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18/05/2018 09:20:18 AM

The Regulatory Aspects of Advertising

1 Areas of Advertising Regulation

  • Deception and Unfairness. The Federal Trade Commission (FTC) has a policy statement on deception. It specifies the following three elements as essential in declaring an ad deceptive:

a.There must be representation, omission, or practice that is likely to mislead the consumer.

b.This representation, omission, or practice must be judged from the perspective of a consumer acting reasonably in the circumstance.

c.The representation, omission, or practice must be a “material” one. The basic question is whether the act or the practice is likely to affect the consumer’s conduct or decision with regard to the product or service. If so, the practice is material, and consumer inquiry is likely because consumers are likely to have chosen differently if not for the deception.

This advice is very legal, but practical guidelines can be found on the FTC’s Web site.

The definition of unfairness had been relatively vague. In 1994, Congress ended a long-running dispute in the courts and in the advertising industry by approving legislation that defines unfair advertising as “acts or practices that cause or are likely to cause substantial injury to consumers, which is not reasonably avoidable by consumers themselves and not outweighed by the countervailing benefits to consumers or competition.”

  • Competitive Issues. There are several advertising practices relating to competition that can result in regulation: cooperative advertising, comparison advertising, and using monopoly power.
  • Vertical cooperative advertising is an advertising technique in which a manufacturer and dealer (either a wholesaler or retailer) share the expense of advertising. There is nothing illegal, per se, about the technique. The competitive threat inherent in the process is that certain dealers can be given bogus cooperative advertising allowances. These allowances require no effort or expenditure on the part of the dealer and thus represent hidden price concessions, giving these dealers a competitive cost advantage.
  • Comparison advertisements are those in which an advertiser makes a comparison between the firm’s brand and competitors’ brands. Again, comparison ads are completely legal. However, if the advertisement is carried out in such a way that the comparison is not a fair one, there is an unjust competitive effect.
  • Some firms are so powerful in their use of advertising that monopoly power can become a problem. This issue normally arises in the context of mergers and acquisitions where two powerful competitors and advertisers merge to create a monopoly-like power.
  • Advertising to Children. This was raised earlier as a social issue, but here critics argue that continuously bombarding children with persuasive stimuli can alter their motivation and behavior. Although government organizations like the FTC have been active in trying to regulate advertising directed at children, industry and consumer groups have been more successful in securing restrictions.

The major television networks have set their own guidelines for advertising aimed at children. The guidelines restrict the use of celebrities, prohibit exhortive language (such as “Go ask dad”), and restrict the use of animation to one-third of the total time of a commercial.

2. The Regulation of Other Promotional Tool: Regulatory Issues in Direct Marketing and E-Commerce

The most pressing issue was discussed in the introductory section of this chapter – database marketing and consumer privacy.

  • Privacy. Online privacy issues focus on cookies, which advertisers place on a Web server’s hard drive to track online behavior. Some sites require that consumers enable cookies to use the site. The fear is that cookies may be used in the future to link to personal information. The mergers of many database companies increase the fear of companies being able to piece together information on consumers.
  • Spam. Spam, the unsolicited messages sent en-mass over the Internet, is a serious problem. 30 million spam e-mails were being sent every minute worldwide—about 50 billion messages a day. Internet providers have tried to form coalitions to fight spam. Technological solutions (anti-spam software) is getting more sophisticated.
  • “Phishing” is fraudulently attempting to acquire private consumer information, such as usernames, passwords, social security numbers and credit card details, by pretending to be a trustworthy entity—like a bank or mortgage company in an electronic communication.
  • Contests and Sweepstakes. Contest and sweepstakes are widespread. Direct mail sweepstakes are required to state that a purchase is not necessary to win. These activities give marketers the opportunity to construct databases of customers. If customers request that their names be removed, this must be done promptly.
  • Telemarketing. Telemarketing is another area with regulation concerns. Telemarketers are required to state their names, the purpose of the call and the company they work for. Telemarketers are only allowed to make calls between
    8 a.m. and 9 p.m., and they cannot call the same customer more than once every three months.
  • Regulatory Issues in Sales Promotion. 
  • Premium Offers. Premiums are items offered for free or at a greatly reduced price. Marketers must state the fair retail value of the item offered as a premium.
  • Trade Allowances. Customers need to be offered similar prices on similar merchandise. This means marketers cannot use special allowances to highly attractive customers.
  • Contests and Sweepstakes. The issues discussed in the e-marketing section apply as well to the following mandates from the FTC that marketers must: 1) misrepresentation of value; 2) failure to provide complete disclosure about the conditions necessary to win; 3) failure to disclose the conditions necessary to obtain a prize; 4) failure to ensure the contest or sweepstakes is not classified as a lottery.
  • Regulatory Issues in Public Relations. Regulations in this area relate to dealing with the press and public figures. Specifically, legal issues include respecting privacy, copyright infringement, or defamation through slander and libel.
  • Privacy. Public relations firms cannot use pictures or images owned by someone else – appropriation.
  • Copyright Infringement. Public relations efforts must not use written, recorded, or photographic material without permission.
  • Defamation. When a communication occurs that damages the reputation of an individual because the information is not true, that is referred to as defamation of character. Slander is oral defamation over a TV or radio broadcast. Libel is defamation that occurs in print such as in magazines, newspapers, on the Internet, or direct mail.

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