M Advertising 3rd Edition Arens Schaefer Weigold Solution Manual
M Advertising 3rd Edition Arens Schaefer Weigold Solution Manual
M Advertising 3rd Edition Arens Schaefer Weigold Solution Manual
Solution Manual:
https://testbankpack.com/p/solution-manual-for-m-advertising-3rd-
edition-arens-schaefer-weigold-1259815943-9781259815942/
CHAPTER TWO
THE ENVIRONMENT OF ADVERTISING
The main objectives of this chapter are to identify and explain the economic, social, ethical,
and legal issues advertisers must consider. When they are violated, social issues arise and the
government may take corrective measures. Society determines what is offensive, excessive,
and irresponsible; governmental bodies determine what is deceptive and unfair. To be law-
abiding, ethical, and socially responsible, as well as economically effective, an advertiser
must understand these issues.
Learning Objectives
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Chapter 02 – The Environment of Advertising
What’s New?
The opener is updated to include information about Lance Armstrong and his difficulties as a
spokesperson following the controversy over his use of performance-enhancing substances
during his cycling career. Our “My IMC Campaign” box details the semester-long assignment
and the steps student groups will be taking in creating a campaign.
Application Exercises
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Chapter 02 – The Environment of Advertising
Students often recognize and relate to some celebrity product endorsees, while not others. You
might start by showing the Tag Heuer website (http://us.tagheuer.com/). Click on the “Don’t
Crack Under Pressure” tab and choose “Ambassadors” from the submenu, which will bring up
a slideshow of celebrities who promote the Tag Heuer brand. Choose a celebrity to discuss
and start your discussion by asking if anyone finds the Tag Heuer brand more desirable based
on the celebrity association. Then ask what personality the actor or athlete has and if that
personality reflects appropriately on Tag Heuer. You might also ask students if
they know an approximate price range for Tag Heuer watches ($3,000 to $6,000) and if they
believe the celebrity or athlete association influences consumers in purchasing this brand and
product line.
I find that the best way to enliven these discussions is to let students find a natural voice for
their thoughts. If there is a mixture of responses, I try to let the debate just happen.
Conversely (as is often the case), if no one initially comments on the association versus brand
value topic, I then raise the issue of Michael Phelps and Tiger Woods—that of the “brand
transgressions” they potentially created based on a conflict between the acts in their personal
lives and the products they represented. Some thoughts to cultivate this discussion:
1) Are celebrities really victims of the state of our culture? Does society set the standards
for what is acceptable in life and in product endorsements?
2) Ask if anyone eats Kellogg’s Corn Flakes or wears Nike apparel. Do athletes like
Phelps and Woods influence purchasing decisions based on the use of illegal drugs, or
through marital indiscretions?
3) Many companies include a “morals clause” in celebrity and athlete agreements. What
type of requirements might you require if you were drafting the language for this
clause?
4) Are the high endorsement fees associated with celebrities worth the investment?
Would companies like Tag Heuer and Nike better serve their customers by
discontinuing endorsee advertising and then using those savings to drop the cost of
their products?
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Chapter 02 – The Environment of Advertising
Before discussing the legal issues surrounding advertising, I ask students whether they believe
commercial speech like advertising is protected by the First Amendment. I frequently find
many students have never considered that there might be some forms of speech that are not
protected. This leads to a discussion of the 1942 Supreme Court case Valentine v.
Christenson, in which the court first considered the issue. In that case, a businessman named
Christenson attempted to market tours of his submarine, which resided in New York’s harbor,
by distributing leaflets. Police chief Valentine, citing New York’s anti-littering code,
attempted to stop him. The Supreme Court ultimately ruled that New York could regulate
advertising because commercial speech does not enjoy First Amendment protection. In
subsequent cases the court moved away from that conclusion, but the precedent remained
important for many years and in many Court decisions, including its decision to permit a ban
on tobacco advertising on TV and radio. I ask students if commercial speech provides
something of value to consumers, and if so, what does it provide?
All students have been influenced by advertising in one way or another. Ask students if they
have ever bought a product/service they saw an ad for and were disappointed by the ad
because it created an expectation that wasn’t met. For instance, I had an ad with a coupon for
Stanley Steemer (a carpet-cleaning company). The coupon conveyed they would clean the
carpets of three rooms for a special price of $99. When the company arrived, they told me
they could put a pet deodorizer in the cleaning solution for an extra charge, as well as a type
of stain repellant.
I didn’t think it would be that much difference. I ordered the stain repellant and pet
deodorizer, and to my surprise the bill was well over $200. My neighbor had her carpets
cleaned as well, and her bill approached $300 because she had a couple of furniture pieces
treated as well. I asked the company representative how many people actually spend $99 for
service. He replied, “Most people need more than the minimum.” Was this deceptive
advertising? I think so.
The Doan’s Backache relief campaign is a discussion topic that helps illustrate what deceptive
advertising is or isn’t. For more than 90 years, Doan’s was advertised as one of the better
back-pain medicines on the market. The problem was that Novartis (the manufacturer of
Doan’s) had no scientific data indicating that Doan’s was more efficient at treating back pain
than the other pain medicines on the market. A doctor I know explained, “Doan’s has the
same ingredients as ibuprofen.” The point: people who took ibuprofen would get results
similar to those who took Doan’s.
In 1996, the FTC took Novartis to court on grounds of deceptive advertising. Here are some
of Doan’s claims (I write these claims on the board to convey to the class what Doan’s main
message/deception was).
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Chapter 02 – The Environment of Advertising
▫ “Doan’s is made for back pain relief with an ingredient [other] pain relievers don’t
have. Doan’s makes back pain go away . . . The Back Specialist.”
▫ “If nothing seems to help, try Doan’s. It relieves back pain no matter where it hurts.
Doan’s has an ingredient these pain relievers don’t have.”
▫ “Back pain is different. Why use these pain relievers? Doan’s is just for back pain.”
In 1998, the courts ruled in favor of the FTC and had Novartis run corrective advertising to
try to let the public know that Doan’s is no more effective than other pain medicines on the
market. Holding a class discussion after explaining this issue will allow students to consider
other instances when they have seen deceptive advertising, and its implications for society
and business. Ask the students if what Novartis did was ethical or unethical and why?
Source: “Doan’s Pills Must Run Corrective Advertising,” FTC Office of Public Affairs, May
27, 1999, available from http://www.ftc.gov/opa/1999/05/doans.htm.
Video Resources
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Chapter 02 – The Environment of Advertising
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Chapter 02 – The Environment of Advertising
Lecture Outline
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Chapter 02 – The Environment of Advertising
Activity Summary: This activity reviews the functions that advertising can fill in a free
economy. These functions include branding, communicating information, inducing trial,
stimulating distribution, building value and loyalty, and lowering the cost of sales. In the
exercise, students read about the ways that a new company, Nutra Box, is using
advertising. They then read a list of activities that Nutra Box has engaged in and identify
what function of advertising each activity fulfills by clicking and dragging the function to
the appropriate row in the list. (Note: A keyboard accessible version of this activity is also
available.)
Learning Objectives:
Learning Objective: 02-01 Describe the impact of advertising on the economy.
Blooms: Understand
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Chapter 02 – The Environment of Advertising
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Chapter 02 – The Environment of Advertising
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Chapter 02 – The Environment of Advertising
Activity Summary: This activity demonstrates to students that advertising can have a
wide variety of consequences. The exercise describes the use of advertising by Whispers, a
fictional earbuds brand, and the impact the advertising has on the company and its
competitors. This is followed by a table that lists advertising inputs and outcomes from the
Whispers case study. Students identify the economic impact of these inputs and outcomes
by clicking and dragging advertising functions onto the appropriate spots on the table.
They also click and drag examples from Whispers' advertising to their matching input or
outcome. (Note: A keyboard accessible version of this activity is also available.)
Learning Objectives:
Learning Objective: 02-01 Describe the impact of advertising on the economy.
Blooms: Understand
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Chapter 02 – The Environment of Advertising
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Chapter 02 – The Environment of Advertising
1.
Professional critics argue that advertising does the following:
a. It degrades people’s value systems by promoting a materialistic way of
life.
b. It destroys the essence of our citizen democracy, replacing it with a
consumer democracy
c. It manipulates people by playing on our emotions and promising greater
status, social acceptance, and sex appeal.
d. It is so powerful that consumers are helpless to defend themselves against
it.
2. That argument exaggerates the power of advertising.
a. One study showed that only 17 percent of U.S. consumers see advertising
as a source of information to help them decide what to buy.
b. More advertised products fail than succeed in the marketplace.
3. Advertisers do indeed spend millions trying to convince people their products
will make them sexier, healthier, and more popular. The very amount of
advertising we witness every day seems to suggest that every problem we
have can be solved by the purchase of some product.
D. The Proliferation of Advertising
1. One of the most common long-term complaints about advertising is that
there’s just too much of it.
a. The average person may be exposed to 500–1,000 commercial messages
a day.
b. In 2010, nonprogram time runs to more than 14 minutes per hour on TV.
c. It’s not just TV—websites are also cluttered with advertising banners,
and our e-mail boxes are flooded with advertising.
2. Too much advertising creates an externality not only for customers
(nuisance), but for also the advertisers themselves—the more commercials
that hit the customers’ brains, the less effective paid advertising is.
E. Stereotypes in Advertising
1. Advertising has long been criticized for insensitivity to minorities, women,
immigrants, the disabled, the elderly, and other groups. Critics maintain that
advertising uses stereotypes. A stereotype is a generalization about a group.
a. In recent years, advertisers have become more sensitive to the concerns
of Latinos, African-Americans, Asians, Native Americans, and other
minorities. They are usually portrayed with sensitivity in ads, not only
because of pressure from watchdog groups, but also because it’s good
business; these consumers represent sizable target markets.
b. The image of women is also changing from their historic depiction as
either homemakers or sex objects.
2. Problems still exist, especially in local and regional advertising and in certain
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Chapter 02 – The Environment of Advertising
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Chapter 02 – The Environment of Advertising
1. How would you react to an ad that proclaims a product “is the greatest ever,” “will change
your life,” or “can’t be beat”? Does it pique your interest to give it a try—or do just the
opposite?
Answer guidelines:
a. Deception is interpreted as injurious and is thereby illegal.
b. Puffery is a form of falsity, which may or may not be deceptive.
c. Puffery often takes the form of “nonproduct facts,” information not specifically about
the product and therefore not directly testable as true or false. Nonproduct facts are
typically about consumers’ personalities, lifestyles, fears, and anxieties.
2. If puffery were outlawed, how would similar products (brands of toothpaste, detergents,
and cereals, for example) differentiate themselves? If advertisers were restricted to telling
only the literal truth, how would that affect creativity in advertising?
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Chapter 02 – The Environment of Advertising
Answer guidelines:
a. For many products, differentiation is possible by playing up a catchphrase that
emphasizes a real or invented difference. (For example, a DoubleMint gum ad shows
twin sisters smiling and repeats the theme “double your pleasure, double your fun”.
No other gum could use this theme without plagiarizing it.)
b. A straight comparison ad is an effective method of differentiation. One method is to
list the differences between “our brand” and “brand X” or with a named competitor. A
second method is an ad featuring a demonstration that plays up the efficiency of the
product’s utility. Such ads can differentiate a product because they are an implied
challenge to all other competitors to a “put-up or shut-up” duel.
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Chapter 02 – The Environment of Advertising
b.
When the group or individuals cannot resolve an ethical dilemma, they
must redefine the issue in dispute.
3. Thus, the third level of ethics concerns singular ethical concepts such as
good, bad, right, wrong, duty, integrity, and truth.
4. Most advertisers today strive to maintain fair ethical standards and practice
socially responsible advertising.
5. Consumer groups, governments, special interest groups, and even other
advertisers now review, control, and modify advertising in order to create
more complete information and reduce the impact of unwanted externalities.
Check Yourself 2–3
1. Provide examples of actions that advertisers or their agencies might take that
would demonstrate social responsibility and ethical behavior.
Social Responsibilities:
Advertisers and their agencies are socially responsible by maintaining clean
business facilities, participating in civic events, supporting local
enterprises, and improving the community. Ad professionals might provide
pro bono (free) work to charitable organizations and public agencies or
provide scholarships and internships.
Ethical Responsibilities:
Ethics comprise two interrelated components: traditional actions and
philosophical rules.
To meet their responsibilities, advertisers should practice socially responsible
advertising. They should provide complete information and reduce unwanted
externalities. The advertising business is more highly scrutinized in the past.
Consumer groups and special-interest groups keep advertising in check.
Activity Summary: In this activity, students reflect on the impact and ethics of celebrities
in advertising. Lance Armstrong and Trek bicycles are used as an example. In the exercise,
students are instructed to review their text's coverage of ethics and social responsibility.
They then watch a Trek advertisement featuring Lance Armstrong and answer multiple
choice questions about the impact and ethics of Armstrong's relationship with Trek.
Learning Objectives:
Learning Objective: 02-01 Describe the impact of advertising on the economy.
Learning Objective: 02-03 Explain the difference between social responsibility and ethics
in advertising.
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Chapter 02 – The Environment of Advertising
Follow-Up Activity: Instructors could ask students to describe examples from their own
lives of purchase decisions that were influenced by celebrity advertisements or
endorsements.
Campaign Audit
Many classes begin by having teams audit the plans books from prior semesters. This
accomplishes several things. First, it gives you an idea about what you will be doing all
semester. Second, it introduces you to the importance of seeing how research, strategy,
planning, budgeting, and creative all flow together. If you don’t have access to the work of
other students, why not look over the work of the very best? Visit the Effie Award website
(https://www.effie.org/case_studies/cases), where you can find great ads and a lot of
background information about the campaigns.
Research Report
You may be asked to conduct formative research for the brand. This may include
secondary research, useful for gathering information for your IMC plan; qualitative
primary research, in which you conduct a focus group or series of depth interviews; and
quantitative research, in which you administer a survey. You’ll find a lot of information in
Chapter 6 about these activities. Your university likely has a web page devoted to
secondary marketing research. A useful collection of market research resources can also be
found here: www.entrepreneurship.org/en/resource-center/secondary-market-research-
resources.aspx
Media Plan
A media plan shows the specific allocations of the budget to different media and
promotional activities. It will also specify what vehicles will be used for the campaign, as
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Chapter 02 – The Environment of Advertising
well as when and how often the ads will run. You will most likely want to use a
spreadsheet to show the calendar. We have a sample media plan flowchart in Chapter 14.
If you are doing a plans book, it means you are doing almost everything we’ve reviewed to
this point. A typical plans book will include research findings, an IMC plan, a creative
brief, media plans, and mock-ups of real ads, but it assembles these elements in a seamless,
integrated way, so that the reader has a clear understanding of the entire arc of a planned
campaign. In many plans books, there will also be a section on campaign evaluation (ways
of assessing the campaign).
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Chapter 02 – The Environment of Advertising
Activity Summary: The ethics of advertising to children are explored in this activity.
Students read a case study about Learning Curve, a fictional company that offers
advertising-supported educational material online. They are then encouraged to review the
Children's Advertising Review Unit's special guidelines for advertising to children. Next,
students answer multiple choice questions about whether it would be ethical and
responsible for Learning Curve to accept an advertisement proposed by Spike T, a
beverage company.
2-20
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Chapter 02 – The Environment of Advertising
Learning Objectives:
Learning Objective: 02-02 Examine the validity of the various social criticisms of
advertising.
Learning Objective: 02-03 Explain the difference between social responsibility and ethics
in advertising.
Blooms: Apply
D. Consumer Privacy
1. With the increased use of smart phones and the Internet, both of which can be
used for advertising, the issue of privacy rights is in the news.
2. Web advertisers store files called cookies on consumer hard drives that keep
a log of Internet activities, allowing sites to track customers’ web-surfing
habits.
3. Internet companies argue that such tracking is not personal; it’s typically
performed anonymously and helps them customize content to match users’
interests.
4. However, DoubleClick, a leading provider of marketing tools for web
advertisers, merged with a direct-mail company, enabling DoubleClick to
combine online profiles with offline identifying information. Google has
since acquired DoubleClick, gaining access to that information.
5. More than half of Internet users believe that online tracking is harmful.
Consumers have options to disable cookies or “opt out” of tracking, although
these options may limit Internet access.
6. The Federal Trade Commission together with the Network Advertising
Initiative have created a framework for self-regulation of online profiling.
7. The Fair Information Practice Principles consist of five core elements:
a. Notice, which requires that the website clearly post its privacy policy.
b. Choice, which relates to consumers’ level of control over being profiled
and how their information is used.
c. Access, the ability for consumers to access information collected about
them and make amendments to it.
d. Security, which requires that network advertisers make reasonable efforts
to protect the data they collect from loss, misuse, or improper access.
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Chapter 02 – The Environment of Advertising
Activity Summary: This activity reviews the Fair Information Practice Principles
formulated by the Federal Trade Commission and the Network Advertising Initiative,
which is a framework for companies to self-regulate their online profiling of consumers. In
the exercise, students are instructed to review the description of the Fair Information
Practice Principles in the text. Next, they click and drag five examples of consumer
experiences to the principles that they represent. (Note: A keyboard accessible version of
this activity is also available.)
Learning Objectives:
Learning Objective: 02-04 Describe how government agencies regulate advertising to
protect both consumers and competitors.
Learning Objective: 02-05 Discuss the activities of nongovernment organizations in
fighting fraudulent and deceptive advertising.
Blooms: Analyze
Follow-Up Activity: Students could be tasked with visiting five different websites and
determining if they comply with the Fair Information Practice Principles. Students should
be encouraged to visit at least one or two websites that are not among the most trafficked
on the Internet.
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Chapter 02 – The Environment of Advertising
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Chapter 02 – The Environment of Advertising
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Chapter 02 – The Environment of Advertising
Activity Summary: In this activity, students learn about government regulations and
regulatory agencies that affect advertising in the United States. The regulators mentioned
are the Federal Communications Commission, Federal Trade Commission, Food and Drug
Administration, Library of Congress, and Patent and Trademark Office. The exercise
presents a table that gives five examples of unlawful advertising activities. Students are
asked to identify the agency that regulates each activity and the regulatory principle that is
most likely involved in the unlawful activity by clicking and dragging them onto the
appropriate places on the table. (Note: A keyboard accessible version of this activity is also
available.)
Learning Objectives:
Learning Objective: 02-04 Describe how government agencies regulate advertising to
protect both consumers and competitors.
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Chapter 02 – The Environment of Advertising
Blooms: Remember
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Chapter 02 – The Environment of Advertising
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Chapter 02 – The Environment of Advertising
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Chapter 02 – The Environment of Advertising
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Chapter Two
The Environment of
Advertising
©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
Learning Objectives (1 of 2)
• Learning Objective 2.1: Describe the impact of
advertising on the economy.
• Learning Objective 2.2: Examine the validity of the
various social criticisms of advertising.
• Learning Objective 2.3: Explain the difference
between social responsibility and ethics in
advertising.
©McGraw-Hill Education.
Learning Objectives (2 of 2)
• Learning Objective 2.4: Describe how government
agencies regulate advertising to protect both
consumers and competitors.
• Learning Objective 2.5: Discuss the activities of
nongovernment organizations in fighting
fraudulent and deceptive advertising.
©McGraw-Hill Education.
Introduction
Advertisers face a variety of economic, social,
ethical, and legal issues.
Society determines what is
– Offensive
– Excessive
– Irresponsible
Government determines what is
– Deceptive
– Unfair
©McGraw-Hill Education.
Issues in Advertising
Highly visible activity—Companies risk public
criticism if the following are true:
– An advertisement is offensive or displeasing.
– Products do not measure up to the advertised
promises.
Influence on the economy
Societal effects
Responsibility for harmful effects
Proper role of government
©McGraw-Hill Education.
Underlying Principles of Free-Market Economics
©McGraw-Hill Education.
Exhibit 2.1 – A Country’s Level of Ad Spending is Closely
Related to its Standard Of Living
Sources: 2010 data: http://mumbrella.com.au/australia-has-largest-adspend-per capita-in-the-world-60128; World Bank 2011 data: http://en.wikipedia.org/
wiki/List_of_countries_by_GDP_%28PPP%29_per_capita.
©McGraw-Hill Education.
Exhibit 2.2 - Economic Effect of Advertising
Compared to a Break Shot in Billiards
©McGraw-Hill Education.
Effect of Advertising on Prices
Small part of a product’s cost
Enables mass production, which lowers the cost per
unit of a product
Regulated industries see no price increase associated
with advertising
Retailing—Advertising contributes to both higher
and lower prices
©McGraw-Hill Education.
Effect of Advertising on Competition
Big advertisers have a limited effect on competition
or small businesses.
– One advertiser is not large enough to dominate
national advertising.
– Freedom to advertise encourages more sellers to enter
the market.
– Nonadvertised store brands compete with nationally
advertised brands.
©McGraw-Hill Education.
Effect on Consumers and Businesses
In growing markets, advertising
– provides more “complete information.”
– stimulates primary demand: consumer demand for a whole
product category.
– helps businesses compete for a share of the growing market.
In declining markets, it
– mainly provides price information.
– influences selective demand: consumer demand for the
particular advantages of one brand over another.
– helps businesses compete for each other’s market share.
©McGraw-Hill Education.
Abundance Principle
In an economy that produces more goods than can
be consumed, advertising serves two purposes:
– Informs consumers of their alternatives (complete
information)
– Allows companies to compete more effectively,
resulting in more and better products at similar or
lower prices (self-interest)
©McGraw-Hill Education.
Social Impact of Advertising (1 of 3)
Deception in advertising
– Puffery: exaggerated, subjective claims that cannot be
proven true or false
Subliminal advertising myth
– Subliminal advertising: advertisements with messages
(often sexual) supposedly embedded in illustrations
below the threshold of perception
– No study to date has proved that subliminal advertising
works or even exists.
– Taps into consumer fears that they are being
manipulated by advertising
©McGraw-Hill Education.
Social Impact of Advertising (2 of 3)
Advertising and our values
– Advertising promotes a materialistic way of life.
– Ads play on our emotions and promise greater status,
social acceptance, and sex appeal.
– Only 17 percent of U.S. consumers see advertising as a
source of information to help them decide what to buy.
Proliferation of advertising
– A common complain is that there is too much exposure
to advertisements in all media
– The average U.S. consumer is exposed to as many as
1,000 commercial messages each day.
©McGraw-Hill Education.
Social Impact of Advertising (3 of 3)
Stereotypes in advertising
– Stereotype: A negative or limiting preconceived belief
about a type of person or a group of people that does
not take into account individual differences.
– Insensitivity to minorities, women, immigrants, persons
with disabilities, the elderly, and other groups
Offensive advertising
– Offended consumers can boycott a product.
– Marketplace veto power: Campaign will falter if the ads
do not pull in audiences.
©McGraw-Hill Education.
Social Impact of Advertising
in Perspective (1 of 2)
Encourages development and speeds the acceptance
of new products and technologies
Fosters employment
Consumers have a wider variety of choices
Helps keep prices down through mass production
©McGraw-Hill Education.
Social Impact of Advertising
in Perspective (2 of 2)
Promotes healthy competition between producers
Promotes a higher standard of living
Enables freedom of press
Disseminates public information on social issues
©McGraw-Hill Education.
Social Responsibility
and Advertising Ethics
Ethical advertising: doing what the advertiser and
advertiser’s peers believe is morally right in a given
situation
Social responsibility: doing what society views as
best for the welfare of people in general or for a
specific community
Together, ethics and social responsibility can be seen
as the moral obligation of advertisers, even when
there is no legal obligation.
©McGraw-Hill Education.
Advertisers’ Social Responsibility
Advertising’s role
– Influences a society’s stability and growth
– Secures large armies
– Creates entertainment events, drawing fans
– Affects the outcome of political elections
©McGraw-Hill Education.
Ethics of Advertising
Three levels of ethical responsibility:
– Traditional customs and principles of a society
– Attitudes, feelings, and beliefs that form a personal
value system
– Singular ethical concepts (good, bad, right, wrong, duty,
integrity, truth)
©McGraw-Hill Education.
Freedom of Commercial Speech (1 of 3)
Some forms of commercial speech (speech that
promotes a commercial transaction) are protected
under the First Amendment.
– The Supreme Court ruled against restrictions on
attorney advertising in the 1976 case Virginia State
Board of Pharmacy v. Virginia Citizens Consumer
Council.
– In 1980, the Supreme Court established the Central
Hudson test for regulating commercial speech.
– In 2011, Supreme Court ruled against restrictions on
data mining in Sorrell v. IMS Inc.
©McGraw-Hill Education.
Freedom of Commercial Speech (2 of 3)
Advertising tobacco products is heavily restricted
due to externalities:
– Kills or disables more than 500,000 each year
– Costs taxpayers billions of dollars in health care costs
In 1998, tobacco companies agreed to
– limit brand name promotion at events with young
attendees.
– eliminate the use of carton characters in ads.
– create a $200 billion fund to cover the health costs
associated with smoking.
©McGraw-Hill Education.
Freedom of Commercial Speech (3 of 3)
Advertising to children
– Can lead to false beliefs or highly improbable product
expectations
– Should not be intentionally deceptive
Children’s Advertising Review Unit (CARU)
– Reviews and evaluates child-directed advertising
– Seeks changes through voluntary cooperation of
advertisers
©McGraw-Hill Education.
Consumer Privacy (1 of 3)
Consumer privacy is the second major regulatory
issue facing advertisers (after freedom of
commercial speech).
Increased use of smartphones and Internet has
led to growing consumer concern
― Privacy rights: an individual’s right to prohibit
personal information from being divulged to the
public
― Has ethical, legal, and practical consequences for
advertisers
©McGraw-Hill Education.
Consumer Privacy (2 of 3)
Internet users worry about people they don’t know,
and even businesses they do know, getting personal
information.
Many sites create profiles of their visitors or track
browsing habits using cookies: small files that keep a
log of where people click, allowing sites to track
customers’ web-surfing habits.
– Google, Apple, Facebook and many other companies
use cookies to track users.
– Some sites require that cookies be accepted.
– Users can “opt in” or “opt out” of sharing information.
©McGraw-Hill Education.
Consumer Privacy (3 of 3)
The FTC and the Network Advertising Initiative
created “Fair Information Practice Principles” to
respond to consumer privacy concerns.
It has five core elements:
– Notice
– Choice
– Access
– Security
– Enforcement
©McGraw-Hill Education.
Federal Regulation Agencies
of the Advertising Industry
©McGraw-Hill Education.
Federal Trade Commission (FTC)
Regulates acts of:
Deceptive advertising: misrepresentation, omission,or
other practice that can mislead consumers to their
detriment
Unfair advertising: causes a consumer to be unjustifiably
injured or violates public policy
Comparative advertising: claims superiority to
competitors in some aspect
• Must be truthful
• Must compare on an objectively measurable
characteristic
©McGraw-Hill Education.
Investigating Suspected Violations
©McGraw-Hill Education.
Remedies for Unfair or Deceptive
Advertising
Consent decree: document signed by advertisers
without admitting any wrongdoing, in which they
agree to stop objectionable advertising
©McGraw-Hill Education.
Food and Drug Administration (FDA)
Responsible for the safety of food, cosmetics, and
medicine and therapeutic devices
Nutritional Labeling and Education Act (NLEA)
– Sets legal definitions for terms such as fresh, light,low
fat, and reduced calories
– Sets standards for serving sizes
– Requires labels to show food value for one serving
alongside the total recommended daily value as
established by the National Research Council
©McGraw-Hill Education.
Federal Communications Commission (FCC)
©McGraw-Hill Education.
Patent and Trademark Office
and the Library of Congress (1 of 2)
Intellectual property: intellectual works legally
protected by copyright, patent, or trademark
Patent and Trademark Office registers intellectual
property protected by patent or trademark.
– Patent: confers upon the creator of an invention the
sole right to make, use, and sell that invention for a set
period of time
– Trademark: word, name, symbol, device, or any
combination adopted and used by manufacturers or
merchants to identify and distinguish their goods from
those manufactured or sold by others
©McGraw-Hill Education.
Patent and Trademark Office
and the Library of Congress (2 of 2)
Library of Congress protects all copyrighted material
Copyright: Protects an original work from being
plagiarized, sold, or used by another without the
individual’s express consent
– Granted by the Copyright Act to authors and artists
– Exclusive right to print, publish, or reproduce the
protected material for the life of the copyright owner
plus 70 years
©McGraw-Hill Education.
State and Local Regulation
of the Advertising Industry
All states have consumer protection laws governing
unfair and deceptive practices.
– State legislation for advertising is often based on the
truth-in-advertising statute: any maker of an ad found
to contain “untrue, deceptive, or misleading” material
is guilty of a misdemeanor.
– States work together to investigate and prosecute
violations.
– Differences between state laws can frustrate
advertisers.
– Localities also have consumer protection agencies.
©McGraw-Hill Education.
Nongovernment Regulation (1 of 2)
Better Business Bureau (BBB)
– Operates at the local level
– Protects consumers against fraudulent and deceptive
advertising and sales practices
– Maintains public records of violators
– Sends records of non-compliant violators to appropriate
government agencies
– May work with local law enforcement to prosecute
advertisers guilty of fraud and misrepresentation
©McGraw-Hill Education.
Nongovernment Regulation (2 of 2)
The Advertising Self-Regulatory Council (ASRC)
promotes and enforces standards of truth, taste,
morality, and social responsibility.
Its National Advertising Division (NAD)
– Monitors advertising practices
– Reviews complaints from consumers, consumer groups,
brand competitors, local BBBs, and trade associations
Its National Advertising Review Board (NARB)
– Serves as an appeals board for NAD decisions
– Consists of chairperson and 40 national advertisers, 20
agency representatives, and 10 laypeople
©McGraw-Hill Education.
Regulation by the Media
Type of Media Regulation Status
©McGraw-Hill Education.
Regulation by Consumer Groups
Consumerism: social action designed to dramatize
the rights of the buying public
©McGraw-Hill Education.
Self-Regulation by Advertisers
and Ad Agencies
In-house legal counsels review advertisements
before they are made public.
Associations that monitor industry-wide advertising
practices include:
– American Association of Advertising Agencies (AAAA)
– American Advertising Federation (AAF)
– Association of National Advertisers (ANA)
©McGraw-Hill Education.
Advertising Principles of American Business of the
American Advertising Federation (1 of 2)
©McGraw-Hill Education.
Advertising Principles of American Business of the
American Advertising Federation (2 of 2)
• Guarantees and warranties: Be explicit about when
guarantees and warranties are available and what theydo
and do not cover.
• Price claims: Avoid false or misleading price claims, or
savings claims that do not offer provable savings.
• Testimonials: Limit to those of competent witnesses who
reflect a honest opinion or experience.
• Taste and decency: Avoid statements, illustrations, or
implications that are offensive to good taste or public
decency.
©McGraw-Hill Education.
International Advertising Regulation
©McGraw-Hill Education.
Advertising
Chapter Two
The End
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