Bank</li></li></ul><li>Per Capita Ad Spending<br />Gross Domestic Product (GDP) = the total market value of goods and services produced by workers and capital within a nation's borders1<br />1 Source: Princeton Univ, <br />http://wordnetweb.princeton.edu<br />
Today’s Objectives<br />Discuss the impact of advertising on the economy<br />Describe how government agencies regulate advertising to protect both consumers and competitors<br />Discuss the activities of nongovernment organizations in fighting fraudulent and deceptive advertising<br />
Consumer choice</li></li></ul><li>Product Values<br />Advertising adds value.<br />In the minds of consumers, a recognized (through advertising) brand has added value.<br />Consumers will pay more for a known brand, even when its unknown competition is functionally identical.<br />Advertising impacts a product’s image. Do you think it can also impact the consumer’s image of him/herself? It can appeal to our self interest. <br />Do the brands we buy send a message about who we are?<br /><ul><li>Clothes
Pricing<br />Would less advertising = lower prices?<br />Advertising can decrease or increase the price of goods, but it generally decreases the prices consumers pay, because there are many buyers and sellers.<br />INCREASE<br /><ul><li>The cost of advertising affects the manufacturer’s expenses
Manufacturers use advertising to stress desirable brand features, increase cost</li></ul>DECREASE<br /><ul><li>Mass production lowers unit costs, selling price
In retail, consumer focus on price drives prices down through competition</li></ul>= 1 cent on advertising<br />Photo c/o Coca-Cola Company<br />
Competition<br />Can only the biggest companies compete?<br /><ul><li>Competition tends to reduce the number of businesses in an industry (the strong and/or smart survive)
Small, regional businesses can compete with larger corporations on a local level with a sound marketing plan</li></li></ul><li>Consumer Demand<br />You have to have it, because…<br />Does advertising generate consumer demand? Or does it simply respond to it? <br />Source: apple.com<br />
Consumer Demand<br />Primary vs. Secondary Demand<br />Advertising can drive sales of an entire product class or of a brand.<br />Primary Demand: Grow demand for industry, product class<br />Secondary Demand: Grow demand for a specific brand<br />Source: inventorspot.com<br />Source: organicvalley.com<br />
Consumer Demand’s Impact<br />GROWINGMARKET<br />Mobile phones<br /><ul><li>Consumer demand increases the total market, i.e. the size of the pie
Consumer demand keeps the market at same overall value, i.e. the pie doesn’t grow or shrink</li></li></ul><li>Consumer Demand’s Impact<br />DECLINING MARKET<br />Watches<br /><ul><li>Consumer demand shrinks the market, i.e. the pie becomes a tart
Prices may increase</li></li></ul><li>Consumer Choice<br />The Importance of Product Differentiation<br />In a free market where consumers have a multitude of choices within a product class, advertisers must demonstrate to consumers what makes their product different.<br />Doing so appeals to our need for complete information and an absence of externalities.<br />You want an SUV, eh? Which one?<br />Ford Escape Hybrid<br />Cadillac Escalade<br />Nissan Juke<br />All car photos from www.automotive.com<br />
The Abundance Principle<br />Self-interest<br />Completeinformation<br />Absence ofexternalities<br />Many buyers& sellers<br />In an economy that produces more goods & services than can be consumed, advertising:<br />Allows more effective competition<br />Keeps consumers informed of alternatives<br />Stimulates competition<br />Self-regulates to keep market free & open<br />
Broadcast media licensing<br />Examples: programming times and stations for ED drugs , Janet Jackson’s “wardrobe malfunction”<br />Deceptive, unfair, & comparative ads<br />Example:<br />Activia claim to improve digestion http://www.youtube.com/watch?v=9j9nRJgX5iQ<br />Definitions and labeling of consumer packaged goods and drugs<br />Examples: pharma side effects, Yaz retraction<br />http://www.youtube.com/watch?v=EO-G8O0lHq0<br />Intellectual property<br />Examples: Coca-Cola logo, contour bottle design, secret formula.<br />Copyrights “works of authorship”<br />Example: GEICO advertising campaigns<br />Federal Regulation Agencies<br />These are the federal departments and agencies that regulate advertising and their areas of responsibility:<br />FCC<br />Federal Communications Commission<br />FTC<br />Federal <br />Trade Commission<br />FDA<br />Food <br />& Drug Administration<br />Patent & Trademark Office<br />Library of Congress<br />
FDA Disclosure<br />This ad for Revolution, a topical parasiticide for dogs and cats, has a long disclosure<br />
State & Local Regulation<br />Different states have different regulations governing advertising<br />E.g. NC law requires businesses to get a permit before advertising an “out of business” sale<br />National marketers comply with states’ laws<br />Local government regulation: city & county consumer protection agencies<br />
Nongovernment Regulation<br /><ul><li>Better Business Bureau (BBB)
Regulation by consumer groups</li></li></ul><li>Self-Regulation:Agencies & Associations<br />Research and verify claims &comparative data before use<br />Agency Responsibilities<br />Liable for misleading or fraudulent claims<br />Some maintain in-house legal counsel<br />American Association ofAdvertising Agencies (AAAA)<br />Industry-WideAssociations<br />American Advertising Federation (AAF)<br />Association of National Advertisers (ANA)<br />
International Advertising<br />Foreign governments often regulate advertising more strictly than in the United States<br />Some governments ban specific products<br />Many countries prohibit puffery<br />Many European countries ban coupons, premiums and free tie-ins<br />Across Europe, paid product placements in television programs are typically prohibited<br />Examples from France: <br />Alcoholic beverage companies are banned from sponsoring sporting events, prohibited from advertising on TV, and alcohol advertisements are very restricted in other media.<br />All words in advertisements must be in French, even if the word or phrase is more common in another language.<br />Sources: 1) FTC, www.ftc.org<br />2) International Business Law and Its Environment, R. Schaffer, F. Agusti & B. Earle, 2008 <br />
Supreme Court: “speech” or “commercial speech”<br />Tobacco Controversy<br />Consumer Privacy<br />Current U.S. Regulatory Issues<br />Advertising to Children<br />
Supreme Court: “speech” or “commercial speech”<br />Current U.S. Regulatory Issues<br />Does the First Amendment protect advertising?<br />The Supreme Court first ruled in 1976 that advertisements enjoy protection under the First Amendment. <br />(Case: Virginia State Board of Pharmacy v. Virginia Citizens Commercial Council)<br />They issued a 4-part test in 1980 to determine whether commercial speech can be regulated: <br /><ul><li>Does the commercial speech concern a lawful activity?
Does restriction serve the government interest?
Does regulation advance the government interest?
Is the restriction no more than necessary to further the interest?</li></ul>(Case: Central Hudson Gas v. Public Service Commission)<br />In 1993, they determined that the distribution of advertising is as protected as distributing newspapers.<br />
Tobacco Controversy<br />Current U.S. Regulatory Issues<br />About that First Amendment Protection…<br />The harm created by smoking is a significant externality, or social cost. <br />In 1998, states’ attorney general reached a settlement with the tobacco industry that mandated significant reform of tobacco marketing.<br /><ul><li>No advertising to children
Advertising to Children<br />Current U.S. Regulatory Issues<br />Kids are not sophisticated consumers and can’t be treated as such.<br />The Council of Better Business Bureaus established the Children’s Advertising Review Unit (CARU). CARU reviews and evaluates advertising directed at children.<br />CARU seeks voluntary cooperation from advertisers in advertising to children under age 12 (page 41 of text).<br />M&M’s commercial, 1980s:<br />http://www.youtube.com/watch?v=gBZoTxUMPZI<br />M&M’s commercial, today:<br />http://www.youtube.com/watch?v=YEiFIKBPUq8<br />
Consumer Privacy<br />Current U.S. Regulatory Issues<br />Is your personal information private?<br />A person’s likeness cannot be used in a commercial without their permission.<br />Today’s controversies are primarily in the digital world:<br /><ul><li>What gets shared on Facebook
The ability of companies to track behavior online
SPAM emails</li></ul>For now, the only regulation is self regulation.<br />
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