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4-7a: Federal Legislation

Federal laws that affect marketing fall into several categories of regulatory activity:

competitive environment, pricing, advertising and promotion, and consumer privacy. The

key pieces of legislation in these areas are summarized in Exhibit 4.1. The primary federal

laws that protect consumers are shown in Exhibit 4.2.

Exhibit 4.1: PRIMARY U.S. LAWS THAT AFFECT MARKETING

Legislation Impact on Marketing

Sherman Act of 1890

Makes trusts and conspiracies in restraint of trade illegal; makes monopolies and attempts to monopolize misdemeanors.

Clayton Act of 1914

Outlaws discrimination in prices to different buyers; prohibits tying contracts (which require the buyer of one product to also buy another item in the line); makes illegal the combining of two or more competing corporations by pooling ownership of stock.

Federal Trade Commission Act of 1914

Created the Federal Trade Commission to deal with antitrust matters; outlaws unfair methods of competition.

Robinson- Patman Act of 1936

Prohibits charging different prices to different buyers of merchandise of like grade and quantity; requires sellers to make any supplementary services or allowances available to all purchasers on a proportionately equal basis.

Wheeler-Lea Amendments to FTC Act of 1938

Broadens the Federal Trade Commission’s power to prohibit practices that might injure the public without affecting competition; outlaws false and deceptive advertising.

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Legislation Impact on Marketing

Lanham Act of 1946

Establishes protection for trademarks.

Celler- Kefauver Antimerger Act of 1950

Strengthens the Clayton Act to prevent corporate acquisitions that reduce competition.

Hart-Scott- Rodino Act of 1976

Requires large companies to notify the government of their intent to merge.

Foreign Corrupt Practices Act of 1977

Prohibits bribery of foreign officials to obtain business.

© Cengage Learning

Exhibit 4.2: PRIMARY U.S. LAWS PROTECTING CONSUMERS

Legislation Impact on Marketing

Federal Food and Drug Act of 1906

Prohibits adulteration and misbranding of foods and drugs involved in interstate commerce; strengthened by the Food, Drug, and Cosmetic Act (1938) and the Kefauver-Harris Drug Amendment (1962).

Federal Hazardous Substances Act of 1960

Requires warning labels on hazardous household chemicals.

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Legislation Impact on Marketing

Kefauver- Harris Drug Amendment of 1962

Requires that manufacturers conduct tests to prove drug effectiveness and safety.

Consumer Credit Protection Act of 1968

Requires that lenders fully disclose true interest rates and all other charges to credit customers for loans and installment purchases.

Child Protection and Toy Safety Act of 1969

Prevents marketing of products so dangerous that adequate safety warnings cannot be given.

Public Health Smoking Act of 1970

Prohibits cigarette advertising on television and radio and revises the health hazard warning on cigarette packages.

Poison Prevention Labeling Act of 1970

Requires safety packaging for products that may be harmful to children.

National Environmental Policy Act of 1970

Established the Environmental Protection Agency to deal with various types of pollution and organizations that create pollution.

Public Health Cigarette Smoking Act of 1971

Prohibits tobacco advertising on radio and television.

Consumer Product Safety Act of 1972

Created the Consumer Product Safety Commission, which has authority to specify safety standards for most products.

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Legislation Impact on Marketing

Child Protection Act of 1990

Regulates the number of minutes of advertising on children’s television.

Children’s Online Privacy Protection Act of 1998

Empowers the FTC to set rules regarding how and when marketers must obtain parental permission before asking children marketing research questions.

Aviation Security Act of 2001

Requires airlines to take extra security measures to protect passengers, including the installation of stronger cockpit doors, improved baggage screening, and increased security training for airport personnel.

Homeland Security Act of 2002

Protects consumers against terrorist acts; created the Department of Homeland Security.

Do Not Call Law of 2003

Protects consumers against unwanted telemarketing calls.

CAN-SPAM Act of 2003

Protects consumers against unwanted e-mail, or spam.

Credit Card Act of 2009

Provides many credit card protections.

Restoring American Financial Stability Act of 2010

Created the Consumer Financial Protection Bureau to protect consumers against unfair, abusive, and deceptive financial practices.

© Cengage Learning

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In 2010, Congress passed the Restoring American Financial Stability Act that brought

sweeping changes to bank and financial market regulations. The legislation created the

Consumer Financial Protection Bureau to oversee checking accounts, private student loans,

mortgages, and other financial products. The agency deals with unfair, abusive, and

deceptive practices.

4-7b: State Laws

Legislation that affects marketing varies state by state. Oregon, for example, limits utility

advertising to 0.5 percent of the company’s net income. California has forced industry to

improve consumer products and has enacted legislation to lower the energy consumption of

refrigerators, freezers, and air conditioners. Several states, including California and North

Carolina, are considering levying a tax on all in-state commercial advertising.

Many states and cities are attempting to fight obesity by regulating fast-food chains and

other restaurants. For example, California has passed a law banning trans fats in

restaurants and bakeries, New York City chain restaurants must now display calorie counts

on menus, and Boston has banned trans fats in restaurants.

4-7c: Regulatory Agencies

Although some state regulatory bodies actively pursue violators of their marketing statutes,

federal regulators generally have the greatest clout. The Consumer Product Safety

Commission, the Federal Trade Commission, and the Food and Drug Administration are the

three federal agencies most directly and actively involved in marketing affairs. These

agencies, plus others, are discussed throughout the book, but a brief introduction is in order

at this point.

The sole purpose of the Consumer Product Safety Commission (CPSC) is to protect the health

and safety of consumers in and around their homes. The CPSC has the power to set

mandatory safety standards for almost all products consumers use (about 15,000 items) and

can

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fine offending firms up to $500,000 and sentence their officers to up to a year in prison. It

can also ban dangerous products from the marketplace. The CPSC oversees about 400 recalls

per year. In 2008, Congress passed the Consumer Product Safety Improvement Act. The law

is aimed primarily at children’s products, which are defined as those used by individuals

twelve years old or younger. The law addresses items such as cribs, electronics and video

games, school supplies, science kits, toys, and pacifiers. The law requires mandatory testing

and labeling and increases fines and prison time for violators.

Consumer Product Safety Commission (CPSC)

a federal agency established to protect the health and safety of consumers in and

around their homes

The Food and Drug Administration (FDA), another powerful agency, is charged with

enforcing regulations against selling and distributing adulterated, misbranded, or

hazardous food and drug products. In 2009, the Tobacco Control Act was passed. This act

gave the FDA authority to regulate tobacco products, with a special emphasis on preventing

their use by children and young people and reducing the impact of tobacco on public health.

Another recent FDA action is the “Bad Ad” program. It is geared toward health care

providers to help them recognize misleading prescription drug promotions and gives them

an easy way to report the activity to the FDA.

Food and Drug Administration (FDA)

a federal agency charged with enforcing regulations against selling and distributing

adulterated, misbranded, or hazardous food and drug products

The Federal Trade Commission (FTC) consists of five members, each holding office for seven

years. Over

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the years, Congress has greatly expanded the powers of the FTC. Its responsibilities have

grown so large that the FTC has created several bureaus to better organize its operations.

One of the most important is the Bureau of Competition, which promotes and protects

competition. The Bureau:

reviews mergers and acquisitions, and challenges those that would likely lead to higher

prices, fewer choices, or less innovation;

seeks out and challenges anti-competitive conduct in the marketplace, including

monopolization and agreements between competitors;

promotes competition in industries where consumer impact is high, such as health

care, real estate, oil and gas, technology, and consumer goods; and

provides information and holds conferences and workshops for consumers, businesses,

and policy makers on competition issues for market analysis.

Federal Trade Commission (FTC)

a federal agency empowered to prevent persons or corporations from using unfair

methods of competition in commerce

The FTC’s Bureau of Consumer Protection works for the consumer to prevent fraud,

deception, and unfair business practices in the marketplace. The Bureau claims that it:

enhances consumer confidence by enforcing federal laws that protect consumers,

empowers consumers with free information to help them exercise their rights and to

spot and avoid fraud and deception, and

wants to hear from consumers who want to get information or file a complaint about

fraud or identity theft.

Another important FTC Bureau is the Bureau of Economics. It provides economic analysis

and support to antitrust and consumer protection investigations. Many consumer

protection issues today involve the Internet.

CONSUMER PRIVACY

The popularity of the Internet for direct marketing, for collecting consumer data, and as a

repository for sensitive consumer data has alarmed privacy-minded consumers. The U.S.

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Congress passed the CAN-SPAM Act in an attempt to regulate unsolicited e-mail advertising.

The act prohibits commercial e-mailers from using false addresses and presenting false or

misleading information, among other restrictions.

Internet users who once felt fairly anonymous when using the Web are now disturbed by

the amount of information marketers collect about them and their children as they visit

various sites in cyberspace. The FTC, with jurisdiction under the Children’s Online Privacy

Protection Act, requires Web site operators to post a privacy policy on the home page and a

link to the policy on every page where personal information is collected. An area of growing

concern to privacy advocates is called behavioral targeting, which is discussed in more

detail in Chapter 9. Behavioral targeting is used by researchers to better target advertising

to Web surfers and users of search engines and social media.

In 2012, the FTC called for online data collectors to adopt better privacy policies and asked

Congress to pass comprehensive privacy legislation. The FTC wants data collectors to

implement a “Do Not Track” button in Web browsers. “No one has the right to put anything

on [your

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computer] that you don’t want,” said Jon Leibowitz, chairman of the FTC.

THE EYES OF THE E-BOOK

Online privacy is a fairly common discussion today, particularly in U.S. legislation. But few

people mention e-reader privacy, despite the ever increasing numbers of e-books sold each

year. However, the companies that sell e-books are able to track how people read, what

they read, the amount of time spent in each book, and even what passages they underline

and bookmark. While Amazon touts this feature as a “collective intelligence,” the Electronic

Frontier Foundation (EFF) is concerned that this data could be used against individuals. In

California, the EFF has worked to implement legislation requiring a warrant before

personal e-reader data is released for investigation. The EFF hopes to encourage other

states to enact the same legislation in order to safeguard consumer privacy.

Source: Alexandra Alter, “Your E-Book is Reading You,” Wall Street Journal, July 19, 2012

(Accessed September 3, 2012)

http://online.wsj.com/article/SB10001424052702304870304577490950051438304.html.

© iStockphoto.com/Bill Noll

The agency also turned its attention to off-line data brokers—which buy and sell names,

addresses, and other personal information—calling on them to create a centralized Web site

providing consumers with better access to their data. The agency also wants legislation

requiring data brokers to give consumers the right to see and make corrections to their

information.

4-8: COMPETITIVE FACTORS

The competitive environment encompasses the number of competitors a firm must face, the

relative size of the competitors, and the degree of interdependence within the industry.

Management has little control over the competitive environment confronting a firm.

4-8a: Competition for Market Share and Profits

As U.S. population growth slows, global competition increases, costs rise, and available

resources tighten, firms find that they must work harder to maintain their profits and

market share regardless of the form of the competitive market. Sometimes technology

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advances can usher in a whole new set of competitors that can change a firm’s business

model. In the single-serve coffee brewing market, Keurig and Green Mountain have the

lion’s share of the market, but Starbucks is hoping to cash in on some of that market share

by working with Green Mountain to package its super-premium coffee into the single-serve

pods used in the Keurig machines. Dunkin’ Donuts coffee is also offered by Green Mountain,

but Starbucks would represent the only super-premium coffee offered by the company. This

is one of several moves Starbucks is making to add profit growth by selling in consumer

goods markets beyond its retail coffee shops.

4-8b: Global Competition

Boeing is a very savvy international business competitor. Many foreign competitors also

consider the United States to be a ripe target market. Thus, a U.S. marketing manager can no

longer focus only on domestic competitors. In automobiles, textiles, watches, televisions,

steel, and many other areas, foreign competition has been strong. In the past, foreign firms

penetrated U.S. markets by concentrating on price, but today the emphasis has switched to

product quality. Nestlé, Sony, and Rolls-Royce are noted for quality, not cheap prices. Global

competition is discussed in much more detail in Chapter 5.

STUDY TOOLS 4

LOCATED AT BACK OF THE TEXTBOOK

Rip out Chapter Review Card

LOCATED AT WWW.CENGAGE.COM/LOGIN

Review Key Terms Flashcards (print or online)

Download audio and visual summaries to review on the go

Complete both Practice Quizzes to prepare for tests

Play “Beat the Clock” and “Quizbowl” to master concepts

Complete “Crossword Puzzle” to review key terms

Watch Video on “GaGa’s Inc.” for a real company example

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