Reflection paper
5t277090r
Chap003-2.pptxChapter 3 The Big Picture: Economic and Regulatory Aspects
William F. Arens Michael F. Weigold Christian Arens
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Today’s Objectives
Classify two types of social criticisms of advertising
Use economic model to discuss advertising effects on society
Explain social responsibility and ethics
Understand how governments regulate advertising
Discuss regulatory issues affecting advertising
Describe how federal agencies protect consumers, competitors
Define regulatory roles of state/local government
Discuss how other agencies fight fraudulent and deceptive ads
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
2
Basic Goals of Free Market
society is best served by empowering people to make their own decisions and act as free agents
Free Enterprise: “the most good for the most people.”
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Advertising Controversies
Affect product value?
Encourage materialism?
Affect us subliminally?
Promote or discourage competition?
Affect demand?
Cause higher or lower prices?
Debase language?
Affect art and culture?
Make us buy things we don’t need?
Influence choices?
Both economic and social concerns Does advertising . . .
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
4
Effect on Product Value
Advertising gives products added value
Are advertised products necessarily better?
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Economic Impact: Billiards Model
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
6
| Prices |
| Consumer pays-ads small % of cost Mass production lowers unit cost Gov’t price control Ads can support higher or lower prices |
| Competition |
| Can reduce businesses in industry Inhibit new competitors Regional and local competition can work |
Economic Impact: Affected Areas
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
7
| Consumer Choice |
| Encourages unique products, services New, better brands dominate Wider choices for consumers |
| Consumer Demand |
| Stimulates primary demand Influences selective demand Influences conquest sales |
Economic Impact: Affected Areas
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
8
Historically, in hard economic times, companies cut promotional expenditures. That may help short-term profits, but studies prove that businesses that continue to advertise during a recession are better able to protect, and sometimes build, market shares.
| Business Cycles | |
| Advertising contributes to the increase | Advertising acts as a stabilizing force |
Economic Impact: Affected Areas
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
9
when business cycles are up, advertising contributes to the increase. When business cycles are down, advertising may act as a stabilizing force by encouraging more buyers to buy.
Keeps consumers informed about alternatives (complete information)
Abundance Principle
In an economy that produces more goods & services than can be consumed, advertising:
Allows companies to compete more effectively (self-interest)
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
10
Advertising Stimulations
Advertising stimulates
Innovation
and new products
Competition (many buyers and sellers)
Better education consumers
Healthy economy
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
In countries where people have more income to spend after their physical needs are satisfied, advertising also stimulates innovation and new products.
11
Social Impact: Criticisms
Short-term Manipulative Arguments
Deception
Unfair Practices
False promises
Bait-and-switch
Visual distortions
False demonstrations
False testimonials
Partial disclosure
Small-print qualifications
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
12
Social Impact Criticisms
Promotes materialism
Incomplete information
External societal costs
Manipulation
Long-term Macro Arguments
Effects on Value System
17% of U.S. Consumers say Advertising is a source for purchase decisions
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
13
Proliferation of Advertising
Too much
Clutters the different mediums
Nuisance for customers
Lower effectiveness for advertisers
500-1,000 Ad messages /day
More Ads = Less Effective
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Stereotyping
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Prime time
appropriateness
Insensitivity
Whether or not an ad is labeled insensitive depends on
Subjectivity
Geography
Nudity
Language
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Research evidence suggests that many Americans value their ethnic identities, and prefer brands that speak to them. This in turn has led agencies to see the value of diversifying their own ranks to better understand and communicate with their client’s consumers.
16
Social Impact in Perspective
Negative
Incomplete information
Creates unwanted externalities (e.g. interferes with free press)
Biased
Positive
Contributes to growth and prosperity
Rich information source
Offers information not found in other sources
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
17
Social Responsibility and Ethics
Promote well-being
Promote harmony, stability
Influence
elections
Draw
crowds to events
Responsible advertising
can...
Ethical = morally right
Socially Responsible = society views as best
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
18
Interrelated Components of Ethics
Traditional actions of people in a society or community
Philosophical rules society sets to justify past or future actions
Attitudes, feelings, and beliefs of personal value system
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
19
Levels of Ethical Responsibility
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
20
How Government Regulates
State
Governor, attorney general, various departments
Municipal
Mayor, city manager,
police chief, courts,
city attorney
National Legislative, executive, judiciary
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
21
Pitfalls of International Regulation
Varies from country to country
Restrictions on what is said, shown, done
Bans on specific products
Time slot restrictions
Bans on coupons, premiums, tie-in offers
Prohibition of paid placements in shows
Arbitrary rulings
Pre-approval requirements
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
22
Current U.S. Regulatory Issues
Supreme Court: “speech” or “commercial speech”
Tobacco Controversy
Advertising to Children
Consumer Privacy
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
23
For businesspeople who believe that commercial speech should be afforded protection under the First Amendment, the tobacco case is ominous.
They warn that this selective limitation of freedom of commercial speech threatens every legal business in America, especially because any limitation on the freedom to advertise automatically gives a huge, monopolistic advantage to those big brands that are already the category leaders.
To promote responsible children’s advertising and to respond to public concerns, the Council of Better Business Bureaus established the Children’s Advertising Review Unit (CARU). CARU advises advertisers and agencies and also offers informational material for children, parents, and educators. The basic activity of CARU is the review and evaluation of child-directed advertising in all media
Speech: Central Hudson Test
Does the commercial speech at issue concern a lawful activity?
Will the restriction of commercial speech serve the asserted government interest substantially?
Does the regulation directly advance the government interest asserted?
Is the restriction no more than necessary to further the interest asserted?
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
24
Central Hudson Gas & Electric Corp. v. Public Service Commission, 447 U.S. 557 (1980), was an important case decided by the United States Supreme Court that laid out a four-part test for determining when restrictions on commercial speech violated the First Amendment of the United States Constitution.
Fair Information Practice (Internet)
FTC and Network Advertising Initiative
5 Principles
Notice: Privacy policy posted
Choice: Consumer control over information
Access: Consumers access/amend collected information
Security: Advertisers protect data
Enforcement: 3rd party monitoring.
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Federal Regulation: Agencies
FTC
Deceptive, unfair, comparative ads
FDA
FCC
Patent & Trademark Office
Library of Congress
Nutritional Labeling & Education Act (NLEA)
Broadcast media licensing
Intellectual property
Copyrights “works of authorship”
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
26
The FTC defines deceptive advertising as any ad that contains a misrepresentation, omission, or other practice that can mislead a significant number of reasonable consumers to their detriment.
Unfair advertising occurs when a consumer is “unjustifiably injured” or there is a “violation of public policy” (such as government statutes). Unfair advertising is the result of a lack of complete information, and/or some other externality.
Federal Regulation: Trademarks
Coca-Cola’s trademark look is retained through use of similar letterforms and style, even with different alphabets
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
27
State & Local Regulation
Printer’s Ink guidelines: untrue, deceptive, misleading
National marketers comply with states’ laws
Local government regulation: city and county consumer protection agencies
“Little FTC” consumer protection acts
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
28
Nongovernment Regulation
Better Business Bureau (BBB)
National Advertising Review Council (NARC)
National Advertising Division (NAD)
National Advertising Review Board (NARB)
Regulation by the media
Regulation by consumer groups
Self-regulation by advertisers
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
29
Self-Regulation: Agencies & Associations
Advertising Agencies
Research and verify claims and comparative data before use
Liable for misleading/fraudulent claims
May use in-house legal counsel
Industry-Wide Associations
American Association of Advertising Agencies (AAAA)
American Advertising Federation (AAF)
Assoc. of National Advertisers (ANA)
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
30
Self-Regulation: AAF Principles
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
31
