Social, Ethical and Regulatory Issues in Advertising

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Advertising Educates Consumers? Pro: Advertising is Pro: Advertising is

InformativeInformative Benefits & featuresBenefits & features Comparison dataComparison data Product use infoProduct use info Market knowledgeMarket knowledge

Con: Advertising is Con: Advertising is SuperficialSuperficial Biased informationBiased information Manipulated Manipulated

emotions emotions Deceptive practicesDeceptive practices Little/no productLittle/no product

info

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Critics of advertising feel that advertising is superficial because many ads carry little actual product information. Do you think advertising is superficial?

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Advertising Improves the Standard of Living Pro: Ads Lower Ads Lower

Product CostsProduct Costs Economies of scaleEconomies of scale Less overhead per Less overhead per

unitunit Improves choice Improves choice

varietyvariety Promotes competitionPromotes competition

Con: Ads Waste Ads Waste ResourcesResources Inefficient processInefficient process Shuffles fixed Shuffles fixed

demanddemand Lowers living Lowers living

standardstandard

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Advertising Affects General Well-Being? Pro: Advertising Meets Advertising Meets

NeedsNeeds E.g., food/health careE.g., food/health care Reflects society’s Reflects society’s

prioritiespriorities

Con: Advertising Advertising Creates NeedsCreates Needs Consumers are Consumers are

seducedseduced “ “Wants” become Wants” become

“needs”“needs” Advertising promotes Advertising promotes

materialismmaterialism Ads define what’s hip; Ads define what’s hip;

it shapes societyit shapes society

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Critics feel advertising promotes materialism

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Is Advertising Demeaning or Liberating? Pro: (Liberating): Increased social sensitivity

Women in management/ leadership roles

Advertising is an art form Superbowl?

Con: (Demeaning): Perpetuated stereotypes Women as homemakers/sex

symbols Offensive, or in poor taste

Anything to grab attention...

Subliminal deception A common urban myth

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Do you think this ad perpetuates stereotypes?

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Advertising Affects the Mass Media Positively/Negatively? Pro: Diversity & Diversity &

AffordabilityAffordability Primary source of Primary source of

revenuerevenue Sponsored Sponsored

programmingprogramming Variety of media Variety of media

sourcessources Competition is Competition is

enhancedenhanced

Con: Affected Affected ProgrammingProgramming Conflicts-of-interestConflicts-of-interest Controversy is Controversy is

shunnedshunned Education is secondaryEducation is secondary

The Ethical Aspects of Advertising

Ethics are the moral standards against which behavior is judged. Key areas of debate

regarding ethics and advertising are:

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The Ethical Aspects of Advertising Truth in advertising Advertising to children Advertising controversial products

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Areas of Advertising Regulation Deception and unfairness Competitive issues Advertising to children

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Key Regulatory Agencies Government Regulation Federal Trade Commission (FTC)

Wide range of regulatory programs and remedies Federal Communications Commission (FCC) Food and Drug Administration (FDA) U.S. Postal Service Securities and Exchange Commission Bureau of Alcohol, Tobacco, and Firearms

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The FTC The government’s most powerful agency Established in 1914 by the FTC Act The Wheeler-Lea Amendment in 1938 gave

the agency more power in regulating advertising deception

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The FTC’s Statement on Deception

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

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

3) The representation, omission or practice must be a “material” one.

Is the act/practice likely to affect the consumer’s conduct/decision w/regard to the product/service. If so, the practice is material and consumer injury is likely because consumers are likely have chosen differently

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Deceptive Practices False Promises Incomplete Description Bait and Switch Visual Distortions False Testimonials False Comparisons

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Competitive Issues Vertical Cooperative Advertising Comparative Advertising Monopoly Power

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Advertising to Children

- Children’s Television Act (1990) (Congress)

- Children’s Advertising Review Unit (Council of Better Business Bureaus)

- Major Television Networks

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The FTC’s Powers and Remedies Advertising Substantiation Program Consent Order Cease and Desist Order Affirmative Disclosure Corrective Advertising

Advertising Industry Self-RegulationIndustry’s attempt to police itself

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Self-Regulation by the Advertising Industry

Motivated by: 1. fear of more stringent government regulations. 2. an interest in enhancing advertising effectiveness by discouraging misleading and deceptive practices 3. A general concern for public welfare

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Example Distilled Spirits Council of the U.S.

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Advertising Industry Self-Regulation The National Advertising Division/National

Advertising Review Board (NAD/NARB) Panel reviews complaints, hands off to the FTC

State and Local Better Business Bureaus Counsels business, sends complaints to NAD/NARB

Advertising Agencies and Associations Industry standards upheld by internal pressures

Media Organizations Broadcasters monitor truth, fairness & taste

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Consumers as Regulatory AgentsConsumerism:Individuals or groups

exerting regulatory power through boycotts and word of mouth

Consumer Organizations:• Consumer Federation of

America (CFA)

• Consumers Union (Consumer Reports)

• Action for Children’s Television (ACT)