chapter 14 test 3

Unfair and Deceptive Marketing Practices

1938 Wheeler-Lea Amendment FTC authority to investigate FTC to stop unfair and deceptive practices FTC power to levy fines An advertisement or communication is deceptive or misleading if: A substantial number of people or a typical person is left with false impression or misrepresentation The misrepresentation induces people or the typical person to make a purchase

CARU Guidelines for Advertising to Children

Ads for toys should not create unreasonable expectation. Toys should look and act as they would if a child was playing with it. Ads should not blur between fantasy and reality. Ads should have clear and visible disclosures about what items come with a toy and what items do not. Items that require adult supervision must be shown with adults supervising the child. Products and ad content should be appropriate for children.

advertising to children

Advertising to children is one of the hottest topics when it comes to ethics. Children represent a huge market in terms of personal buying power, but also in the family purchases they influence. Critics not only find fault with advertising to children, but the tactics being used, since children do not have the ability to reason like adults. According to Mary Pipher, "No one ad is bad, but 400 a day are." An important reason companies pursue children is that if they can get their brand name in children's minds, it may be possible to build brand loyalty that will last a lifetime.

advertising unsafe products

Alcohol, tobacco, and other potentially harmful products By 18, teens have seen 100,000 beer ads Use of sexuality and social acceptance After banning tobacco, switch to sponsorships

ethical issues in marketing

Brand infringement Professional services marketing Gifts and bribery Spam and cookies Ambush marketing Stealth marketing

Concerns and Criticisms of Advertising

Causes people to buy more than they can afford Overemphasizes materialism Increases the costs of goods and services Perpetuates stereotypes Makes unsafe products, such as alcohol and tobacco, seem attractive Is often offensive Advertising to children is unethical

substantiation of claims

Claims or promises in advertising must be substantiated. If an endorser is used, then the endorser must be truthful. It must represent his/her personal experience and personal opinion. Any expert endorsement that is used must be based on legitimate tests that would be accepted by anyone in that industry.

How Investigation Begins

Complaints for unfair and deceptive marketing or advertising can be lodged by anyone−consumers, businesses, Congress, or the media. Businesses are a major source of filings with the FTC because they want to protect their brand, so statements made by competitors, even if they are not comparative ads, will often be challenged.

courts and legal channels

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 - state/federal attorney generals

perpetuates stereotypes

Critics have argued that advertising perpetuates the stereotyping of men, women, and minorities. The question that has to be asked is does segmenting a market based on gender, age, ethnicity, or other demographic variables create stereotyping. In this era of political correctness, it is a difficult issue. The prime reason for segmentation is to reach a smaller demographic audience that possesses similar traits, interests, opinions, and lifestyles. Is this practice unethical, is it bad business, or is it reality?

international implications

Ethics in the United States is not the same as it is in other countries. What is considered ethical varies widely around the world. Legal systems vary because of cultures in each region. The U.S. system of law is based on the principle of common law. European laws are based on the concepts of civil law. Many of the countries in the Middle East have laws based on religion, theocratic laws.

offensive advertisements

Feminine hygiene, condoms, other personal products International arena Use of nudity and sexuality in ads Freedom of speech Ethics, morals, and conscience should guide

government regulatory issues

Food & Drug Administration (FDA) Federal Communications Commission (FCC) U.S. Postal Service (USPS) Bureau of Alcohol, Tobacco, and Firearms (ATF) Federal Trade Commission (FTC)

ethics programs

In response to what has occurred with unethical conduct within businesses, companies have developed ethics training programs, codes of ethics, and ethics consulting systems. Codes of ethics have been developed by most professional organizations. For marketing it is the American Marketing Association. Most companies have developed codes of ethics to govern workplace activities. Ethical hotlines have been developed where people can report unethical conduct. Laws have also been passed to protect the whistle-blower from retaliation.

marketing of professional services

In the past, it was considered taboo and unethical. Now both medical and legal professionals advertise on a regular bases. The rationale for advertising is freedom of speech, and competition has forced them to advertise to compete effectively. Others argue it is unethical because they are taking advantage of people's problems. Advertising by pharmaceutical companies has raised debates about whether it has increased the use of drugs (legal) in America and driven doctors to prescribe medicines when it was not really in the best interest of the patient.

advantages of industry regulations

Industry regulations and oversight offer a number of advantages over using the FTC and legal channels. The cost is much lower. Resolution is faster. Cases are heard by attorneys and business professionals with experience in the advertising industry, not judges.

ethics and advertising

Some critics say advertising causes people to purchase more than they can afford and as a result end up deep in debt. They also argue that advertising puts too much emphasis on material goods and that it creates a feeling that material possessions can bring happiness. Marketers' response is "yes, marketing does stress buying goods and service. That is what it is all about. But, consumers still have the freedom of choice. No one is being forced into making a purchase." A related argument against marketing is that it increases the costs of products. Yes, it does. Marketers will admit to that fact. But, through advertising, people become aware of goods and services and what they can provide. Without advertising, consumers may not have access to this information. Advertising widens the base of potential customers and increases the probability of repeat purchases. These additional sales leads to economies of scales in production, which allows the price of the product to be lowered. So, in a way, marketing and advertising assist in lowering the price of products, not increasing the costs.

spam and cookies

Technology allows companies to collect information from people. Many view this as an invasion of privacy since people have not granted permission. But, marketers argue the information is just being used to improve marketing reach and to facilitate the personalization of websites, which 95% of consumers want. Spam and cookies present some legal issues and certainly some ethical issues that are still being debated.

industry oversight of marketing

The FTC cannot handle all complaints, so the advertising industry has developed an industry system for overseeing advertising and marketing practices. The industry oversight process is voluntary. Companies do not have to abide by any decision that is made, but most companies will because if it is turned over to the FTC or courts, the case is more difficult to win since the industry has already stated its opinion.

deception vs puffery

The FTC understands companies brag about the greatness of their products and have the right to do so. A claim is a factual statement about a product and must be substantiated. Puffery includes the words best, greatest, and finest. These are okay. In the past, the word better was considered puffery. The word has recently come under court and FTC investigations because it implies a comparison and that one brand performs better than another. As such, the FTC says you have to be able to prove that it does, which then makes better a claim rather than puffery.

FTC

The FTC was created in 1914 by the passage of the Federal Trade Commission Act. It oversees all marketing communications materials. The original intent of the FTC was to enforce antitrust laws. Then in 1938 the Wheeler-Lea Amendment was passed expanding the power of the FTC to stop unfair and deceptive advertising practices and to levy fines. The FTC was also granted access to the courts to enforce the agency's decisions.

ambush marketing

The rise in sponsorship costs and expenditures has created a new problem - which is a brand's association with an event when the brand has not paid the rights to be an official sponsor. Official sponsorships can cost millions, such as with the Olympics. So companies look for ways to capitalize on the event without paying the high costs of a sponsorship. It certainly is an ethical issue, but some would say it is just wise marketing.

FTC process: consent order

When the FTC feels an ad is deceptive or misleading, it will first issue a consent order. the company agrees to stop the ad or marketing practice, but does not admit guilt. Most companies follow a consent order issued by the FTC.

puffery

an exaggerated claim about your product and is not intended to be a factual statement.

morals

are beliefs or principles that individuals hold about what is right and wrong

ethics

are moral principles that serve as guidelines for individuals and organizations. Marketing and advertising practices are affected by ethical and moral concerns.

gifts and bribes

are used in business-to-business sales to influence purchasing decisions. At trade shows, companies will often entertain clients and prospects. In some countries, bribes are legal and allowed to be deducted as a tax expense. In others, it is the accepted way of doing business. But, in the U.S. it is illegal. Some companies have policies that prevent their purchasing agents from accepting any type of gifts, even an ink pen

U.S. Postal Service (USPS)

has jurisdiction over all mailed marketing materials and investigates cases of mail fraud

brand infringement

involves using a brand name that is already being used or a brand name that is very close to another brand name with the intent of capturing sales from its popularity. Another problem comes when a brand name becomes generic, such as Xerox and band aids. With the Internet, has come domain squatting, which involves purchasing URLs related to companies or famous people with the intent of selling them to the person or company for a huge price.

Children's Advertising Review Unit (CARU)

is a special agency of the CBBB for handling issues in marketing and advertising that deal with children ages 12 and under. The CARU is especially involved in monitoring privacy practices on websites that children visit. The CARU operates in a similar way as the NAD. But, in addition to hearing cases involving advertising and marketing to children, the CARU will prescreen ads directed to children. The company examines about 300 ads per year and provides advice to companies on the appropriateness of the ads. The CARU operates under the basis that children 12 and under do not have the reasoning powers of adults, and as a result advertisers need to act responsibly. What adults would quickly see as puffery and not real, children may not.

Federal Trade Commission (FTC)

is the primary agency that oversees marketing and advertising.

Bureau of Alcohol, Tobacco, and Firearms (ATF)

oversees the sale, distribution, and advertising of alcohol, tobacco, and firearms

The Food & Drug Administration (FDA)

regulates and oversees the packaging and labeling of products. It also oversees advertising on food packages and the advertising of drugs.

The Federal Communications Commission (FCC)

regulates the television, radio, and telephone industries and grants operating licenses for radio and television stations. The FCC does not have jurisdiction over the content of advertising, but does oversee the amount of advertising directed towards children. Currently, TV stations are limited to 12 minutes per hour during weekdays and 10 minutes per hour on weekends.

trade regulation rulings

which apply to all firms within an industry. Normally, before issuing the rulings, the FTC will hold public hearings and hear both oral and written arguments. Recently, the FTC issued a trade regulation that bloggers who are compensated by a company must clearly state such on their blog or website.

stealth marketing

which is an attempt to get consumers to look at a product through a personal contact without them every realizing it was a sales pitch. The person making the sales or product pitch never identifies himself/herself as a sponsor of the brand or the motivation for demonstrating or discussing the product. Some argue this is just a shrewd marketing approach that is designed to get around clutter and is perfectly ethical. Others argue it is unethical and deceptive, since the sponsor or brand ambassador never identifies his/her personal ties with the company.

corrective advertising

which means the company must run a series of ads to correct the false and deceptive advertising and bring people back to the neutral state before the deceptive advertising. Since this is very difficult to do, corrective advertising is seldom ordered. But, if it is, companies are usually required to spend the same amount of money on the corrective advertising as they did on the deceptive advertising

Council of Better Business Bureau

will keep a record of complaints against companies. If a consumer requests information about a company, then the CBBB will issue a summary report about the company. It does not release the content of every complaint. To investigate complaints about advertising, the CBBB has three agencies - the NAD, the NARB, and the CARU.