proliferation of Advertising Average The more ads More media person views a consumer choices 500 to 1000 views, the equals more commercial less effective exposure to messages each one is ads per day FCC has considered commercial time limits on TV 2-15 Offensive Advertising Supreme Court: “speech” or “commercial speech” Tobacco Controversy Consumer Privacy Advertising to Children 2-16 Social Responsibility and Ethics Public service announcement from The U.S. Department of Health & Human Services 2-17 Social Responsibility and Ethics Ethical: morally right Socially Responsible: what society views as best Responsible advertising can . . . Promote well-being Draw crowds to events Promote harmony & stability Influence elections 2-18 Social Responsibility and Ethics Leclerc addresses the issue of pollution 2-19 Current U.S. Regulatory Issues Supreme Court: “speech” or “commercial speech” Tobacco Controversy Consumer Privacy Advertising to Children 2-20 Federal Regulation: Agencies FTC FDA FCC Patent & Trademark Office Deceptive, unfair, & comparative ads Nutritional Labeling & Education Act (NLEA) Broadcast media licensing Intellectual property Library of Congress Copyrights “works of authorship” 2-21 Federal Regulation: FDA Disclosure This ad for Revolution, a topical parasiticide for dogs and cats, has a long disclosure 2-22 State & Local Regulation Different states have different regulations governing advertising National marketers comply with states’ laws Local govt. regulation: city & county consumer protection agencies 2-23 Nongovernment Regulation Better Business Bureau (BBB) National Advertising Review Council (NARC) National Advertising Division (NAD) National Advertising Review Board (NARB) Regulation by the media Regulation by consumer groups 2-24 Self-Regulation: Agencies & Associations Research and verify claims & comparative data before use Agency Responsibilities Liable for misleading or fraudulent claims Some maintain in-house legal counsel American Association of Advertising Agencies (AAAA) Industry-Wide Associations American Advertising Federation (AAF) Association of National Advertisers (ANA) 2-25 Self-Regulation: AAF Principles Insert ex. 3-6, p. 93, AAF Advertising Principles Position = 0.4” horizontal, 1.5” vertical Size = 8.2” WIDE Resolution = 300 dpi 2-26 Government Restraints on International Advertisers Foreign governments often regulate advertising more strictly than in the United States Some governments ban specific products Many countries prohibit puffery Many European countries ban coupons, premiums and free tie-ins Across Europe, paid product placements in television programs are typically prohibited