Chapter 6

The Regulatory and Ethical

Environment of Promotions

6-1

1. Discuss the impact of promotion on society’s

well-being.

2. Summarize ethical considerations related to

brand promotion campaigns.

3. Describe aspects of advertising regulated by the

U.S. government.

4. Summarize the regulatory role of the Federal

Trade Commission.

5. Explain the meaning and importance of self-

regulation by marketers.

6. Discuss the regulation of direct marketing, sales

promotion, and public relations.

6-2

Social Impact of Brand Promotion

• On the positive side, promotional efforts are said to:

• benefit society by increasing the standard of living through lowered product

costs (by stimulating demand, increasing probability new products will

succeed, fueling competition and improvement, diffusing innovations)

• foster innovation, especially artistic creations

• provide revenues to support mass media

• deliver a constant flow of information valued by consumers

• inform people about political and social issues

• At the same time, critics have said:

• promotional expenditures are wasteful, intrusive, and manipulate consumers

into buying something they may want but don’t really need (NOTE:

Remember that advertising cannot stimulate a basic need, but it can stimulate

a person to act on an existing desire.)

• messages are often offensive to society and frustrating to those who can’t

afford a lavish lifestyle

• advertisements are superficial and rarely furnish useful information

• advertisements perpetuate superficial stereotypes

• some critics have been concerned that advertisers are controlling consumers

with subliminal advertising messages (this claim is not well supported)

6-3

Social Impact of Brand Promotion, Continued

Exhibit 6.1 Pros and Cons of Brand Promotion

6-4

Ethical Issues in Promotion

• Ethical considerations that frequently arise involve:

• truthfulness (puffery is considered legal)

• concern for the impact of promotional messages on children

• the promotion of controversial products and practices such as

firearms, gambling, alcohol, cigarettes, and junk food

• Ethical standards are a matter for personal reflection; for example, there

are many shades of gray between purely fact-based ads and intentional

efforts to deceive by withholding information or lying.

• Unethical people can create unethical advertising, but there are also

many safeguards against such behavior, including the corporate and

personal integrity of advertisers.

6-5

Regulation of Advertising

• In the United States, advertisers may not engage in deceptive or unfair

practices, including:

• false vertical cooperative advertising allowances

• unfair comparison advertising

• the exercise of monopoly power

• According to the the Federal Trade Commission (FTC) both implied

claims and missing information can be basis for deeming an ad

deceptive.

• Legislation defines unfair advertising as “acts or practices that cause or

are likely to cause substantial injury to consumers, which is not

reasonably avoidable by consumers themselves, and not outweighed by

the countervailing benefits to consumers or competition.”

• The government places limits on the amount of advertising aimed at

children on television, and industry groups have developed guidelines

for the content of ads targeting children.

6-6

Regulation of Advertising, Continued

Exhibit 6.2 Don’t Go There…

6-7

Federal Government Regulation

• There are a total of six federal government agencies directly responsible for advertising

regulations. However, the Federal Trade Commission (FTC) is the largest, most

powerful, and most regularly used. The remaining five agencies each have areas of

specialization. These agencies include:

• the Federal Communications Commission (FCC)

• the Food and Drug Administration (FDA)

• the Securities and Exchange Commission (SEC)

• the U.S. Postal Service (USPS)

• the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF)

• The FTC was established in1914 and has been especially active in trying to deter

deception and unfairness in advertising. Since then several important laws have passed:

• Wheeler-Lea Amendment (1938)

• Robinson-Patman Act (1936)

• Wool Products Labeling Act (1939); Fur Products Labeling Act (1951); Textile Fiber

Products Identification Act (1958)

• Fair Packaging and Labeling Act (1966)

• Truth in Lending Act (1969)

• Fair Credit Reporting Act (1970)

• FTC Improvement Act (1975)

• Nutrition Labeling and Education Act (NLEA) (1990)

6-8

Federal Government Regulation, Continued

• The FTC has developed regulatory remedies, such as the advertising

substantiation program.

• When the FTC determines that advertising is unfair or deceptive, it may:

• issue a consent order

• issue a cease-and-desist order

• require affirmative disclosure

• require corrective advertising

• The FTC also has issued guidelines for the use of celebrity endorsements.

• State regulation is rare, but can exist. States usually rely on the FTC for

vigilance.

6-9

Federal Government Regulation, Continued6-10

Exhibit 6.3 Remedies Sought by the FTC

Industry Self-Regulation

• Some of the most important controls on advertising involve voluntary self-

regulation by marketing professionals.

• The American Association of Advertising Agencies has issued guidelines for

promoting fairness and accuracy when using comparative advertisements.

• Many other organizations, such as the Better Business Bureau, the National

Association of Broadcasters, and the Direct Marketing Association, participate in

the process to help ensure fairness and assess consumer complaints about

advertising and promotion. The Global Business Dialog on Electronic Commerce

(GBDe) is trying to establish itself as a trade association for the online industry in

an effort to create Internet self-regulation.

• One important self-regulation organization is the National Advertising Review

Board (NARB). The NARB is the operations arm of the National Advertising

Division (NAD) of the Council of Better Business Bureaus.

• Consumers also have multiple organizations that act as watchdogs and help police

advertising practices.

• These organizations are not empowered to impose penalties on advertisers, but

they are a powerful threat to deceptive advertisers.

6-11

Industry Self-Regulation, Continued

Exhibit 6.4 Handling Complaints to the Better Business Bureau

6-12

Regulation of Direct Marketing

and E-Commerce

• In direct marketing and e-commerce, the primary concern has to do with

consumer privacy.

• Laws and regulations, including the Do Not Call Registry and the CAN

SPAM Act, restrict the ways in which companies can contact consumers

with a sales offer.

• Other restrictions are aimed at ensuring that contests and sweepstakes

do not amount to gambling opportunities.

• In sales promotions, premium offers, trade allowances, and offline

contests and sweepstakes are subject to regulation. Firms must state

the fair value of “free” premiums, trade allowances must follow the

guidelines of fair competition, and contests and sweepstakes must

follow strict rules specified by the FTC.

• The regulation of public relations efforts requires that privacy

(appropriation) be protected and that firms avoid copyright infringement

and defamation (slander and libel).

6-13

Regulation of Direct Marketing and E-Commerce, Continued

6-14