chapter 02 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights...

chapter02

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

The Economic, Social and Regulatory Aspects

of Advertising

2-3

Chapter 2 Objectives

Discuss the impact of advertising on the

economy

Debate the validity of the various social criticisms

of advertising

Describe how government agencies regulate advertising to

protect both consumers and competitors

Explain the difference between social

responsibility and ethics in advertising

Discuss the activities of nongovernment

organizations in fighting fraudulent and deceptive

advertising

2-4

Controversies

Economic Societal affect product value?

make us morematerialistic?

increase prices?discourage

competition?

affect demand?

make us buy thingswe don’t need?

debase language?

affect art?

affect us subliminally?

influence consumerchoice?

Does advertising . . .

2-5

Economic Impact:Principles

Self-interestComplete

information

Absence ofexternalities

Many buyers& sellers

2-6

Economic Impact:Per Capita Ad Spending

2-7

Economic Impact:Billiards Model

2-8

Economic Impact:Four Affected Areas

ProductValue

-Communicates brand image

-Educates customers

-Associates w/ desirable image

2-9

Economic Impact:Four Affected Areas

ProductValue

Prices & Competition

-Communicates brand image

-Educates customers

-Associates with desirable image

Increase:

-Branding

-Ad costs

Decrease:

-Competition

-Efficiency

2-10

Economic Impact:Four Affected Areas

ProductValue

Prices & Competition

Consumer Demand

-Communicates brand image

-Educates customers

-Associates with desirable image

Increase:

-Branding

-Ad costs

Decrease:

-Competition

-Efficiency

Primary:

-Product Category

Secondary:

-Particular Brand

2-11

Economic Impact:Four Affected Areas

ProductValue

Prices & Competition

Consumer Demand

Consumer Choice

-Communicates brand image

-Educates customers

-Associates with desirable image

Increase:

-Branding

-Ad costs

Decrease:

-Competition

-Efficiency

Primary:

-Product Category

Secondary:

-Particular Brand

Product differentiation

2-12

Economic Impact:Abundance PrincipleIn an economy that produces more goods & services than can be consumed, advertising:

Self-interestComplete

information

Absence ofexternalities

Many buyers& sellers

Allows more-effective

competition

Stimulates competition

Keeps consumers informed

Self-regulates to keep market free & open

2-13

Social Impact:Two Types of Criticism

Short-term manipulative arguments

Deception:puffery, nonproduct

facts, bias, inaccuracy

Proliferation Stereotyping Offensive

Social impact Impacts values

Long-term macro arguments

Subliminalmyth

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Average person views 500 to 1000 commercial messages

per day

The more ads a consumer views, the

less effective each one is

More media choices

equals more exposure to

ads

FCC has considered commercial

time limits on TV

The Proliferation of Advertising

2-15

Offensive Advertising

Tobacco Controversy

Consumer Privacy

Supreme Court: “speech” or “commercial speech”

Advertising to Children

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Public service announcement from The U.S. Department of Health & Human Services

Social Responsibility and Ethics

2-17

Social Responsibility and Ethics

Promotewell-being

Promoteharmony &

stability

Influenceelections

Drawcrowds to

events

Responsibleadvertising

can . . .

Ethical:morally right

Socially Responsible:what society views as best

2-18

Leclerc addresses the issue of pollution

Social Responsibility and Ethics

2-19

Current U.S.Regulatory Issues

Tobacco Controversy

Consumer Privacy

Supreme Court: “speech” or “commercial speech”

Advertising to Children

2-20

Federal Regulation:Agencies

Nutritional Labeling & Education

Act (NLEA)

Broadcast media

licensing

Deceptive, unfair, &

comparative ads

FCCFTC FDA

Intellectual property

Patent & Trademark

Office

Copyrights “works of

authorship”

Library of Congress

2-21

Federal Regulation:FDA Disclosure

This ad for Revolution, a topical parasiticide for dogs and cats, has a long disclosure

2-22

State & LocalRegulation

Different states have different regulations

governing advertising

Local govt. regulation:city & county consumer

protection agencies

National marketers comply with states’

laws

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NongovernmentRegulation

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

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Self-Regulation:Agencies & Associations

Research and verify claims &comparative data before use

Liable for misleading or fraudulent claims

American Association ofAdvertising Agencies (AAAA)

Agency Responsibilities

Industry-WideAssociations

Some maintain in-house legal counsel

American Advertising Federation (AAF)

Association of National Advertisers (ANA)

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Self-Regulation:AAF Principles

Insert ex. 3-6, p. 93, AAF Advertising Principles

Position = 0.4” horizontal, 1.5” vertical

Size = 8.2” WIDE

Resolution = 300 dpi

2-26

Government Restraints on International Advertisers

Foreign governments often regulate advertising more strictly than in the United States Some governments ban specific products Many countries prohibit puffery Many European countries ban coupons,

premiums and free tie-ins Across Europe, paid product placements

in television programs are typically prohibited