&Advertising Society

Economics The effects of advertising on our

economy

Ethics The effects of advertising on our society

Regulation Our attempts to manage those effects

Power or Information? Market Power

Advertising Persuades consumer to

purchase one brand over another more often

Excess brand profits Higher barriers to entry

and more market power More advertising leads to

greater brand loyalty Reduce quality/raise price Reduced consumer

sovereignty Monopoly

Market Information Advertising Increased consumer knowledge More substitute products

consumers can consider Lower barriers to entry

by new brands Reduced market power for any

individual brand Better pricing/distribution

more product innovation Optimal brand profits, consumer

choice, and price benefits

What do you think?

Advertising = Market Power

Advertising = Market Information

Or both?

Some Economic Questions:

How does advertising affect the price of a new car?

How does advertising affect the price of a latté from Starbucks?

How does advertising affect the way that you spend your money?

Some Economic Questions:

Can ads make people buy things they don’t want or need?

Can ads make people more materialistic?

Are the benefits of advertising worth the annoyance?

Ads destroy freedom of choice

Ads give consumers more choices

An Ethical Debate

Ads simply reflect the “real world”

Ads = freedom of speech

Ads destroy democracy/media

Advertising warps social values

3 Ethical Issues:

1) Advocacy What does the advertising advocate?

2) Accuracy How accurate is the advertising? Some of this depends on susceptibility

of the audience (i.e., kids).

3) Acquisitiveness What is the overall effect? Does it make us more materialistic?

5 Controversial Issues:

1) Puffery "Nothing beats a Bud”

2) Decency Sexual innuendo, violence

3) Stereotyping Portrayals of housewives,seniors, racial groups

4) Children Violence, dangerous acts, unhealthy habits

5) Controversy Condoms, alcohol, fashion

Regulation - 2 Main PurposesRegulation - 3 Main Areas Purpose for advertising regulation

To protect competition To protect consumers from economic or

physical harm

Regulations are concerned with Deceptive or unfair content How advertising is delivered Protection of susceptible groups (kids, etc.)

5 FTC Concerns:

1) Deception Must lead to material injury.

2) Comparisons Must substantiate withstatistically 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 Remedies for Deceptive Ads:1) Consent Decree

2) Cease & Desist

4) Consumer Redress FTC mandates reimbursement.

FTC asks advertiser to stop.

FTC mandates new ads to correct false perceptions.

3) Corrective Ads

FTC gets court order toforce advertiser to stop.

6 Government Regulatory Groups:1) FDA Packaging and labeling

2) FCC Broadcast advertising

3) Postal Service Magazines, direct mail

4) ATF Liquor labeling, advertising

5) Patent Office Trademarks

6) Library of Congress Copyrights

2 Industry Watchdogs

1) NAD (National Advertising Division)- Part of Better Business Bureau

2) National Advertising Review Board- Represents advertisers and agencies- A division of the NAD

Compliance is strictly voluntary

Big Questions What do you think is the biggest

benefit of advertising? What do you think is the biggest

problem with advertising? What do you think is the best example

of bad advertising? What do you think is the best example

of good advertising?