Advertising Regulation and Ethics

1. Advertising Regulation and Ethics MKTG 340 Maureen O’Connolr

2. What’s illegal and what’s unethical? • Marketing communications has an obligation to perform legally and ethically, and with the social welfare in mind. • Advertising is routinely and legitimately attacked for many of its practices. • Most of these criticisms come under the heading of unethical rather than illegal practices

3. Regulation and oversight • Government Regulation • Industry self-regulation • Consumer activism

4. The Government: Advertising Law and Regulation • Most commercial speech is protected by the First Amendment, EXCEPT • When it is deceptive • When it is unfair • When it involves an illegal product • When there is substantial government interest in restricting the speech, and the regulation advances the government’s interest and the regulation is narrowly confined to that interest, i.e. issues of national defense, or classified information

5. What does the law protect? • Companies and business interests • Fair Trade • Consumers • Consumer protection laws

6. Who regulates advertising? • Federal Trade Commission (FTC) • Designed to protect fair trade practices among companies • Expanded to include unfair and deceptive advertising in 1938 • If the message to the consumer differs from the product “in a material way” leaving the typical consumer with a false impression, it is deceptive • Substantiation of facts is required

7. DanActive and Activia • The government fined Dannon $35 million in a class action suit, claiming that Dannon’s claims of digestive health benefits over and above other yogurts was deceptive and unsubstantiated by science.

8. FCC • Federal Communications Commission • Regulates licenses and behavior of radio and television stations, as well as telephone • Based on concept of public airwaves • Enforces Children’s Television Act, which limits the amount of advertising on TV to children

9. FDA • Food and Drug Administration • Oversees accurate labeling and packaging for consumer benefit • Hot topic: Direct to consumer advertising of pharmaceutical drugs

10. ATF • Bureau of Alcohol, Tobacco and Firearms • Oversees sale and marketing of alcohol, tobacco and firearms • Tobacco classified as a drug and under FDA • Master Settlement Act of 1998 • Not an agreement reached with ATF • States brought a class action suit against major tobacco companies alleging deceptive practices that were costing their states considerable medical costs. • Settlement results in 300+ billion damages, funded Truth Campaign

11. USPS • United States Postal Service • Oversees direct mail, sweepstakes and contests brokered through the mail, fraudulent mail schemed

12. Truth Campaign • Initially, a 2-year $200 million campaign • In 3 years, smoking among teens in Florida (first state) dropped by 7.5% in middle school and 4.5% in high school.

13. Why did it work? • Real money, not a weak PSA budget • Involved 500+ youth to gain insight • Didn’t preach, engaged • Developed a “brand launch” strategy, not social cause marketing • Breakthrough: It’s not about the smoking; it’s about deceptive tobacco companies • Don’t judge the smokers

14. Regulatory Consequences • Consent order: stop the practice • Administrative ruling: cease and desist • Courts: If the behavior warrants severe and immediate attention • Corrective advertising: Dannon • Trade regulation ruling: affecting all members of an industry

15. Ripe for government regulation • Fast food and junk food advertising • Advertising to youth • Media and video games • Alcohol • Programming content

16. Industry self-regulation • Government regulation is costly and onerous • Industry often tries to get in front of potential government regulation by adopting their own regulations • Currently desperately being tried by fast food and junk food marketers • Smart Choices label for Kraft, Kelloggs, General Mills allowed high sugar foods to receive the label (Fruit Loops?, Cracker Jack?) • FDA expressed concern over the industry-created standard, and the label was withdrawn from most companies

17. Types of Industry regulation • Council of Better Business Bureau • Outlet for consumer complaints, as well as company complaints • National Advertising Division investigates and makes recommendations • National Advertising Review Board is the “appeals court” if the offending company fails to heed NAD recommendation. Makes it own ruling; If ignored, can turn it over to the FTC

18. Industry regulation • Children’s Advertising Review Unit • Investigates and reviews ads directed toward children • Assumes children are vulnerable consumers and lack appropriate reasoning • Media Associations, i.e. National Association of Broadcasters: code of behavior • Advertising Associations, i.e. American Advertising Federation: code of behavior • Industry/Trade organizations ,i.e. Bank Marketing Association

19. Ethical and Socially Responsible Advertising • Ethics are moral constructs that guide our behavior • Social responsibility is the company’s obligation to be ethical and responsible toward all members of the organization and society

20. How’s advertising doing? • Puffery • Claims that reasonable people do not believe to be true • Stereotyping • Portraying ethnic, gender, age or social groups in negative lights • Promoting unhealthy lifestyles • Cigarettes, alcohol, fast food, diet products • Promoting poor social/personal values • Promiscuity, provocative dress, overconsumption, materialism, violence

21. And this… • Lack of adequate info to consumers • Hidden language, disclaimers, bait and switch, loss leaders • Establishing undesirable, unattainable ideals • Definitions of what’s cool, beautiful, affluent • Dove campaign for women • Packaging and environmental waste • Physical litter, bombardment on the landscape by messages • Targeting vulnerable consumers

22. …and don’t forget • Direct consumer advertising of pharmaceuticals • Should patients be able to ask for whatever drug they want? • Are marketers making up disorders in order to sell drugs? • Internet privacy • Should marketers know what sites I visit, and what should they do with that information?

23. What role… • Does culture play in ethical concerns? • Does the free market play in ethical concerns? • Does the concept of enlightened management play in ethical concerns? • Do the stakes of various stakeholders play in ethical concerns?