Advertising Society&s Economics q The effects of advertising on our economys Ethics q The effects of advertising on our societys Regulation q Our attempts to manage those effects
Power or Information? Market Power Market Informationq Advertising q Advertisingq Persuades consumer to q Increased consumer knowledge purchase one brand over another more often q More substitute products consumersq Excess brand profits can considerq Higher barriers to entry q Lower barriers to entry by and more market power new brandsq More advertising leads to q Reduced market power for any greater brand loyalty individual brandq Reduce quality/raise price q Better pricing/distributionq Reduced consumer more product innovation sovereignty q Optimal brand profits, consumerq Monopoly choice, and price benefits
What do you think?s Advertising = Market Powers Advertising = Market Informations Or both?
Some Economic Questions:s How does advertising affect the price of a new car?s How does advertising affect the price of a latté from Starbucks?s How does advertising affect the way that you spend your money?
Some Economic Questions:s Can ads make people buy things they don’t want or need?s Can ads make people more materialistic?s Are the benefits of advertising worth the annoyance?
An Ethical Debates Ads destroy s Ads give consumers freedom of choice more choicess Ads destroy s Ads = freedom of democracy/media speechs Advertising warps s Ads simply reflect the social values “real world”
3 Ethical Issues:1) Advocacy q What does the advertising advocate?2) Accuracy q How accurate is the advertising? q Some of this depends on susceptibility of the audience (i.e., kids).3) Acquisitiveness q What is the overall effect? q Does it make us more materialistic?
5 Controversial Issues:1) Puffery "Nothing beats a Bud”2) Decency Sexual innuendo, violence3) Stereotyping Portrayals of housewives, seniors, racial groups4) Children Violence, dangerous acts, unhealthy habits5) Controversy Condoms, alcohol, fashion
Regulation - 2 Main PurposesRegulation - 3 Main Areass Purpose for advertising regulation q To protect competition q To protect consumers from economic or physical harms Regulations are concerned with q Deceptive or unfair content q How advertising is delivered q Protection of susceptible groups (kids, etc.)
5 FTC Concerns:1) Deception Must lead to material injury.2) Comparisons Must substantiate with statistically significant data.3) Endorsements Must be qualified; must use product.4) Demonstrations Must be accurately depicted.5) “Bait & Switch” Product must be available.
4 Possible Remediesfor Deceptive Ads:1) Consent Decree FTC asks advertiser to stop.2) Cease & Desist FTC gets court order to force advertiser to stop.3) Corrective Ads FTC mandates new ads to correct false perceptions.4) Consumer Redress FTC mandates reimbursement.
6 GovernmentRegulatory Groups:1) FDA Packaging and labeling2) FCC Broadcast advertising3) Postal Service Magazines, direct mail4) ATF Liquor labeling, advertising5) Patent Office Trademarks6) Library of Congress Copyrights
2 Industry Watchdogs1) NAD (National Advertising Division) - Part of Better Business Bureau2) National Advertising Review Board - Represents advertisers and agencies - A division of the NADs Compliance is strictly voluntary
Big Questionss What do you think is the biggest benefit of advertising?s What do you think is the biggest problem with advertising?s What do you think is the best example of bad advertising?s What do you think is the best example of good advertising?