Regulation of Advertising and Promotion

1. 20 Regulation of Advertisingand Promotion

2. Advertising Controls SelfRegulation StateRegulation Federal Regulation 20-2

3. 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 20-3

4. 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) 20-4

5. Self-Regulation by Advertisers & Agencies Protective measures Company guidelines,standards, policies Corporate attorneys Substantiating ad claims Agency-client contracts Creative review boards Specialized lawyers 20-5

6. Self-Regulation by Trade Associations Affected products and services Liquor & alcoholic beverages Pharmaceuticals Products for children Legal & medical services Attorneys at Law 20-6

7. Liquor Advertising on TV 60 million underage viewers 20-7

8. Liquor Advertising on TV 20-8

9. 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) 20-9

10. The National Advertising Review Council 20-10

11. 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 20-11

12. Mission of the ERSP Enhance consumer confidence in electronic retailing Discourage advertising and marketing in the electronic retailing industry that contains unsubstantiated claims Demonstrate a commitment to meaningful and effective self-regulation 20-12

13. Self-Regulation by Advertising Associations American Association of Advertising Agencies Actively Monitoring and Policing Advertising Practices American AdvertisingFederation Advertisers Agencies Media Advertising Clubs 20-13

14. Self-Regulation by Media Many magazines refused this ad 20-14

15. TV Network Guidelines for Children’s Ads 20-15

16. Appraising Self-Regulation Encourages truthful, ethical, responsible advertising Advertisers, Agencies, Media Effective regulatory mechanism Preferable to government intervention Can be more stringent standards than those imposed by legislation Takes too long to resolve complaints Critics Problems with budgeting and staffing Lack of power or authority Self-serving to advertiser and media 20-16

17. Federal Regulation of Advertising Federal Communications Commission (FCC) Federal Trade Commission (FTC) Food and Drug Administration (FDA) Bureau of Alcohol Tobacco, and Firearms U.S. Postal Service 20-17

18. 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 20-18

19. Federal Trade Commission Created By FTC Act (1914) Wheeler Lea Amendment (1938) Made Deceptive Practices Unlawful Three Major Divisions • Consumer Protection • Economics • Competition 20-19

20. 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 consumersor competition 20-20

21. 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” 20-21

22. Deceptive Advertising Likelihood of misleading consumer Perspective of reasonable consumer Materiality – misrepresentation or practice is likely to affect consumers’ purchase decision 20-22

23. Ways the FTC Handles Deceptive Ads FTC programs to prevent deceptive advertising FTC programs to deal with deceptive advertisingafter it occurs AffirmativeDisclosure Cease-and-Desist Orders ConsentOrders Advertising Substantiation CorrectiveAdvertising 20-23

24. Advertising Substantiation Weight-loss marketers must substantiate their claims 20-24

25. Federal Regulation by the FTC 1970’s 1980’s and 1990’s FTC is powerful, active regulator FTC becomes less active 2000 to 2009 2010 to present Focus on telemarketingand Internet privacy Asks for increasedpowers to protectconsumers againstfinancial fraud 20-25

26. Additional Federal Regulatory Agencies Federal Communications Commission Food and Drug Administration Bureau of Alcohol, Tobacco, and Firearms U.S. Postal Service Additional federal regulatory agenciesand departments that regulateadvertising and promotion 20-26

27. 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 20-27

28. The Nutrition Labeling and Education Act Labels must be easy for consumers to understand 20-28

29. The U.S. Postal Service Lotteries Obscenity Fraud The U.S. Postal Service has control over ads that involve… 20-29

30. Bureau of Alcohol, Tobacco, and Firearms Enforces liquor laws Develops regulations Collects taxes on liquor sales Regulates liquor advertising Imposes sanctions The BATF… 20-30

31. Suing Competitors Under the Lanham Act False statements have been made about the advertiser’s product or your product 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) Must be proven to win a false advertising suit 20-31

32. Suing Competitors 20-32

33. State Regulations 20-33

34. Regulation of Sales Promotion Contests/Sweepstakes Cannot be a lottery Rules & details must be fully disclosed Premiums Cannot misrepresent their value Care must be taken with special audiences 20-34

35. 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 20-35

36. Regulation of Direct Marketing Self-regulation occurs through various industry groups FTC & US Postal Service police direct-response ads closely Telemarketing facesincreased regulation Telephone Consumer Protection Act Pay-per-call Rule FTC “Do-not-call” Registry 20-36

37. 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 20-37

38. Internet Marketing Issues PrivacyIssues Marketing to Children Unsolicited Emails (SPAM) 20-38

39. Children’s 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 on home page and area where data is collected 20-39

40. 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 20-40

41. 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 20-41