Advertising Society&

Economics
 The effects of advertising on our
economy
 Ethics
 The effects of advertising on our society
 Regulation
 Our attempts to manage those effects
 Power or Information?
Market Power
 Advertising
 Persuades consumer to
purchase one brand over
another more often
 Excess brand profits
 Higher barriers to entry
and more market power
 More advertising leads to
greater brand loyalty
 Reduce quality/raise price
 Reduced consumer
sovereignty
 Monopoly
Market Information
 Advertising
 Increased consumer knowledge
 More substitute products
consumers can consider
 Lower barriers to entry
by new brands
 Reduced market power for
any individual brand
 Better pricing/distribution
more product innovation
 Optimal brand profits, consumer
choice, and price benefits
What do you think?
 Advertising = Market Power

 Advertising = Market Information

 Or both?
Some Economic Questions:

 How does advertising affect the

price of a new car?
 How does advertising affect the
price of a latté from Starbucks?
 How does advertising affect the
way that you spend your money?
Some Economic Questions:

 Can ads make people buy things

they don’t want or need?
 Can ads make people more
materialistic?
 Are the benefits of advertising
worth the annoyance?
An Ethical Debate
 Ads destroy  Ads give consumers
freedom of choice more choices

 Ads destroy  Ads = freedom of

democracy/media speech

 Advertising warps  Ads simply reflect

social values the “real world”
3 Ethical Issues:
1) Advocacy
 What does the advertising advocate?
2) Accuracy
 How accurate is the advertising?
 Some of this depends on susceptibility
of the audience (i.e., kids).
3) Acquisitiveness
 What is the overall effect?
 Does it make us more materialistic?
5 Controversial Issues:
1) Puffery "Nothing beats a Bud”
2) Decency Sexual innuendo, violence
3) Stereotyping Portrayals of housewives,
seniors, racial groups
4) Children Violence, dangerous acts,
unhealthy habits
5) Controversy Condoms, alcohol, fashion
Regulation - 2 Main Purposes
Regulation - 3 Main Areas
 Purpose for advertising regulation
 To protect competition
 To protect consumers from economic or
physical harm
 Regulations are concerned with
 Deceptive or unfair content
 How advertising is delivered
 Protection of susceptible groups (kids, etc.)
5 FTC Concerns:
1) Deception Must lead to material injury.
2) Comparisons Must substantiate with
statistically significant data.
3) Endorsements Must be qualified;
must use product.
4) Demonstrations Must be accurately depicted.
5) “Bait & Switch” Product must be available.
4 Possible Remedies for
Deceptive Ads:
1) Consent Decree FTC asks advertiser to stop.

2) Cease & Desist FTC gets court order to

force advertiser to stop.

3) Corrective Ads FTC mandates new ads to

correct false perceptions.

4) Consumer Redress FTC mandates reimbursement.

6 Government Regulatory
Groups:
1) FDA Packaging and labeling
2) FCC Broadcast advertising
3) Postal Service Magazines, direct mail
4) ATF Liquor labeling, advertising
5) Patent Office Trademarks
6) Library of Congress Copyrights
2 Industry Watchdogs

1) NAD (National Advertising Division)

- Part of Better Business Bureau

2) National Advertising Review Board

- Represents advertisers and agencies
- A division of the NAD

 Compliance is strictly voluntary

Big Questions
 What do you think is the biggest
benefit of advertising?
 What do you think is the biggest
problem with advertising?
 What do you think is the best example
of bad advertising?
 What do you think is the best example
of good advertising?