Overview of Economic, Social, & Regulatory

Aspects of Advertising

SBM 338

Lanny Wilke

What is Advertising?

“The structured and composed nonpersonal communication of information, usually paid for and usually persuasive in nature, about products (goods, services, and ideas) by identified sponsors through various media” –Arens & Schaefer (2007)

In English… A structured form of communication

employing both verbal and nonverbal elements that are composed to fill specific space and time formats

Typically directed toward groups of people (mass communication).

Most is paid for by sponsors. Usually persuasive. Identifies the sponsor. Reaches us through a channel of

communication.

The Role of Advertising in Business

Part of the marketing process.The only business function whose

primary role is to bring in revenue.

What is Marketing?

“an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders.” -Arens & Schaefer (2007)

Advertising and the Marketing Process

DAGMARAwarenessComprehensionConvictionaction

Free Market Economics & Advertising

Self-Interest Complete Information Many buyers and sellers Absence of externalities (social

costs)

Functions & Effects of Advertising in a Free Economy

Seven functions of advertisingTo identify products and

differentiate them from others.To communicate information about

the product, its features, and its place of sale.

To induce consumers to try new products and to suggest reuse.

Seven functions of advertising (contd)To stimulate the distribution of the

product.To increase product use.To build value, brand preference,

and loyalty.To lower the overall cost of sales.

The Evolution of Advertising as an Economic Tool

The Preindustrial Age

The Industrializing Age

The Industrial Age

The Postindustrial Age

The Interactive Age

Controversies About Advertising

Public criticism Advertising’s effect on prices Promote or discourage competition? Affect on overall consumer demand. Effects on consumer choice and the

overall business cycle Societal effects

More materialistic? Forces us to buy things we don’t need? Reach us subliminally? Debase our language?

The Economic Impact of Advertising

Effect on the Value of Products

Effect on Prices

Effect on Competition

Effect on Consumer Demand

The Economic Impact of Advertising (Cont’d)

Effect on Consumer Choice

Effect on the Business Cycle

The Abundance Principle

The Social Impact of Advertising

Deception in Advertising

The Subliminal Advertising Myth

The Effect of Advertising on Our Value System

The Social Impact of Advertising (Cont’d)

The Proliferation of Advertising

The Use of Stereotypes in Advertising

Offensiveness in Advertising

Social Responsibility & Advertising Ethics

Advertisers’ Social Responsibility

Ethics of Advertising

Current Regulatory Issues Affecting U.S. Advertisers

Freedom of Commercial Speech

The Tobacco Advertising Controversy

The Issue of Advertising to Children

Consumer Privacy

Federal Regulation of Advertising in North America

The U.S. Federal Trade CommissionDefining DeceptionDefining UnfairnessComparative Advertising Investigating Suspected ViolationsRemedies for Unfair or Deceptive

Advertising

Federal Regulation of Advertising in North America (Cont’d)

The Food and Drug Administration (FDA)The food we eat is safeThe cosmetics we (NO, NOT ME)

use won’t hurt usThe medicines and therapeutic

devices we buy are safe and effective.

Federal Regulation of Advertising in North America (Cont’d)

The Federal Communications Commission (FCC)Jurisdiction over radio, television,

telephone, satellite and cable TV, and the Internet

Responsible for protecting the public interest and encouraging competition

Federal Regulation of Advertising in North America (Cont’d)

The Patent and Trademark Office and the Library of CongressRegisters and protects intellectual

property. Patents Trademarks Copyrights

State and Local Regulation

By State Governments

By Local Governments

Non-government Regulation

The Better Business Bureau (BBB)

The National Advertising Review Council (NARC)

Regulation by the Media Television Radio Magazines Newspapers

Non-government Regulation (Cont’d)

Regulation by Consumer Groups

Self-Regulation by Advertisers and Ad Agencies

Government Restraints on International Advertisers

Some foreign governments are more authoritarian

Some restrict or ban ads for specific products

Many countries prohibit puffery Many European countries ban coupons,

premiums, free tie-in offers, etc. In Europe, TV ads must be kept

completely separate from the programs and be clearly recognizable as such.

Our next topic…

Marketing Objectives