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GOVERNMENTAL REGULATIONS OF ADVERTISING By Rasmus Frost Hansen

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Page 1: Governmental regulations

GOVERNMENTAL REGULATIONS OF ADVERTISING By Rasmus Frost Hansen

Page 2: Governmental regulations

AGENDA

Governmental regulation in U.S

The Federal Trade Commission

Guidelines

Global differences

International regulation

Examples

Conclusion

Considerations for FTC

Page 3: Governmental regulations

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

Page 4: Governmental regulations

REGULATING BODIES

Regulating bodies:

Federal Trade Commission – most empowered agency

Federal Communications Commission – TV and Radio

Food and Drug Administration

Page 5: Governmental regulations

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)

Page 6: Governmental regulations

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

Page 7: Governmental regulations

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

Page 8: Governmental regulations

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

Page 9: Governmental regulations

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?

Page 10: Governmental regulations

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

Page 11: Governmental regulations

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

Page 12: Governmental regulations

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)

Page 13: Governmental regulations

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

Page 14: Governmental regulations

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

Page 15: Governmental regulations

EXAMPLE 2

No use of cartoon characters to sell cigarettes (Master settlement agreement)

Page 16: Governmental regulations

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.”

Page 17: Governmental regulations

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

Page 18: Governmental regulations

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

Page 19: Governmental regulations

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