1. Advertising Society&
s Economics
q The effects of advertising on our
economy
s Ethics
q The effects of advertising on our society
s Regulation
q Our attempts to manage those effects

2. Power or Information?
Market Power Market Information
q Advertising q Advertising
q Persuades consumer to q Increased consumer knowledge
purchase one brand over
another more often q More substitute products consumers
q Excess brand profits can consider
q Higher barriers to entry q Lower barriers to entry by
and more market power new brands
q More advertising leads to q Reduced market power for any
greater brand loyalty individual brand
q Reduce quality/raise price q Better pricing/distribution
q Reduced consumer more product innovation
sovereignty q Optimal brand profits, consumer
q Monopoly choice, and price benefits

3. What do you think?
s Advertising = Market Power
s Advertising = Market Information
s Or both?

4. Some Economic Questions:
s How does advertising affect the
price of a new car?
s How does advertising affect the
price of a latté from Starbucks?
s How does advertising affect the
way that you spend your money?

5. Some Economic Questions:
s Can ads make people buy things
they don’t want or need?
s Can ads make people more
materialistic?
s Are the benefits of advertising
worth the annoyance?

6. An Ethical Debate
s Ads destroy s Ads give consumers
freedom of choice more choices
s Ads destroy s Ads = freedom of
democracy/media speech
s Advertising warps s Ads simply reflect the
social values “real world”

7. 3 Ethical Issues:
1) Advocacy
q What does the advertising advocate?
2) Accuracy
q How accurate is the advertising?
q Some of this depends on susceptibility
of the audience (i.e., kids).
3) Acquisitiveness
q What is the overall effect?
q Does it make us more materialistic?

8. 5 Controversial Issues:
1) Puffery "Nothing beats a Bud”
2) Decency Sexual innuendo, violence
3) Stereotyping Portrayals of housewives,
seniors, racial groups
4) Children Violence, dangerous acts,
unhealthy habits
5) Controversy Condoms, alcohol, fashion

9. Regulation - 2 Main Purposes
Regulation - 3 Main Areas
s Purpose for advertising regulation
q To protect competition
q To protect consumers from economic or
physical harm
s Regulations are concerned with
q Deceptive or unfair content
q How advertising is delivered
q Protection of susceptible groups (kids, etc.)

10. 5 FTC Concerns:
1) Deception Must lead to material injury.
2) Comparisons Must substantiate with
statistically significant data.
3) Endorsements Must be qualified;
must use product.
4) Demonstrations Must be accurately depicted.
5) “Bait & Switch” Product must be available.

11. 4 Possible Remedies
for Deceptive Ads:
1) Consent Decree FTC asks advertiser to stop.
2) Cease & Desist FTC gets court order to
force advertiser to stop.
3) Corrective Ads FTC mandates new ads to
correct false perceptions.
4) Consumer Redress FTC mandates reimbursement.

12. 6 Government
Regulatory Groups:
1) FDA Packaging and labeling
2) FCC Broadcast advertising
3) Postal Service Magazines, direct mail
4) ATF Liquor labeling, advertising
5) Patent Office Trademarks
6) Library of Congress Copyrights

13. 2 Industry Watchdogs
1) NAD (National Advertising Division)
- Part of Better Business Bureau
2) National Advertising Review Board
- Represents advertisers and agencies
- A division of the NAD
s Compliance is strictly voluntary

14. Big Questions
s What do you think is the biggest
benefit of advertising?
s What do you think is the biggest
problem with advertising?
s What do you think is the best example
of bad advertising?
s What do you think is the best example
of good advertising?