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
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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 . . .
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Economic Impact:Principles
Self-interestComplete
information
Absence ofexternalities
Many buyers& sellers
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Economic Impact:Per Capita Ad Spending
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Economic Impact:Billiards Model
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Economic Impact:Four Affected Areas
ProductValue
-Communicates brand image
-Educates customers
-Associates w/ desirable image
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Economic Impact:Four Affected Areas
ProductValue
Prices & Competition
-Communicates brand image
-Educates customers
-Associates with desirable image
Increase:
-Branding
-Ad costs
Decrease:
-Competition
-Efficiency
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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
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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
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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
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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
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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
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Social Responsibility and Ethics
Promotewell-being
Promoteharmony &
stability
Influenceelections
Drawcrowds to
events
Responsibleadvertising
can . . .
Ethical:morally right
Socially Responsible:what society views as best
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Leclerc addresses the issue of pollution
Social Responsibility and Ethics
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Current U.S.Regulatory Issues
Tobacco Controversy
Consumer Privacy
Supreme Court: “speech” or “commercial speech”
Advertising to Children
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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
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Federal Regulation:FDA Disclosure
This ad for Revolution, a topical parasiticide for dogs and cats, has a long disclosure
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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
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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
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