Ethical, Regulatory, and Environmental Issues in Marketing Communications

Chapter
3
Chapter 2

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ETHICAL, REGULATORY, AND

ENVIRONMENTAL ISSUES IN MARKETING
COMMUNICATIONS

Chapter Objectives

Appreciate the ethical issues in marketing communications.

Understand why the targeting of products and marketing communications is a

heatedly debated practice.

Explore the ethical issues associated with advertising, sales promotions, and other
marcom practices.

Explain the role and importance of governmental efforts to regulate marketing

communications.

Understand deceptive advertising and the elements that guide the determination of
whether a particular advertisement is potentially deceptive.

Explain the regulation of unfair business practices and the major areas where the
unfairness doctrine is applied.

Recognize the role of the states in regulating unfair or deceptive marketing

communications practices.

Know the process of advertising self-regulation.

Appreciate the role of marketing communications in environmental (green)

marketing.

Recognize the principles that apply to all green marketing efforts.

Chapter Overview
This chapter investigates ethical issues and governmental regulations that have
considerable relevance to marketing communicators, consumers, and society at large.
The goal is for students to fully appreciate that marketing communicators operate
under constraints (i.e., governmental, competitive, and moral) that limit certain
actions but benefit free markets. The chapter addresses three major topics: (1)
ethical issues in marcom, (2) the regulation of marcom practices, and (3)
environmental matters and their implications for marketing communications.
The ethical issues covered are: (1) targeting marketing communications, (2) advertising,
(3) public relations, (4) packaging communications, (5) sales promotions, and (6)
Internet marketing.
The chapter then turns to the discussion of regulation of marketing communications,
beginning with a discussion of when regulation is justified. Then the FTCs policy on

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deceptive advertising is given. Unfair practices are also discussed, with the definition of
unfair advertising given. Advertising self-regulation is covered as well, including coverage
of media self-regulation (i.e., advertising clearance process) and the National Advertising
Review Council (i.e., NAD and NARB).
The latter third of the chapter covers several green marketing initiatives, such as green
advertising, packaging, seal-of-approval programs, cause-oriented programs, and point-ofpurchase programs. Finally, guidelines for green marketing are provided.

Marcom Challenge: Trans Fat Labeling

Nutrition Facts information that is printed on packages of food products is a federal
requirement in the United States. Beginning January 1, 2006, food manufacturers are
required by the Food & Drug Administration to indicate the number of grams of trans fats
contained in a serving size. Trans fats are fats that increase levels of bad cholesterol and
reduce the amount of good cholesterol, leading to clogged arteries if consumed
excessively. Its the hydrogenated cooking oil that makes food products more appealing
and better tasting. As a result, people are consuming higher levels of trans fat than ever,
but before the labeling requirement, consumers had no idea how much.

Is The Use of The SOR Brand Logo Too Similar to

SCR?
Honda, a well-known Japanese company, produces automobiles, motorcycles, motor
scooters, and other vehicles. It commands a substantial share of the motor scooter market
in China, using the SCR logo. Honda has accused Chinas largest producer of
motorcycles and scooters, Lifan, of pirating its logo because it uses a highly similar SOR
logo on its scooters and places it at exactly the same locations on the motor where Honda
places its logo. Honda has also accused Lifan of using the name Hongda on its roducts,
which Honda feels is too similar to the Honda name.

An Admans Struggle With Joe Camel and Free

Speech
An adman explains why he is impressed by Joe Camel. He grabs your attention and
coveys the visual message that camels are cool, theyre fun, they make you part of a
desirable crowd, all in just a glance. But as a man, as a father, he is appalled by the camel
and how it is whispering to the children and beckoning the poor. This leaves him between
a rock and a camels hump. That is, hes for aggressive marketing of a legal product and
feels free speech should be protected, but he feels that freedom of expression also includes
the freedom not to express ones self. Advertising professionals should be the first to
denounce Joe Camel because they are the ones who know exactly what hes up to.

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A Rigged Promotion For Frozen Coke

Mid-level executives at Coca-Col Company pitched the idea to Burger King to run a
promotion offering a free Frozen Coke when customers bought a value meal at a Burger
King outlet. It was argued that by offering the free Frozen Coke, Burger King could
significantly increase customer traffic and thus the sales of value meals. However, Burger
Kings executives were unwilling to commit to an expensive, nationwide promotion until
they had some evidence that it would significantly increase sales, so they decided to run a
test in Richmond, VA (the test city), where the free Frozen Cokes would be given away.
The number of value meal purchased would then be compared to meal volume in Tampa,
FL (the control city) where free Frozen Cokes were not given away with each value meal.
Unfortunately, initial sales results in the test city were not much different than in the
control city, so a couple of mid-level Coca-Cola executives developed a scheme to give
$9,000 cash to a consultant to distribute to Boys & Girls Clubs in the Richmond area.
Leaders of these clubs were instructed to treat the children to value meals at Burger King,
and this increased sales in Richmond more than in Tampa during the test period. Based on
these results, Burger King decided to take the promotion nationwide, which required a
substantial investment. Coca-Colas corporate office laid the blame on the mid-level
employees and agreed to pay Burger King up to $21 million to compensate it and its
franchises for any financial losses.

Chapter Outline
1. Ethical Issues in Marketing Communications
Ethics in our context involves matters of right and wrong, or moral, conduct
pertaining to any aspect of marketing communications (think of terms such as
honesty, honor, virtue, and integrity).
The Ethics of Targeting
Even though target marketing is a sound marketing practice, it sometimes raises
ethical dilemmas when special products and corresponding marketing
communications efforts are directed at vulnerable market segments.
Targeting to Children and Teens. Advertising and in-school marketing programs
urge kids to desire various products and brands. Critics contend that many of the
products targeted to children are unnecessary and the communications are
exploitative.

The issue of childhood obesity and the marketing of food products to children
is an especially hotly debated topic, especially the practice of using cartoon
characters to sell sugared cereals and non-nutritious snacks.

Another technique, thought to be unethical by critics, is the use of educational

materials as a medium for promotional messages (e.g., posters, book covers,
free magazines, and advertising), which some feel exploits childrens trust in
educational materials as a deceptive means of hawking merchandise.

Product placements in movies and TV programs have also been criticized.

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Marketers also have been criticized for targeting adult products to teens and
college students (e.g., beer and other alcoholic beverages, cigarettes).

The Joe Camel campaign was controversial, highlighting the inevitable clash
between advertisers free-speech rights and their societal obligations to be
moral citizens.

Critics are also concerned with the marketing of adult-oriented entertainment

products to children and teens, resulting in the FTC issuing a regular series of
reports, titled Marketing Violent Entertainment to Children, that criticizes the
industry for targeting children with advertisements for violent films, video
games, and music.

Targeting Economically Disadvantaged Consumers. Makers of alcohol and

tobacco products frequently employ billboards and other advertising media in
targeting brands to economically disadvantaged consumers.
o As a response to public outcries and regulators, marketers have withdrawn
marketing programs that targeted minorities. Examples discussed are:

Uptown cigarettes aimed at African Americans

PowerMaster high-alcohol malt liquor targeted to inner-city

residents

Dakota cigarettes targeted to young, economically downscale

women

Is Targeting Unethical or Just Good Marketing? Proponents of targeting argue

that it tailors products to consumers and provides them with products best suited
to their particular needs and wants. There is the possibility, however, that some
instances of targeting are aimed at exploiting consumer vulnerabilitiesthe target
marketer gains while society loses.
Ethical Issues in Advertising
Advertising is Untruthful and Deceptive. Although two-thirds of American
consumers think that advertising is untruthful, it would be nave to assume that
most advertising is deceptive. The advertising industry is not much different than
other institutions in a pluralistic society.
Advertising is Manipulative. Some critics assert that advertising has the power
to influence people to do things they would not do if they were not exposed to
advertising.
o When consumers are consciously aware that attempts are being made to
persuade or influence them, they have the cognitive capacity to resist
efforts to motivate them in a direction they wish not to be moved.
o However, there is growing evidence that much human behavior is not
under conscious control, and communicators can activate, or prime,

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subconscious thoughts in people using subtle techniques and subliminal

messages..

To be effective, the primed topic must be compatible with the

individuals current need states.

A primed goal state is limited in its length of influence.

Advertising is Offensive and in Bad Taste. Advertising critics contend that

many advertisements are insulting to human intelligence, vulgar, and generally
offensive to the tastes of many consumers. Admittedly, advertising has its excesses,
but a balanced view demands that critical evaluations of advertising be conducted
in a broader context of popular culture and other forms of mass-media
presentations.

Advertising Creates and Perpetuates Stereotypes. Advertising tends to portray

certain groups in a very narrow and predictable fashion. It is unfair to blame
advertising for creating these stereotypes, which, in fact, are perpetuated by all
elements in society.
People Buy Things They Do Not Really Need. Criticism that advertising causes
people to buy items or services they do not need is a value-laden judgment. Is
influencing consumer tastes and encouraging people to make purchases they may
not otherwise make unethical?
Advertising Plays upon Peoples Fears and Insecurities. Some advertisements
appeal to the negative consequences of not buying a product. However,
advertising possesses no monopoly on this transgression. (Note: Fear and guilt
appeals are covered more thoroughly in Chapter 11.)
In sum, the institution of advertising is certainly not free of criticism.
o The advertising industry has an important stake in its members acting
ethically so as to ward off public criticism and governmental regulation.
o Accordingly, advertising practitioners typically operate under ethical codes
of conduct, and the American Association of Advertising Agencies (AAAA,
or 4As) standard of ethics in advertising is given.
Ethical Issues in Public Relations
Many of the same ethical issues that apply to advertising apply here. One distinct
aspect worthy of separate discussion is the matter of negative publicity. The
primary ethical issue concerns whether firms confess to product shortcomings and
acknowledge problems or attempt to cover up the problems.
Ethical Issues in Packaging and Branding
Four aspects of packaging involve ethical issues:
1. Label information (e.g., presenting exaggerated information or by suggesting
that a product contains more of a desired attribute or less of undesired
attributes than is actually the case),

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2. Packaging graphics (e.g., when the picture on a package is not a true

representation of product contents or the package of a store brand looks
virtually identical to another, typically well-known, national brand),
3. Packaging safety (e.g., packaging is not tamper-proof and contain dangerous
products that are unsafe for children),
4. Environmental implications of packaging (e.g., non-biodegradable packaging).
Related to packaging ethics is that of brand naming, such as the brand name
suggesting that the brand possesses product features that it doesnt or will
deliver benefits that it cannot (e.g., CarbFree suggests that it has zero
carbohydrates, which could be deceiving).
Another ethical violation occurs when a company borrows (or steals) a brand
name from a better known and established brand.
o This is not only unethical but also illegal.
o Brand name piracy takes place when marketers in one country use
brand names for their products that are virtually the same as the names
of established brands from another country. (Note: Recall the Global
Focus that described one such situation in China.)
Ethical Issues in Sales Promotions
Slotting allowances, where retailers charge manufacturers a per-store fee for their
willingness to handle a new stock unit from the manufacturer, is an issue that many
feel has unethical overtones. (Note: This issue is discussed more thoroughly in
Chapter 17.)
Consumer promotions are unethical when manufacturers offer consumers a reward
for their behavior that is never delivered (e.g., failing to mail a free premium object
or to provide a rebate check) or leading consumers to believe their odds of
winning a sweepstake or contest are much greater than they actually are.
Consumers also engage in untoward activities such as submitting coupons at the
point of checkout for items not purchased or tendering phony rebate claims (Note:
Coupon misredemption and rebate fraud are discussed in Chapters 18 and 19.)
Ethical Issues in Online Marketing
Along with other ethical issues, privacy is probably the most important ethical
issue that is unique to the online medium.
Fostering Ethical Marketing Communications
The primary responsibility for ethical behavior resides within each of us. Integrity
is perhaps the pivotal concept of human nature. Although difficult to precisely
define, integrity involves avoiding deceiving others or behaving purely in an
expedient fashion. Marketing communications itself is not ethical or unethicalit

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is the degree of integrity exhibited by communications practitioners that determines

whether their behavior is ethical or unethical.
Ethical core values help guide individual ethical communications behavior. Two
core values that would go a long way toward enhancing ethical behavior are:
o treating customers with respect, concern, and honesty (i.e., the way one
would want themselves or their family members treated and
o acting toward the environment as if it were ones own property.
Firms can foster ethical marcom behavior by encouraging their employees to apply
each of the following tests when faced with an ethical predicament:
o act in a way that you want others to act toward you (the Golden Rule
Test);
o take only actions that would be viewed as proper by an objective panel of
your professional colleagues (the professional ethic test); and
o always ask, Would I feel comfortable explaining this action on television
to the general public? (the TV test).
2. Regulation of Marketing Communications
Regulation protects consumers and competitors from fraudulent, deceptive, and
unfair business practices.
When is regulation justified?
Regulation is needed most when consumer decisions are based on false or limited
information.
In theory, regulation is justified if the benefits realized exceed the costs.
Benefits include:

Consumer choice among alternatives is improved when consumers are better

informed in the market place.

Product quality tends to improve when consumers are better informed.

Reduced prices result from a reduction in a sellers informational market

power.

Costs include:

Cost of complying with a regulatory remedy.

Enforcement costs incurred by a regulatory agency and paid for by taxpayers.

Unintended side effects that might result from regulations (e.g., compliance
costs passed on to buyers in the form of higher prices).

Regulation of Marketing Communications By Federal Agencies

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Governmental regulation takes place at both the federal (Federal Trade

Commission) and state (National Association of Attorneys General) levels and
includes all facets of marketing communications. Advertising, the most
conspicuous aspect of marketing communications, receives the most attention.
The FTCs regulatory authority cuts across three broad areas that directly affect
marketing communicators: deceptive advertising, unfair practices, and information
regulation.
Deceptive Advertising

In a general sense, consumers are deceived by an advertising claim or campaign

when the impression left by the claim or campaign is false (a claim-fact
discrepancy) and consumers believe the false claim or campaign.

There are three elements that provide the essence of the FTCs deception
policy:
1. Misleading. There must be a representation, omission, or a practice that is
likely to mislead the consumer.
o A misrepresentation is defined by the FTC as an express or
implied statement contrary to fact.
o A misleading omission is said to occur when qualifying
information necessary to prevent a practice, claim,
representation, or reasonable expectation or belief from being
misleading is not disclosed.
2. Reasonable Consumer. The act or practice must be considered from the
perspective of the reasonable consumer. The FTC evaluates advertising
claims case by case in view of the target audiences unique positionits
education level, intellectual capacity, and mental frame of mind
3. Material. A material representation involves information that is important
to consumers, is likely to influence their choice or conduct regarding a
product, and pertains to the central characteristics of a product. Nonmaterial representation usually involves information that, even if untrue, is
not related to central characteristics of the product (e.g., how long a
company has been in business).

Unfair Practices

A finding of unfairness to consumers may go beyond questions of fact and

relate merely to public values. The criteria used to evaluate whether a business
act is unfair involve such considerations as whether the act:
1. Offends public policy as it has been established by statutes.
2. Is immoral, unethical oppressive, or unscrupulous.
3. Causes substantial injury to consumers, competitors, or other businesses.

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Congress defined 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 are not outweighed by countervailing benefits to
consumers or competition.

In recent years, the FTC has most actively applied the unfairness doctrine to
numerous instances of telemarketing scams and Internet fraud.

Information Regulation

Regulation may also provide consumers with information that they may not
otherwise receive. The corrective advertising program is the most important of
the FTCs information provision programs.

Corrective advertising is based on the premise that a firm that misleads

consumers should have to use future advertisements to rectify the deceptive
impressions it has created in consumers minds. It is used to prevent a firm
from continuing to deceive consumers rather than to punish the firm.
o The most prominent corrective advertising order issued by the FTC
was given to Warner-Lamberts Listerine mouthwash over 30 years
ago. The ads for this product misled consumers by claiming that
Listerine helps to prevent colds and sore throats.
o In one of the first major applications of corrective advertising since the
Listerine case, the FTC issued a corrective order against the Novartis
Corporation and its Doans Pills for misrepresenting that Doans Pills
outperform other over-the-counter analgesics in treating back pain.
o The objective of corrective advertising is to restore the marketplace to
its original position prior to the deceptive advertising.

Product Labeling

The Food and Drug Administration (FDA) is the federal body responsible for
regulating information on the packages of food and drug products.

Prescription Drug Advertising

Whereas the FTC is responsible for regulating deceptive and unfair advertising
(including over-the-counter drugs), the FDA regulates advertisements for
prescription drugs.

This has been a major challenge in recent years with the onset of direct-toconsumer (DTC) advertising, which is a form of advertising involving
messages for prescription drugs that are directed toward consumers.

The FDA requires prescription drug advertisements to be balanced and to share

full information about side effects as well as benefits.

State Agencies Regulation of Marketing Communications

Individual states have their own statutes and regulatory agencies to police the
marketplace from fraudulent business practices. Increased activity in state efforts

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to regulate advertising deception and other business practices poses a potentially

significant problem for national advertisers who find themselves subject to multiple
and inconsistent regulations. The National Association of Attorneys General
(NAAG) is particularly active in states regulation of advertising.
Advertising Self-Regulation
Self-regulation, when undertaken by advertisers themselves, is a form of private
government whereby peers establish and enforce voluntary rules of behavior.
Media Self-Regulation

The advertising clearance process is a form of self-regulation that takes place

behind the scenes before a commercial or other advertisement reaches
consumers. The clearance steps include:
o advertising agency clearance
o approval from the advertisers legal department
o media approval

The National Advertising Review Council (NARC).

The NARC is a partnership of the Association of National Advertisers, the

American Association of Advertising Agencies, the American Advertising
Federation and the Council of Better Business Bureaus National Advertising
Division (NAD). NARC consists of three review units:
o The Childrens Advertising Review Unit (CARU), which monitors
childrens television programming and commercials;
o National Advertising Division (NAD), which is the investigative arm that is
responsible for evaluating, investigating, and holding initial hearings with
an advertiser on complaints involving truth or accuracy of national
advertising; and
o National Advertising Review Board (NARB), which is a court consisting of
fifty representatives who are formed into five-member panels to hear
appeals of NAD cases when an involved party is dissatisfied with the initial
verdict.

Cases are brought to the NAD by competitors, initiated by the NAD staff itself,
or originate from local Better Business Bureaus, consumer groups, and
individual consumers.

3. Environmental, or Green, Marketing Communications

People are concerned with the depletion of natural resources and the degradation
of the physical environment.
Companies have responded to environmental concerns by introducing
environmentally oriented products and undertaking aggressive marketing
communications programs referred to as green marketing. Unfortunately, there is
relatively little evidence that many consumers are much interested in paying more
for environmentally friendly products.

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Green Marketing Initiatives

Responses to environmental problems mostly have been in the form of new or
revised products (e.g., hybrid automobiles such as the Toyota Prius).
The major green communications efforts involve advertisements that promote
green products, environmentally friendly packaging, seal-of-approval programs
that promote green products, cause-oriented communication efforts that support
green products, and point-of-purchase display materials that are environmentally
efficient.
Green Advertising

Three types of green advertising are those which:

1. address a relationship between a product/service and the biophysical
environment;
2. promote a green lifestyle without highlighting a product or service; and
3. present a corporate image of environmental responsibility.

Packaging Responses

Various efforts have been initiated to improve the environmental effectiveness

of packaging materials (e.g., recyclable plastic bottles, using paperboard
packages for burgers instead of polystyrene clamshell containers).

On the negative side, however, there is evidence that package materials often
are wasted due to the practice called short filling, which means that the
package actually contains less than the amount indicated on the package.

Seal-of-Approval Programs

Organizations around the world have designed programs to assist consumers in

identifying environmentally friendly products and brands.

Germany - Blue Angel seal.

United States - Green Seal.

North America 100% Recycled Paperboard Alliance with a logo that

consists of 10 small arrows pointing to the words 100% Recycled
Paperboard.

Cause-Oriented Programs (Note: Cause-oriented marketing is discussed again

in Chapter 20.)

Cause-oriented marketing is practiced when companies sponsor or support

worthy causes (i.e., environmental causes) in anticipation that associating the
company and its brands with a worthy cause will generate goodwill.

Point-of-Purchase Programs

Many of the displays sent by manufacturers to retailers are never used and
simply end up in landfills. A better understanding of retailers point-ofpurchase needs would lead to fewer unused and discarded displays, and

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increased use of permanent displays (i.e., those engineered to last at least six
months see Chapter 8) would substantially reduce the number of temporary
displays that are quickly discarded.
Guidelines for Green Marketing
FTCs guidelines for environmental marketing claims outline four general
principles:
1. qualifications and disclosures should be sufficiently clear and prominent to
prevent deception;
2. claims should make clear whether they apply to the product, the package, or a
component of either;
3. claims should not overstate an environmental attribute or benefit, whether
expressly or by implication; and
4. comparative claims should be presented in a manner that makes the basis for
the comparison sufficiently clear to avoid consumer deception.
In addition to these general guidelines, marcom practitioners are offered four
general recommendations:
1. Make Specific Claims. Specific environmental claims enable consumers to
make informed choices, reduce the likelihood that claims will be
misinterpreted, and minimize the chances that consumers will think that a
product is more environmentally friendly than it actually is.
2. Reflect Current Disposal Options. This recommendation is directed at
preventing environmental claims that are technically accurate but practically
unrealizable due to local trash disposal practices.
3. Make Substantive Claims. Marketing communicators should not use trivial
and irrelevant environmental claims to convey the impression that a promoted
brand is environmentally sound.
4. Make Supportable Claims. Environmental claims should be supported by
competent and reliable scientific evidence.