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Overview of Economic,
Social, & Regulatory
Aspects of Advertising
SBM 338
Lanny Wilke
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What is Advertising?
³The structured and composed
nonpersonal communication of
information, usually paid for andusually persuasive in nature, about
products (goods, services, and
ideas) by identified sponsors
through various media´ ±Arens &Schaefer (2007)
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In English«
A structured form of communicationemploying both verbal and nonverbalelements that are composed to fill
specific space and time formatsTypically directed toward groups of
people (mass communication).
Most is paid for by sponsors.
Usually persuasive.
Identifies the sponsor.
Reaches us through a channel of communication.
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The Role of Advertising in Business
Part of the marketing process.
The only business function whose
primary role is to bring in revenue.
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What is Marketing?
³an organizational function and a set
of processes for creating,
communicating, and delivering valueto customers and for managing
customer relationships in ways that
benefit the organization and its
stakeholders.´ -Arens & Schaefer (2007)
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Advertising and the Marketing
ProcessDAGMAR
Awareness
ComprehensionConviction
action
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Free Market Economics &
Advertising
Self-Interest
Complete Information
Many buyers and sellersAbsence of externalities (social
costs)
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Functions & Effects of Advertising
in a Free Economy
Seven functions of advertising
To identify products and
differentiate them from others.To communicate information about
the product, its features, and its
place of sale.
To induce consumers to try new
products and to suggest reuse.
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Seven functions of advertising
(contd)
To stimulate the distribution of theproduct.
To increase product use.
To build value, brand preference,and loyalty.
To lower the overall cost of sales.
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The Evolution of Advertising as an
Economic Tool
The Preindustrial Age
The Industrializing Age
The Industrial Age
TheP
ostindustrial Age
The Interactive Age
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Controversies About Advertising
Public criticism
Advertising¶s effect on prices
Promote or discourage competition?
Affect on overall consumer demand.
Effects on consumer choice and theoverall business cycle
Societal effects
More materialistic?
Forces us to buy things we don¶t need?
Reach us subliminally?
Debase our language?
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The Economic Impact of
Advertising
Effect on the Value of Products
Effect on Prices
Effect on Competition
Effect on Consumer Demand
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The Economic Impact of
Advertising (Cont¶d)
The Effect on Consumer Demand
Effect on Consumer Choice
Effect on the Business Cycle
The Abundance Principle
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The Social Impact of Advertising
Deception in Advertising
The Subliminal Advertising Myth
The Effect of Advertising on Our
Value System
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The Social Impact of Advertising
(Cont¶d)
The Proliferation of Advertising
The Use of Stereotypes inAdvertising
Offensiveness in Advertising
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Social Responsibility & Advertising
Ethics
Advertisers¶ Social Responsibility
Ethics of Advertising
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Current Regulatory Issues Affecting
U.S. Advertisers
Freedom of Commercial Speech
The Tobacco AdvertisingControversy
The Issue of Advertising to Children
Consumer Privacy
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Federal Regulation of Advertising in
North America
The U.S. Federal Trade Commission
Defining Deception
Defining UnfairnessComparative Advertising
Investigating Suspected Violations
Remedies for Unfair or DeceptiveAdvertising
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Federal Regulation of Advertising in
North America (Cont¶d)
The Food and Drug Administration
(FDA)
The food we eat is safeThe cosmetics we (NO, NOT ME)
use won¶t hurt us
The medicines and therapeuticdevices we buy are safe and
effective.
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Federal Regulation of Advertising in
North America (Cont¶d)
The Federal Communications
Commission (FCC)
Jurisdiction over radio, television,telephone, satellite and cable TV,
and the Internet
Responsible for protecting the
public interest and encouraging
competition
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Federal Regulation of Advertising in
North America (Cont¶d)
The Patent and Trademark Office and
the Library of Congress
Registers and protects intellectualproperty.
Patents
TrademarksCopyrights
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State and Local Regulation
By State Governments
By Local Governments
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Non-government Regulation
The Better Business Bureau (BBB)
The National Advertising Review Council
(NARC)
Regulation by the Media
Television
Radio Magazines
Newspapers
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Non-government Regulation
(Cont¶d)
Regulation by Consumer Groups
Self-Regulation by Advertisers andAd Agencies
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Government Restraints on
International Advertisers
Some foreign governments are more
authoritarian
Some restrict or ban ads for specific
products
Many countries prohibit puffery
Many European countries ban coupons,
premiums, free tie-in offers, etc. In Europe, TV ads must be kept
completely separate from the programs
and be clearly recognizable as such.