Regulations and Ethical Concerns Chapter 14 Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 14-1

Regulations and Ethical Concerns

Chapter 14

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 14-1

Chapter Objectives1. What legal restrictions apply to

marketing communications?2. Which governmental agency is most

responsible for enforcing laws regarding IMC programs?

3. What enforcement tactics can be used to make organizations comply with marketing communications laws?

4. Are the major complaints about unethical marketing activities fair charges?

5. How should the concepts of ethics, morals, and social responsibility apply to marketing communications programs?


A Salty Situation

• Humans need sodium• Concern about sodium content of foods• Health concerns about sodium• Food industry slow to respond

• Salt provides flavor• Salt preserves food

• Fast-foods and restaurants• Consume more than 3,000

milligrams/day• Low salt foods

• Lays• Campbell’s


Chapter Overview

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

•Legal environment•Marketing communication regulations•Federal Trade Commission•Industry oversight of marketing

•Ethics and social responsibility•Ethical concerns•Responding to ethical challenges•Social responsibility

14-4

Regulatory Agencies

• Federal Trade Commission (FTC)• Food & Drug Administration (FDA)• Federal Communications Commission

(FCC)• US Postal Service (USPS)• Bureau of Alcohol, Tobacco, and Firearms

(ATF)


Federal Trade Commission(FTC)

• Created in 1914 by passage of Federal Trade Commission Act.

• Original intent was to enforce anti-trust laws.• FTC authority expanded in 1938 with Wheeler-Lea

Amendment.• Given power to

Stop unfair and deceptive advertising practices Levy fines

• Granted FTC access to courts to enforce their decisions.


Unfair and DeceptiveMarketing Practices

• An advertisement or communication is deceptive or misleading if: A substantial number of people or

typical person is left with false impression or misrepresentation.

The misrepresentation induces people or the typical person to make a purchase.


Deception versus Puffery• Puffery

An exaggerated statement Not factual statement

• Claim is a factual statement• Puffery statements include

Best, greatest, and finest Better – puffery or claim?

• Papa John’s – “Better ingredients, better pizza”• Hunt’s – “Only the best tomatoes grow up to be

Hunt’s”• Progresso – “Discover the better taste of

Progresso”


Substantiation of Claims

• Claim or promise must be substantiated

• Endorser must be truthful• Must represent endorser’s

personal experience or opinion• Expert endorsement must be based

on legitimate tests


Substantiation of ClaimsPrinciples Used by FTC and Courts

• Consumers read ads broadly• Evidence must be for actual product• Evidence from accepted experts• FTC and courts will consider totality of

evidence


• Consumers• Businesses• Congress• Media

FTC Investigations


FTC Actions1. Consent order

Company agrees to stop, but does not admit guilt

2. Administrative complaint Filed if no consent order

agreement Formal proceeding Administrative judge Both sides submit evidence Cease and desist order


FTC Actions(Continued)

1. Consent order Administrative complaint

2. Cease and desist order3. Full Commission4. U.S. Court of Appeals5. U.S. Supreme Court


FTC Alternative Actions• Court system to stop unfair and deceptive

practices Company violates a cease and desist order Actions of company so severe immediate action is

needed• Other legal entities, such as state/federal

attorney generals• Corrective advertising

Used rarely Used when discontinuing false ads is not enough

• Trade regulation rulings Applies to entire industry Holds public hearing Accepts both oral and written arguments


Industry Regulations

• Council of Better Business Bureau Bureau keeps record of complaints Provide summary report on

companies• Agencies of the CBBB

National Advertising Division (NAD) National Advertising Review Board

(NARB) Children’s Advertising Review Unit

(CARU)


National Advertising Division

(NAD)• Receives complaints• Role is to investigate validity of

complaint• Collects information and evaluates

If guilty, requests discontinuation of ad No legal authority

• Most companies abide by ruling• Hears 225-250 cases a year• Rulings

Ad not fully substantiated – 50% to 60% Ad fully substantiated - less than 5%


National Advertising Review Board(NARB)

• Appeal from NAD or not resolved• Advertising professionals and civic

leaders• Order similar to “Consent Order” of FTC• Appeals or refusals to accept go to FTC• Business-to-business disputes common• Only 4 referrals to FTC in last 25 years


Children’s Advertising Review Unit

(CARU)

• Cases involving children 12 and under

• Online privacy practices of Web sites• Operates similar to the NAD• Prescreens ads directed to children

(2005)


Advantages of Industry Regulations

• Lower cost.• Faster resolution.• Heard by attorneys and business

professionals with experience in advertising.


Ethics and Social Responsibility

•Morals – beliefs or principles individuals hold about what is right and wrong.

•Ethics – moral principles that serve as guidelines for individuals and organizations.


Concerns and Criticismsof Marketing

1. Cause people to buy more than they can afford.

2. Overemphasizes materialism3. Increases the costs of goods and services.4. Perpetuates stereotypes5. Make unsafe products, such as alcohol and

tobacco, seem attractive.6. Often offensive.7. Advertising to children is unethical.


Ethical Issues in Marketing

Brand infringement Medical marketing Gifts and bribery Spamming and

cookies


Responding to Ethical Challenges

•Hedonism•Homeostasis•Law•Religion


Ethical Frameworks

• Utilitarianism• Individualism• Rights approach• Justice approach


Models ofSocial Responsibility

• Invisible hand of the marketplace

• Government duty

• Ethical or enlightened management


Ethics Programs

• Ethics training programs• Codes of ethics• Ethics consulting systems

Ethical hotlines Whistle-blower


International Implications

• Legal systems vary• Common law• Civil law• Theocratic law• Ethics and moral


Documents

Regulations and Ethical Concerns Chapter 14 Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 14-1