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Prof. ( Dr.) Kao Kveng Hong, PhD, D. Litt 14-1

Chapter Fourteen

Regulationsand

Ethical Concerns

A Salty Solution

• Humans need sodium• Concern about sodium content of

foods• Health concerns about sodium• Food industry slow to respond• Salt provides flavor

• Salt preserves food• Fast-foods and restaurants• Consume more than 3,000

milligrams/day• Low salt foods

• Lays• Campbell’s

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14Regulations

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andEthical Concerns

Chapter Overview

•Legal environment•Marketing communication regulations•Federal Trade Commission•Industry oversight of marketing

•Ethics and social responsibility•Ethical concerns•Responding to ethical challenges•Social responsibility

• Federal Trade Commission (FTC)• Food & Drug Administration (FDA)• Federal Communications Commission (FCC)• US Postal Service (USPS)• Bureau of Alcohol, Tobacco, and Firearms (ATF)

F I G U R E 1 4 . 2

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Governmental Regulatory Agencies

Federal Trade Commission(FTC)

• Created in 1914 by passage of Federal Trade Commission Act• Original intent was to enforce anti-trust laws• FTC authority expanded in 1938 with Wheeler-Lea

Amendment• Given power to

– Stop unfair and deceptive advertising practices– Levy fines

• Granted FTC access to courts to enforce their decisions

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Unfair and DeceptiveMarketing Practices

• An advertisement or communication is deceptive or misleading if:– a substantial number of people or typical person

is left with false impression or misrepresentation.– the misrepresentation induces people or the

typical person to make a purchase.

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Deception versus Puffery• Puffery

– An exaggerated statement– Not factual statement

• Claim is a factual statement• Puffery statements include

– Best, greatest, and finest– Better – puffery or claim?

• Papa John’s – “Better ingredients, better pizza”• Hunt’s – “Only the best tomatoes grow up to be

Hunt’s”• Progresso – “Discover the better taste of Progresso”

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Deception versus PufferyAd making a claim. Ad using puffery?

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Substantiation of Claims• Claim or promise must be substantiated• Endorser must be truthful• Must represent endorser’s personal

experience or opinion• Expert endorsement must be based on

legitimate tests

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To substantiate its claim that Kleenex is softer the company conducted touch tests involving consumers.

Substantiating that Kleenex is “made with 24% more cottony, soft fiber,” as the ad claims, would require some type of lab test.

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PrinciplesSubstantiation of Claims

• Consumers read ads broadly• Evidence must be for actual product• Evidence from accepted experts• FTC and courts will consider totality of evidence

Copyright © 2010 by Pearson Education, Inc. publishing as Prentice Hall

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How an FTC Investigation Begins

• Consumers• Businesses• Congress• Media

Complaints can be lodged by any of the following

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FTC Actions1. Consent order

Company agrees to stop, but does not admit guilt

2. Administrative complaint Filed if no consent order agreement Formal proceeding Administrative judge Both sides submit evidence Cease and desist order

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FTC Actions(continued)

1. Consent order Administrative complaint

2. Cease and desist order3. Full Commission4. U.S. Court of Appeals5. U.S. Supreme Court

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FTC Alternative Actions• Court system to stop unfair and deceptive practices

– Company violates a cease and desist order– Actions of company so severe immediate action is needed

• Other legal entities, such as state/federal attorney generals

• Corrective advertising– Used rarely– Used when discontinuing false ads is not enough

• Trade regulation rulings– Applies to entire industry– Holds public hearing– Accepts both oral and written arguments

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• Council of Better Business Bureau– Bureau keeps record of complaints– Provide summary report on companies

• Agencies of the CBBB– National Advertising Division (NAD)– National Advertising Review Board (NARB)– Children’s Advertising Review Unit (CARU)

Industry Oversight of Marketing

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(NAD)

• Receives complaints• Role is to investigate validity of

complaint• Collects information and evaluates

– If guilty, requests discontinuation of ad– No legal authority

• Most companies abide by ruling• 225-250 cases a year• Rulings

– Ad not fully substantiated – 50% to 60%– Ad fully substantiated - less than 5%

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National Advertising Division

• Appeal from NAD or not resolved• Advertising professionals and civic leaders• Order similar to “Consent Order” of FTC• Appeals or refusals to accept go to FTC• Business-to-business disputes common• Only 4 referrals to FTC in last 25 years

National Advertising Review Board(NARB)

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• Cases involving children 12 and under• Online privacy practices of Web sites• Operates similar to the NAD• Prescreens ads directed to children (2005)

Children’s Advertising Review Unit

CARU

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F I G U R E 1 4 . 4

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CARU Guidelines for Advertising to Children

• Ads for toys should not create unreasonable expectation• Toys should look and act as they would

if a childwas playing with it

• Ads should not blur between fantasy and reality

• Ads should have clear and visible disclosures about what items come with a toy what do not

• Items that require adult supervision must be shownwith adults supervising the child

• Products and ad content should be appropriate for children

Source: Adopted from Wayne Keeley, “Toys and the Truth,” Playthings, Vol. 106, No. 2 (February 2008), p. 8.

A Radio Ad Targeted to Teens

Click here to play clip

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F I G U R E 1 4 . 5

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Advantages of Industry Regulations

• Lower cost• Faster resolution• Heard by attorneys and business

professionals with experience in advertising

• Morals – beliefs or principles individualshold about what is right and wrong.

• Ethics – moral principles that serve asguidelines for individuals and organizations.

Ethics and Social Responsibility

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F I G U R E 1 4 . 6

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Concerns and Criticisms of Advertising

1. Cause people to buy more than they can afford2. Overemphasizes materialism3. Increases the costs of goods and services4. Perpetuates stereotypes5. Make unsafe products, such as alcohol and

tobacco, seem attractive6. Often offensive7. Advertising to children is unethical

F I G U R E 1 4 . 7Ethical Issues in Marketing

Brand infringement Medical marketing Gifts and bribery Spamming and cookies

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Responding to Ethical Challenges

• Hedonism• Homeostasis• Law• Religion

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F I G U R E 1 4 . 8Ethical Frameworks

• Utilitarianism• Individualism• Rights approach• Justice

approach

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F I G U R E 1 4 . 9

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Models of Social Responsibility

• Invisible hand of the marketplace• Government duty• Ethical or enlightened management

Ethics Programs

• Ethics training programs• Codes of ethics• Ethics consulting systems

– Ethical hotlines– Whistle-blower

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International Implications

• Legal systems vary• Common law• Civil law• Theocratic law• Ethics and moral

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