Chapter 24 Economic, Social, and Legal Effects of Advertising

History of Advertising Criticism

Era of Exaggerated Claims, 1865-1900

Era of Public Awareness, 1900-1965

Era of Social Responsibility, 1965-present

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Economic Arguments In Favor of Advertising_1 Advertising provides consumers with information to make decisions. Advertising supports news and entertainment media, providing social benefits as well as employment opportunities. Advertising encourages continued product improvements.
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Economic Arguments In Favor of Advertising_2 Advertising permits companies to achieve economies of scale in production. Advertising contributes to economy by increasing consumption.

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Economic Arguments Against Advertising

1. Intent of advertising is to persuade, not inform. 2. Advertising mostly creates switching behavior rather than new consumption. 3. Advertising may emphasize emotion over price competition. 4. High rate of expenditures makes it difficult for new products to enter market.
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Social Role of Advertising

Inadvertent social role: social agenda

Overt social role: social change

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Exhibit 24.3 Social Causes Promoted with Advertising

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Social Criticisms of Advertising

Privacy concerns

Product placement

Influence on obesity

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Social Criticisms
Ad content Product categories Excess Societal influence

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The Ad Council Addresses Many Social Issues

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Social Criticisms
Ad content Product categories Excess Societal influence

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Cause-Related Marketing

The Home Depot Foundation supports non-profit organizations.

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Cause-Related Marketing

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Tactical Categories of CRM

Transactional programs

Message promotions

Licensing programs

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Constraints on Advertising
Laws and regulations of legally constituted bodies such as Congress and the Federal Trade Commission Control by media through guidelines for advertising acceptability Self-regulation by advertising agencies using various trade practice recommendations and codes of conduct

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Federal Trade Commission

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Determining Deception in Advertising

There must be representation, omission, or practice likely to mislead consumers.

The act or practice must be considered from the perspective of a reasonable consumer. The representation, omission, or practice must be material.

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Steps in FTC Enforcement_1

1: A claim of deceptive practices is given to the FTC. 2: The FTC begins investigation with a request for substantiation. 3: If the FTC finds the practice to be unsubstantiated, a complaint is issued.

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Steps in FTC Enforcement_2

4: If advertiser refuses to sign consent decree, a cease and desist order is issued. 5: FTC may request that the advertiser to run corrective advertisements. 6: If a company cannot reach an agreement with the FTC, it will move to the Federal Court of Appeals.

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Common Areas of FTC Inquiry

Environmental Claims Made in the USA Claims
Free Claims

Fact vs. Puffery Warranties and Guarantees

Testimonials

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The Robinson-Patman Act and Cooperative Advertising

1890 Federal Sherman Antitrust Act

1914 Clayton Antitrust Act

1936 Robinson-Patman Act

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Major Provisions of the CAN-SPAM Act

It bans false or misleading header information. It prohibits deceptive subject lines. It requires that your email give recipients an opt-out method. It requires that commercial email be identified as an advertisement and include the senders valid physical postal address.

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Problems Cited for Comparison Advertising

Risk of promoting competitive brands May appear unfair to consumers and damage reputation of brand using it May precipitate lawsuits by companies who feel their brands were unfairly disparaged

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The BBB Promotes Self-Regulation

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Exhibit 24.9 The NARC Review Process

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The Childrens Advertising Unit of the NAD

Product presentations and claims
Disclosures and disclaimers Endorsements and promotions Safety

Sales pressure Comparative claims Premiums, sweepstakes Interactive media

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CARU

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