21

Regulation of
Advertising and
Promotion

McGraw-Hill/Irwin

Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Advertising is Regulated Through

Self
Regulation
Federal
Regulation

State Regulation

Direct Mail Under Attack

Many Ads Are Review by Law Firms

Self-Regulation of Advertising

Advertisers and
Agencies

Industry Trade
Associations

Voluntary self regulation by the advertising

industry, business, and media to maintain
consumer trust and confidence and limit
government interference

Business (BBB)
NARB

Media

Malt Beverages Advertised on Television

*Click outside of the video screen to advance to the next slide

Liquor Advertising on TV

The National Advertising Review Council

Sources of NAD Cases

Competitor
challenges

51%

NAD monitoring

46%

Local BBB
challenges

3%

Consumer
challenges

1%

10

20

30

40

50

60

Mission of the ERSP

To enhance consumer confidence

in electronic retailing
To demonstrate a commitment to meaningful
and effective self-regulation
To discourage advertising and marketing in
the electronic retailing industry that
contains unsubstantiated claims

TV Network Guidelines for Childrens Ads

Must not over glamorize product

No exhortative language, such as Ask mom to buy

Generally no celebrity endorsements
Cant use only or just in regard to price
Generally no comparative or superiority claims
No costumes or props not available with the toy
Three-second establishing shot of toy in relation to child
No shots under one second in length

Advertising Self-Regulation
Encourages truthful, ethical and
responsible advertising

Perspective of
Advertisers,
Agencies,
Media

Effective regulatory mechanism

Preferable to government intervention
Can result in more stringent standards
than those imposed by legislation

Takes too long to resolve complaints

Problems with budgeting and staffing
Lack of power or authority
Self-serving to advertiser and media

Perspective
Of Critics

Test Your Knowledge

Which of the following is a common complaint often
lodged about the self-regulation of advertising?
A) The NAD/NARB has a limited budget
and staff.
B) It takes the National Advertising Division
a long time to resolve a complaint.

C) Self-regulation is viewed as being selfserving to the advertising industry.

D) Self-regulation lacks the power and
authority to be a viable alternative to
government regulation.
E) All of the above.

Federal Regulation of Advertising

Federal
Communications
Commission
(FCC)

Federal Trade
Commission
(FTC)

Bureau of Alcohol
Tobacco, and
Firearms

Food and Drug

Administration
(FDA)

U.S. Postal
Service

Advertising and the First Amendment

Freedom of speech or
expression is the most basic
federal law that governs
advertising and promotion
Speech promoting a
commercial transaction
is protected but must
be truthful
Speech must be
balanced against competing
interests such as advertising
of harmful products

Federal Trade Commission

Created By FTC Act
(1914)
Wheeler Lea
Amendment (1938)
Made Deceptive
Practices Unlawful
Three Major Divisions
Consumer
Protection
Economics
Competition

The Concept of Unfairness

Causes substantial physical
or economic injury to
consumers

Could not reasonably be

avoided by consumers

Must not be outweighed by

countervailing benefits to
consumers or competition

Deceptive Advertising: Key Elements

Likelihood of misleading
consumer

Perspective of reasonable
consumer
Materiality
misrepresentation or
practice is likely to affect
consumers
purchase decision

Puffery: Some Examples

Bayer
The wonder
drug that works
wonders

Nestle
The very best
chocolate

BMW
The ultimate
driving
machine

Snapple
Made from
the best stuff
on earth

Presentations that praise the item to be sold with

subjective opinions, superlatives, or exaggerations,
vaguely and generally, stating no specific facts

Ways the FTC Handles Deceptive Ads

FTC Programs to Prevent

Deceptive Advertising
Affirmative
Disclosure

Advertising
Substantiation

FTC Programs to Deal With

Deceptive Advertising After It Occurs
Cease and
Desist Orders

Corrective
Advertising

Federal Regulation by the FTC

1970s

1980

FTC is powerful,
active regulator

Improvements Act
passed

1980s and 1990s

2000 to present

FTC becomes
less active

Focused on
enforcing existing regs

Additional Federal Regulatory Agencies

The Federal
Communications
Commission

The Food and Drug

Administration

Additional Federal Regulatory Agencies and

Departments That Also Regulate
Advertising and Promotion

Bureau of Alcohol,
Tobacco, and
Firearms

The U.S. Postal

Service

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

The Nutrition Labeling and Education Act

The U.S. Postal Service

The U.S. Postal Service has control over

ads that involve
Lotteries
Obscenity
Fraud

Bureau of Alcohol, Tobacco, and Firearms

The BATF
Enforces liquor laws

Develops regulations
Collects taxes on liquor sales
Regulates liquor advertising
Imposes sanctions

Suing Competitors Under the Lanham Act

Elements
Required
To Win a
False
Advertising
Suit
Under the
Lanham Act

False statements have been made about

advertisers product or your product
The ads actually deceived or had the
tendency to deceive a substantial segment
of the audience
The deception was material or
meaningful and is likely to influence
purchasing decisions
The falsely advertised products or services
are sold in interstate commerce
You have been or likely will be injured as a
result of the false statements, either by
loss of sales or loss of goodwill

Suing Competitors

State Regulation

In addition to recognizing decisions

by the federal courts regarding false
or deceptive practices, many states
have special controls and regulations
governing the advertising of specific
industries or practices.

Regulation of Sales Promotion

Contests and
Sweepstakes
Cannot require purchase
to enter

Rules and details must be

disclosed to consumers

Premiums
Cannot misrepresent
their value

Care must be taken with

special audiences, like
children

Regulation of Trade Allowances

Trade Allowances
Must not violate any
stipulations of the
Robinson-Patman Act

Co-op funds must be equal

and non-discriminatory

Regulation of Direct Allowances

Self-regulation occurs through
various industry groups
FTC and US Postal Service police
direct-response advertising closely
Telemarketing faces increased
regulation including
Telephone Consumer Protection Act of 1991
Pay-per-call Rule
Development of Do-not-call Registry by FTC

Protecting Consumers from Unwanted Calls

Created by the FTC to allow
consumers to limit the calls they
receive from telemarketers
Does not cover calls from political
organizations, charities, telephone
surveyors, or companies with
which the consumer has an
existing relationship
Over 145 million consumers
registered since October 2003.
Companies calling consumers on
the registry subject to fine of up
to $11,000 per incident

Internet Marketing Issues

Banning
unsolicited emails
(SPAM)

Privacy issues
such as
profiling and
collecting personal
information

Protecting children
when
they are online

Childrens Online Privacy Protection Act

Enacted to protect the privacy

of children when they are
using the Internet

Places restrictions on collecting

information from children via
the Internet

Privacy policies must

be posted on home pages
and area where information
is collected