Advertising Regulation: Who Looks Out for Us?

After studying this section, students should be able to do the following:

1. 
   List the primary government and industry regulatory agencies that control advertising and the advertising industry.
   

The United States government has numerous agencies whose mandates include regulating advertising and other marketing activities. These include the Federal Trade Commission, the Federal Communications Commission, the Food and Drug Administration, the Securities and Exchange Commission, the Environmental Protection Agency, and the Department of Agriculture.

The Federal Trade Commission (FTC) was established in 1914 to promote “consumer protection” and to monitor “anticompetitive” business practices. Within the FTC, the Bureau of Consumer Protection works to protect against abuses in advertising as well as other areas such as telemarketing fraud and identity theft. The bureau is also responsible for the United States National Do Not Call Registry, which allows consumers to opt out of receiving telemarketers’ calls on their home or mobile phones (https://www.donotcall.gov).

The FTC’s Division of Advertising Practices enforces federal truth-in-advertising laws. Its law enforcement activities focus on the accuracy of claims for foods, drugs, dietary supplements, and other products promising health benefits; advertising to children; performance claims for computers and other high-tech products; tobacco and alcohol advertising; and related issues. FTC investigations may pertain to a single company or an entire industry. If the results of the investigation reveal unlawful conduct, the FTC may seek voluntary compliance by the offending business, or its lawyers may choose to take the case to court. ^[1]

The Federal Communications Commission (FCC) was established by the Communications Act of 1934. It regulates interstate and international communications by radio, television, wire, satellite, and cable.

The FCC monitors the proper use of broadcast media. As an example of a current issue that could have major repercussions for the advertising industry, the FCC recently initiated a formal inquiry into the degree to which networks have to disclose whether advertisers have paid to have products embedded in TV shows and movies (a widespread practice the industry calls product placement).

According to the FCC, as product placement becomes more widespread, its rules must “protect the public’s right to know who is paying to air commercials or other program matter on broadcast television, radio and cable.” But it added that the rules must be considered in light of “the First Amendment and artistic rights of programmers.” One possible outcome is that the agency will mandate that when a sponsored product appears on the screen this placement will have to be disclosed simultaneously—perhaps with lettering that covers at least 4 percent of the screen and lasts for at least four seconds. Also up for debate is whether disclosures should be required before or perhaps even before and after a show that includes product integrations. ^[2]

To discourage the need for the government to pass additional legislation that would restrict its activities, advertising agencies vigorously police themselves to minimize abuses. To do this, the advertising industry created the National Advertising Review Council (NARC—no, not that kind of narc) in 1971. This group is a strategic alliance among four major trade organizations: the AAAA (American Association of Advertising Agencies), the ANA (Association of National Advertisers), the AAF (American Advertising Federation), and the Council of Better Business Bureaus Inc.

This system maintains two bodies that investigate claims of abuse or deception: the National Advertising Division (NAD) and the Children’s Advertising Review Unit (CARU). If an advertiser disagrees with NAD or CARU decisions, it can appeal to the National Advertising Review Board. The system covers advertising in traditional media as well as on the Internet. The large majority of cases get settled through this route—95 percent, in fact. ^[3]

A 2007 case involving a very public dispute between two online dating services illustrates how the NAD works to insure that advertising is as fair and accurate as possible. One site, Chemistry.com, claims in its advertising that answers to questions like “Do you watch people kissing in public?” and “Is your ring finger longer than your index finger?” can predict whether the people it matches up are likely to have “dating chemistry.” The site’s rival eHarmony.com objected to this claim and brought its charge to the NAD. After investigating the scientific basis for the claim, the division ruled that indeed Chemistry could not support its argument. As a result, the matchmaker has to find other ways to compete for the $700 million Americans spend each year to find their dream mate online.^[4]

The Interactive Advertising Bureau was founded in 1996 to represent over 375 companies that conduct business in cyberspace. Its members sell about 86 percent of the online advertising that gets placed in the United States. The IAB evaluates and recommends standards and very specific practices to govern what interactive ads can and cannot do. For example, it mandates that an advertiser wishing to use a pop-up ad can show the message only one time during a person’s visit to an online site. Furthermore, the pop-up must be clearly labeled with the name of the network, the advertiser, and the publisher; there are limits on how big the image can be, and it must offer a “close box” so the user can choose to shut it down. ^[5]

The Word of Mouth Marketing Association (WOMMA) is the official trade association for the word-of-mouth marketing industry. The organization promotes “best practices” and sets standards to regulate how “buzz marketers” interact with consumers. This has been an important issue due to some early buzz campaigns in which professional actors pretended to be everyday consumers in public places like tourist areas and bars, where they told other people about the advantages of using a particular product or service. Today WOMMA’s members must adhere to a code of ethics that the group summarizes as the Honesty ROI:

• 
  Honesty of Relationship: You say who you’re speaking for.
  
• 
  Honesty of Opinion: You say what you believe.
  
• 
  Honesty of Identity: You never obscure your identity. ^[6]
  

The Direct Marketing Association represents more than thirty-six hundred companies, based in forty-seven countries, that employ direct marketing tools and techniques. It provides information to help consumers recognize fraudulent practices as well as to remove themselves from mailing or call lists.^[7]

Numerous organizations monitor the advertising industry to detect instances of false or deceptive advertising. The government enforces rules regarding content through federal agencies such as the FTC and the FCC. In addition, the industry vigorously polices itself to try to head off problems before the legal authorities must deal with them. As new media platforms continue to evolve (such as product placement and word-of-mouth marketing), the industry needs to be vigilant about tracking these applications to prevent additional abuses.

1. 
   List and briefly characterize the major governmental and industry “watchdogs” that regulate and influence advertising and the advertising industry.
   
2. 
   Describe how the National Advertising Review Council processes complaints. Illustrate your description with a summary of the 2007 case (described above) concerning “dating chemistry” and “kissing in public.”
   

[2] David Goetzl, “Game-Changer: FCC Considers Product Placement Disclosures,” Media Daily News, June 30, 2008, https://www.mediapost.com/publications/index.cfm?fa=Articles.showArticle&art_aid=85685 (accessed July 19, 2008).

[3] American Association of Advertising Agencies, “Working with the Industry,”http://www2.aaaa.org/advocacy/industry/Pages/default.aspx (accessed July 19, 2008); National Advertising Review Board, http://www.narbreview.org (accessed July 19, 2008); Federal Communications Commission, “About the FCC,” http://www.fcc.gov/aboutus.html(accessed July 19, 2008).

[4] Jessica E. Vascellaro, “Regulators Say Love Ain’t ‘Chemistry’ After All: Scientific Claim by Dating Service Comes Under Fire,” Wall Street Journal, September 17, 2007, B5.

[5] Interactive Advertising Bureau, “Pop-Up Guidelines,”http://www.iab.net/iab_products_and_industry_services/1421/1443/1461 (accessed July 19, 2008).

[6] Word of Mouth Marketing Association, “WOMMA’s Practical Ethics Toolkit,”http://www.womma.org/ethics/code (accessed July 19, 2008).

[7] Direct Marketing Association, http://www.dmachoice.org/consumerassistance.php(accessed July 19, 2008).

3.5 Exercises

TIE IT ALL TOGETHER

Now that you have read this chapter, you should be able to understand how the economic effects of advertising are constantly being spread throughout the economy:

• 
  You can recognize that advertising is the glue that holds our culture together.
  
• 
  You can identify the various economic effects of advertising with respect to overall size and impact.
  
• 
  You can interpret the economic rationale for creating, accepting, and using advertising.
  
• 
  You can describe the positive effects of advertising and how it enhances our world.
  
• 
  You can discuss the ethical hot buttons that engage our social institutions in critical discussions of advertising.
  
• 
  You can recall the various federal and industry regulators that monitor advertising and advertising practice in the United States.
  

1. 
   Picture yourself driving your electric car down the highway of tomorrow looking for a place to refuel. Though this vision might be optimistic at this point in time, electric and alternative-fuel cars are realities just over the horizon. Refueling stations for electric cars will most likely not resemble the corner or freeway gas station. Instead, refueling sites are more likely to look like roadside parks. Refueling stations that recharge batteries may have solar roofs that provide the current for the refueling. Since refueling is expected to take several minutes, refueling stations will provide for rest and activities. If advertising is the “glue of a nation” with respect to its culture, explain what role advertising would play in making electric and alternative fuel cars and their refueling stations become a reality in the future. Consider aspects of social responsibility as you form your explanation.
   
2. 
   Do you have any idea how often your life is impacted by Bluetooth technology? In case you didn’t know this, it is Bluetooth technology, developed by communication giant Ericsson, that enables all of our electronic and informational devices to talk to one another. For example, Bluetooth technology enables wireless headsets to communicate with other devices. You might have noticed that Aliph has just introduced a new Bluetooth-enabled headset called Jawbone that is smaller, lighter, and cuts wind noise more than any previous headset designs. The headset is about the size of a large rectangular earring or about one-half the size of existing headset models. There is, however, a significant problem that must be addressed before headset communication is advised for everyone. There are reports linking forms of brain cancer to cell phone and headset use. Experts are studying the possibilities and connections. No conclusions have been reached yet. Your task is to assume that you are a member of the Advertising Council and have been asked to design a PSA (public service announcement) that will both quiet fears and encourage information-seeking about the subject as research progresses. Write your message. How do you think those who support headset and cell phone development would respond to what you have to say? Comment.
   

Being environmentally friendly is one of the objectives valued by many of us today. The “green movement” is being embraced in a variety of ways. One of the ways is through the development of alternative energy sources such as wind power. Wind power has proven to be an efficient method for generating electricity. One of the companies attempting to harness wind energy and make it profitable is Dutch-based Vestas. Since it has 20+ percent market share of the industry and puts up one of its wind towers somewhere in the world about every five minutes, Vestas would have to be considered a growth-oriented company with a bright future. The company recently has expanded its international operations to North America by establishing a U.S. office in Houston, Texas.

Go to the Vestas Web site at http://www.vestas.com and learn more about the company, wind power solutions, and what Vestas plans to do in the future. Once you have gathered background information on the company and wind industry, use the six-item list found in the “Economic Rationale to Use Advertising” section of the chapter to determine what informational strategy (or strategies) would be best for introducing Vestas to U.S. consumers. Write your ideas down. Remember to focus your suggestions on the main themes of the list.

AD-VICE

1. 
   Assume that you are a representative of the advertising industry who has been asked to debate a leading economist on whether advertising is wasteful and manipulative or not. Develop four reasons to support your contention that advertising serves a useful function in our society. Your reasons should anticipate the comments that would be made by your adversary—the economist.
   
2. 
   Based on your understanding of how advertising assists in defining “who you are” with respect to your body image and self-esteem, take three market segments—teens, thirty- to forty-year-olds, and seniors (sixty- to seventy-year-olds)—and demonstrate how advertising provides “definition” to these segments. In your opinion, are these “definitions” correct? Be specific in your demonstration, illustration, and assessment.
   
3. 
   Some critics have claimed that advertising is responsible for perpetuating sexism and poor environmental practices. How would you respond to such criticism? Summarize and support your position. Present your position during an open class discussion of such criticism.
   
4. 
   Advertisers aim to present advertising messages to those who want the messages or would be open to new information. One of the ways to accomplish this objective is to use product placements in strategic positions in movies, video games, communications, and our daily lives. Evaluate product placement by listing the pros and cons of the practice. Cite illustrations to match your assessment of the practice. Does the practice need more or less regulation? Explain and comment.
   

According to media and advertising critics, one of the chief causes of negative body image among teens and younger adults is the models used to display everything from cars to fashions to makeup. As indicated in the chapter, body image “refers to a person’s subjective evaluation of his or her physical self.” The key word is “subjective.” Messages are open to different interpretation. Critics claim advertising messages by their very nature cause consumers to reject their current situation or status quo and embrace change toward some ideal state as specified by the advertiser. If true, this could have a negative impact on those who read or view commercials, especially those who are younger and more impressionable.

To illustrate the ethical difficulty in dealing with body image, prepare two collages using pictures from contemporary magazines. One of your collages should illustrate unrealistic body images displayed in commercials that are, in your opinion, ethically questionable. The other collage should illustrate what you perceive to be a more realistic and ethical way to deal with the presentation of body image. Once they are completed, compare your collages; comment on where you think this debate over body image might be headed in the next few years. Be prepared to discuss your collages, thoughts, and position.

Chapter 4

Consumers and the Communications Process: SS+K Gets to Know Its Consumers

Figure 4.1 Twelve Months to Launch!

We are now twelve months from the launch of the msnbc.com campaign. The SS+K team needs to start thinking seriously about how it’s going to make consumers crave the msnbc.com brand of news. Before they can do that, however, they need to take a step back to understand how advertisers “talk” to customers—what works and what doesn’t, and what determines what works. This means we need to take a look at communications and break down a complicated process into simpler elements. Does it matter exactly what we say? Who says it? Where people get the message? How about others’ opinions—to what extent are our own preferences shaped (consciously or not) by what we believe others like or dislike? And, with the magical world of technology, how might the advertiser/consumer relationship evolve?

After studying this section, students should be able to do the following:

1. 
   Describe the traditional linear communications model.
   
2. 
   Describe the new interactive, nonlinear, multivocal communications model.
   

For most of history, advertisers talked to consumers—the traditional communications model was a one-way street. It was pretty simple, really: The source (such as an advertising agency) created a message (the advertisement) and selected the medium (newspaper, TV, outdoor, etc.) that carried it to the receiver (the consumer). The consumer may have given feedback to the source about the message (typically only indirectly, namely by buying the advertised product or service or not)—and of course she may have ignored it, just as people often do today—but the line of communication was clearly drawn. The producer called the shots and the message was univocal (one voice).

Flash forward to a more dynamic—and chaotic—picture. Today, advertising messages come from many sources simultaneously through different media that target different receivers (consumers, business partners, stockholders, even government officials). At the same time, receivers talk with one another and they may initiate their own communication with the sender, whether that organization wants to hear it or not.

The updated communications model is interactive, nonlinear, and multivocal (many voices). In addition, consumers now may choose to opt out of listening to a particular message—they often get to decide which messages they see or hear, and when. In the old days, opting out meant getting up to make a sandwich when a TV commercial came on, but today many of us have a lot more control to determine what messages will appear for us to consider in the first place. For marketers, this permission marketing strategy makes sense (even though some may be indignant that they’re losing control over the situation). The rationale is very simple: A message is more likely to persuade consumers who have agreed to listen to it in the first place.

Figure 4.3 A New Interactive, Nonlinear, Multivocal Communications Model

Seth Godin, founder of direct interactive marketing agency Yoyodyne (which Yahoo! later acquired) explains the importance of permission marketing: “We’re getting good at avoiding spam: e-mail spam, newspaper spam, TV spam, calling-me-at-home-over-dinner spam. The point of advertising shouldn’t be to interrupt more people who don’t want to talk to us.” To be heard above the noise, advertisers should seek permission from people to tell their story and begin a private, personal conversation that revolves around mutual interest and respect. ^[1]

If we understand the communications model, we appreciate how messages affect people, how people make purchase decisions, and what influences these choices. These issues can help advertisers understand why people accept some messages while they ignore others. After all, it’s frustrating to be ignored—but in the world of advertising it’s also expensive.

We are used to thinking about communication as a one-way process that moves from a source who chooses what to say, how to say it, and where to say it to a receiver who either absorbs the message or not. That basic assumption is no longer valid in many cases, as consumers today become more proactive in the communications process. This creates many more interesting advertising possibilities, but it’s also harder to control the process once the inmates run the asylum.

1. 
   Describe the traditional communications model. How does it differ from the updated communications model?
   
2. 
   Explain why permission marketing is so important to today’s marketer and advertiser.
   

After studying this section, students should be able to do the following:

1. 
   Identify the components of communication that one must master to successfully communicate with consumers.
   
2. 
   Compare and contrast one-sided versus two-sided messages.