AGENDAGovernmental regulation in U.SThe Federal Trade CommissionGuidelinesGlobal differencesInternational regulationExamplesConclusionConsiderations for FTC
GOVERNMENTALREGULATION IN THE U.SCapitalist system advocates freedom of speech Regulating deceptive and illegal-product advertisingSelf-regulating industry seeks to: Protect consumers against false advertising and protect their privacy Protect legitimate advertisers from misleading competitors Promote public acceptance of advertising as institution in the marketplace
REGULATING BODIESRegulating bodies: Federal Trade Commission – most empowered agency Federal Communications Commission – TV and Radio Food and Drug Administration
FEDERAL TRADECOMMISSION (FTC)Pros of advertising: (Abernethy and Franke, 1998) Brings information to consumers (educational effect) Efficient information search increases economic performancePurpose: 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 regulations Sought to increase the amount of information available to the consumer Increased level of power
DEVELOPMENT OF THE FTC1982 – 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 FTC Shallow dedication to consumer protection1993 – Present Belief in self-regulation, but stronger recognitition of FTC’s role and purposeFinding: Times with more regulation lead to less information for the consumer Safer advertising claims
POWER OF THE FTCThe FTC has the power to: Require the advertiser to stop a deceptive/misleading campaign or claim Enforce advertisers to pay large fines Imprisonment if the advertiser refuse to cooperate Require corrective advertisingUnless: The advertiser is able to prove/substantiate the promoted claim
GENERAL GUIDELINESAvailability: The item must be in store unless ”for a limited time only” Scarce products are used as baitPrice: It is not a discount if the product has not formerly been sold at a higher price ”Market price $15, now $7.5”Content How 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 expertiseProduct placement Advertisers must disclose that the placement of their product is paid for
GUIDELINES FORCONTROVERSIAL PRODUCTSAlcohol: Bottles must have a health warning In CA, gifts/premiums are not allowed to be given when selling alcoholic beveragesCigarettes: 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 DIFFERENCESUK Ads should not mislead, cause harm, or offend (Frith and Mueller, 2010) Commercials are pre-checked by authorties before launch High level of governmental controlJapan Similar 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)
INTERNATIONALREGULATION The European Union’s Unfair Commercial Practices Directive Bait advetising: very low amount of goods at low pricesEuropean Union’s ”Dirty Dozen” Fake ”free offers” Direct exhortations to children: trying hard to persuade kids False claims: Claims must be substantiated with proofThe International Chamber of Commerce self-regulation not clear that the material is sponsored Advertorials: ”duty to be decent, honest, legal, and truthful (soft issues) The U.S does not follow soft issues entirely 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 fromnatural ingridients ... ”Nutella (Ferrero USA, inc) had to pay $3 millon to consumerswho filed a claim
EXAMPLE 2No use of cartooncharacters to sellcigarettes (Mastersettlement agreement)
EXAMPLE 3 According 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.”
CONCLUSIONMore regulation lower level of information Safer advertising claimsFTC possess a certain amount of power May increase if consumer protection becomes more important in the U.SSignificant global differences in regulation Should make advertisers aware that rules of regulation are not universalAdvertisers still make claims they cannot substantiate Nutella Dannon
CONSIDERATIONSUniting FTC with e.g. FDA and other regulatory bodies To ease administration processes and increase efficiency Further limit deceptive and misleading advertisingConsider 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 power Decency, taste and public opinionFurther focus on Corporate Social Responsibility less deceptiveadvertising
SOURCESAbernethy., A., M. and Franke., G., R. (1998): FTC Regulatory Activity andthe Information Content of AdvertisingFrith., K., T. and Mueller., B. (2010): Advertising and SocietiesFTC Act:http://www.ftc.gov/ogc/FTC_Act_IncorporatingUS_SAFE_WEB_Act.pdfFTC Guide for businesses: http://business.ftc.gov/Product placement:http://www.ftc.gov/os/closings/staff/050210productplacemen.pdfNutella 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
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