governmental regulations
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GOVERNMENTAL REGULATIONS OF ADVERTISING By Rasmus Frost Hansen
AGENDA
Governmental regulation in U.S
The Federal Trade Commission
Guidelines
Global differences
International regulation
Examples
Conclusion
Considerations for FTC
GOVERNMENTAL REGULATION IN THE U.SCapitalist system advocates freedom of speech Regulating deceptive and illegal-product advertising
Self-regulating industry seeks to: Protect consumers against false advertising and protect their privacyProtect legitimate advertisers from misleading competitorsPromote public acceptance of advertising as institution in the marketplace
REGULATING BODIES
Regulating bodies:
Federal Trade Commission – most empowered agency
Federal Communications Commission – TV and Radio
Food and Drug Administration
FEDERAL TRADE COMMISSION (FTC) Pros of advertising: (Abernethy and Franke, 1998)Brings information to consumers (educational effect)Efficient information search increases economic performance
Purpose: Prohibit ”unfair methods of competition and unfair or deceptive acts or practices in commerce” (1998, p. 239)
Ostensible purpose: ”To raise the information content of factual advertising by penalizing firms engaged in false or deceptive advertising” (1998, p. 251)
DEVELOPMENT OF THE FTC
1970: The FTC was called "a self parody of bureaucracy, fat with cronyism, manipulated by agents of commercial predators, impervious to governmental and citizen monitoring” (Abernethy and Franke, 1998, p. 241)
1971 – 1981:The FTC had to prove the advertiser’s claims were wrong/untrue Increased regulationsSought to increase the amount of information available to the consumer Increased level of power
DEVELOPMENT OF THE FTC
1982 – 1992: Less advertising enforcements and regulations
Reagan believed the marketforces would punish the suppliers of false and misleading claims
Low staff morale and poor payment while working for FTCShallow dedication to consumer protection
1993 – PresentBelief in self-regulation, but stronger recognitition of FTC’s role and purpose
Finding:Times with more regulation lead to less information for the consumerSafer advertising claims
POWER OF THE FTC
The FTC has the power to:Require the advertiser to stop a deceptive/misleading campaign or claimEnforce advertisers to pay large fines
Imprisonment if the advertiser refuse to cooperate
Require corrective advertising
Unless:The advertiser is able to prove/substantiate the promoted claim
GENERAL GUIDELINES Availability: The item must be in store unless ”for a limited time only”
Scarce products are used as bait
Price: It is not a discount if the product has not formerly been sold at a higher price ”Market price $15, now $7.5”
ContentHow much of the package does the good make up?
GENERAL GUIDELINESSize: a statement should follow depiction of false sizes
”Get a free T-shirt with any jeans purchase”
Usage of endorsers: An expert may only endorse within the area of his/her expertise
Product placementAdvertisers must disclose that the placement of their product is paid for
GUIDELINES FOR CONTROVERSIAL PRODUCTSAlcohol: Bottles must have a health warning In CA, gifts/premiums are not allowed to be given when selling alcoholic beverages
Cigarettes: Master settlement agreement:
No billboard advertising Disclose company research on health effects No use of cartoon characters to sell cigarettes (Joe Camel) No use of promotion targeted at people under 18
MPOWER: Monitor, Protect, Offer, Warn, Enforce bans and Raise taxes
GLOBAL DIFFERENCES
UKAds should not mislead, cause harm, or offend (Frith and Mueller, 2010)Commercials are pre-checked by authorties before launchHigh level of governmental control
JapanSimilar to the U.S due to post-war influence ”Advertising must contribute to the establishment of sound and healthy life of people”
Unwritten rules due to cultural values (e.g. loss of face and collectivism)
INTERNATIONAL REGULATIONEuropean Union’s ”Dirty Dozen”
The International Chamber of Commerce self-regulation”duty to be decent, honest, legal, and truthful (soft issues)The U.S does not follow soft issues entirely
The European Union’s Unfair Commercial Practices Directive
Bait advetising: very low amount of goods at low prices
Fake ”free offers”
Direct exhortations to children: trying hard to persuade kids
False claims: Claims must be substantiated with proof
Advertorials: not clear that the material is sponsored
Pyramid Schemes: Get others to join and receive free stuff
Prize winning: ”You have won the right to buy”
Consumer rights: General rigths do not come from the advertiser only
Limited offers: falsely using the scarcity prinicples
After-sales service should not be in available in 1 language only
Inertia selling: Immediate payment for safe-keeping goods
False guarantee: after-sales service limited to e.g. 1 country
EXAMPLE 1
”My kids are always on the go. That’s why at breakfastit’s important to give them food that helps them goingthrougout their busy day – like Nutella... It’s made from natural ingridients ... ”
Nutella (Ferrero USA, inc) had to pay $3 millon to consumerswho filed a claim
EXAMPLE 2
No use of cartoon characters to sell cigarettes (Master settlement agreement)
EXAMPLE 3According to the FTC’s complaint, “Dannon claimed in nationwide advertising campaigns that DanActive helps prevent colds and flu, and that one daily serving of Activia relieves temporary irregularity and helps with “slow intestinal transit time.”
(http://ftc.gov/opa/2010/12/dannon.shtm)
“These types of misleading claims are enough to give consumers indigestion,” said FTC Chairman Jon Leibowitz. “Consumers want, and are entitled to, accurate information when it comes to their health. Companies like Dannon shouldn’t exaggerate the strength of scientific support for their products.”
CONCLUSION
More regulation lower level of information Safer advertising claims
FTC possess a certain amount of powerMay increase if consumer protection becomes more important in the U.S
Significant global differences in regulationShould make advertisers aware that rules of regulation are not universal
Advertisers still make claims they cannot substantiateNutella Dannon
CONSIDERATIONS
Uniting FTC with e.g. FDA and other regulatory bodiesTo ease administration processes and increase efficiency Further limit deceptive and misleading advertising
Consider the effects of regulations Boomerang-effect
Increase in information content during less regulating times (Abernerthy and Franke, 1998)
Adopt ICC’s sense of social responsibility to improve powerDecency, taste and public opinion
Further focus on Corporate Social Responsibility less deceptive advertising
SOURCES
Abernethy., A., M. and Franke., G., R. (1998): FTC Regulatory Activity and the Information Content of Advertising
Frith., K., T. and Mueller., B. (2010): Advertising and Societies
FTC Act: http://www.ftc.gov/ogc/FTC_Act_IncorporatingUS_SAFE_WEB_Act.pdf
FTC Guide for businesses: http://business.ftc.gov/
Product placement: http://www.ftc.gov/os/closings/staff/050210productplacemen.pdf
Nutella health claim: http://www.cbsnews.com/8301-504763_162-57423319-10391704/nutella-health-claims-net-$3.05-million-settlement-in-class-action-lawsuit/
Dannon: http://ftc.gov/opa/2010/12/dannon.shtm