Deceptive Advertising

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Deceptive Advertising
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History

• 1st Amendment protects commercial speech which is
  defined as speech that does no more than propose
  a commercial transaction.
• Regulation occurs when commercial speech is
• Misleading
• Concerns an illegal product
• Substantial government interest

History Slides Attas, Daniel (1999, Aug).
Whats Wrong with Deceptive Advertising? Journal
of Business Ethics, pp. 49-59, Abernathy, Avery
M Franke, George R. (1998, Fall) FTC Regulatory
Activity and the information content of
Advertising. Journal of Public Policy
Marketing, pp. 239-256. Sinha,,Indrajit,
Chandran, Rajan, Srinivasan, Srini S.(1999,
Spring). Consumer evaluations of price and
promotional restrictionsa public policy
perspective, pp. 37-51.
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History(cont.)

• Federal Trade Commission (FTC)
• Executes Section 5 of the 1914 Federal Trade
  Commission Act which prohibits unfair or
  deceptive acts or practices in commerce.
• Regulates offenses that specify products falsely
• Regulates offenses that imply products falsely

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History(cont.)

• Federal Trade Commission (FTC)
• FTCs 1993 statement of policy on deception
  reads if there is misrepresentation, omission,
  act or practice that is likely to mislead
  consumers acting reasonably under the
  circumstances, and the offense is material,
  meaning of importance in effecting consumers
  choice of or conduct regarding a product, it is
  considered deceptive.

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History(cont.)

• Federal Trade Commission (FTC)
• Early 1960s little or no action
• Late 1960s reorganized by Nixon
• Early 1970s aggressive action
• Late 1970s political change views
• Early 1980s Reagans view self-regulation
• Late 1980s Bush displays cautious activism
• 1990s to present-Clinton encourages aggressive
  leadership

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History(cont.)

• Regulation necessary or unnecessary?
• Self-Regulation View
• Advertising reduces consumers learning curve
  about other market alternatives
• Consumer makes better buys
• Sellers ability to offer deceptive ads is limited
• Regulated View
• Promotes competition
• Promote higher quality products

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History(cont.)

• Are consumers being provided accurate and
  adequate information? If not, then
  self-regulation causes more problems then solves.
• Misinformed consumer makes bad buys
• Leads to economic activity distortion
• Reduces consumer welfare

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Welcome to Advertising Survival Tribal
Council.....
Deception Pass
1 MILLION to EACH MEMBER of WINNING TEAM!!!
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Criteria

• Maximize Performance
• Increase Fuel Economy
• Keep Your Engine Cleaner
• Reduce a Cars Maintenance Cost
• Use Your Imagination

Five minutes to present a 30 second ad.
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How To Advertise(Solution Strategy)

• Claims Must Be Provable
• Price Comparisons Must Be Fair
• Sufficient Quantities of Advertised Goods
• False Wholesale Prices
• Free Items That Are Not Free
• Zero Interest Financing

Consumer Rights and Advertising.
http//www.state.me.us/ag/clg24.htm
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How Did You Do?
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Example

• FTC Charges "Miss Cleo" with Deceptive
  Advertising, Billing and Collection Practices
• "Free Readings" Result in Large Phone Bill
  Charges

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Myths and Half-Truths About Deceptive Advertising

• MYTH 1 -- If A Couple Of Studies Support Your
  Claim, It Is Substantiated

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Myths and Half-Truths About Deceptive Advertising

• MYTH 2 -- If Your Product Has Some Benefits,
  Your Ads Won't Be Challenged

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Myths and Half-Truths About Deceptive Advertising

• MYTH 3 -- Testimonials Are Substantiation

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Myths and Half-Truths About Deceptive Advertising

• MYTH 4 -- So Long As Endorsers Really Use The
  Product And Really Like It, You Can Safely Use
  Their Endorsements

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Myths and Half-Truths About Deceptive Advertising

• MYTH 5 -- If You Contradict A Deceptive Claim
  With A Disclosure, You Immunize Yourself From
  Liability

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Myths and Half-Truths About Deceptive Advertising

• MYTH 6 -- "Results May Vary" Is An Adequate
  Disclosure

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Myths and Half-Truths About Deceptive Advertising

• MYTH 7 -- Dietary Supplement Ads Are Not
  Regulated

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Myths and Half-Truths About Deceptive Advertising

• MYTH 8 -- If All You Do Is Produce The
  Infomercial, You Are Not Responsible For
  Deceptive Claims

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Myths and Half-Truths About Deceptive Advertising

• MYTH 9 -- No Rules Apply To Advertising On The
  Internet

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Myths and Half-Truths About Deceptive Advertising

• FTC keeping current with technology and
  marketing.
• New technologiesOpportunities
• Private sector plays a vital role.

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Ethical Issues

• Deceptive-Involuntary Voluntary
• Truthfulness
• Free Speech
• Well-being of others
• Safety of product
• Disposable income
• Health

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Whose Rights Are Involved?

• Primary
• Consumer
• Company
• Shareholders
• Secondary
• Advertising Industry
• Competitors
• FTC

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Fair Treatment Issues

• How are primary secondary involved?
• Consumer--reason for advertising
• Company--create ad to inc. market share
• Shareholders--benefit/suffer from ad
• Advertising Industry--rules affect solely
• Competitors--products reliability
• FTC---burdened with creating enforcing rules of
  advertising

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Assumptions

• Company Assumptions
• Gullibility
• Freedom of Speech
• Educated consumer

• Consumer Assumptions
• Puffery
• Factual integrity
• Reliability
• Free-lunch

Adams, Maine. (1998). Business ethics for the
21st century. Chapter 7 Advertising and
Marketing. Richards. (1996) Advertising law
ethics. http// advertising.utexas.edu/research/la
w/
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Recommendations Corrective Actions(Solution
Strategy)

• Injunctions
• Monetary Penalties
• Restitution to Consumers
• Mandatory Corrective Advertising
• Notices to Consumers
• Consumer Lawsuits
• Including Class Actions

Goff, Richard. Untrue Ads Can Provoke Severe
Court Verdicts. http//www.bizjournals.com/Seatt
le/stories/1997/10/20/focus7.html
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Http//www.ftc.gpv/os/1997/9706/exxona1.htm
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Consequences(Pro Active)

• Corporate
• Shareholders
• Return on Investment
• Puffery
• Rights Of Consumers Are Considered (Fair
  Treatment)
• Consumer
• Get What They Paid For
• Honestly Educated
• Competitors
• Everyone gets a fair shot

Both the Company and the Consumers Best Interest
is Considered.
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Consequences(Reactive)

• Corporation
• Bottom line
• Public relations
• Substitute products
• Consumer
• Fair treatment
• Trust

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Points to Ponder

• Sweepstakes, Contest
• Diet Industry
• Medical
• Subliminal
• Tobacco Alcohol
• Privacy, Free Speech

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.......And The
Winner
Is.......