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Advertising’s Economic Impact & The Regulation of Advertising
Name that Brand…  What brand comes to mind first? ,[object Object]
Laundry detergent
Shampoo
Paper towels
Toilet paper
Deodorant,[object Object]
Soup
Fast food
Pizza
Soft drink,[object Object]
Jeans
Tennis shoes
Pain reliever
Cell phone
Bank,[object Object]
Today’s Objectives Discuss the impact of advertising on the economy Describe how government agencies regulate advertising to protect both consumers and competitors Discuss the activities of nongovernment organizations in fighting fraudulent and deceptive advertising
Economic Impact Free-Market Principles Self-interest Completeinformation Many buyers& sellers Absence ofexternalities
Economic Impact at a Glance Four Key Areas Advertising can impact the economy in 4 key areas: ,[object Object]
Prices & competition
Consumer demand
Consumer choice,[object Object]
Shoes
Cars
Hairstyles
Cell phone,[object Object]
Product Value Answer:  B, A, C   A B C Gucci, $585 Lucky, $90 Levi’s, $20 Source:   walmart.com Source:   Gucci.com Source:  luckybrand.com
Pricing Would less advertising = lower prices? Advertising can decrease or increase the price of goods, but it generally decreases the prices consumers pay, because there are many buyers and sellers. INCREASE ,[object Object]
Manufacturers use advertising to stress desirable brand features, increase costDECREASE ,[object Object]
In retail, consumer focus on price drives prices down through competition= 1 cent on advertising Photo c/o Coca-Cola Company
Competition Can only the biggest companies compete? ,[object Object]
Small, regional businesses can compete with larger corporations on a local level with a sound marketing plan,[object Object]
Consumer Demand Primary vs. Secondary Demand Advertising can drive sales of an entire product class or of a brand. Primary Demand:  Grow demand for industry, product class Secondary Demand:  Grow demand for a specific brand Source:  inventorspot.com Source:  organicvalley.com
Consumer Demand’s Impact GROWINGMARKET Mobile phones ,[object Object]
Advertisers compete for shares of growth
Brands may increase
Prices may decrease,[object Object]
Brands may decrease

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Mcom 341-3 Economics, Regulation

  • 1. Advertising’s Economic Impact & The Regulation of Advertising
  • 2.
  • 7.
  • 10. Pizza
  • 11.
  • 12. Jeans
  • 16.
  • 17. Today’s Objectives Discuss the impact of advertising on the economy Describe how government agencies regulate advertising to protect both consumers and competitors Discuss the activities of nongovernment organizations in fighting fraudulent and deceptive advertising
  • 18. Economic Impact Free-Market Principles Self-interest Completeinformation Many buyers& sellers Absence ofexternalities
  • 19.
  • 22.
  • 23. Shoes
  • 24. Cars
  • 26.
  • 27. Product Value Answer: B, A, C A B C Gucci, $585 Lucky, $90 Levi’s, $20 Source: walmart.com Source: Gucci.com Source: luckybrand.com
  • 28.
  • 29.
  • 30. In retail, consumer focus on price drives prices down through competition= 1 cent on advertising Photo c/o Coca-Cola Company
  • 31.
  • 32.
  • 33. Consumer Demand Primary vs. Secondary Demand Advertising can drive sales of an entire product class or of a brand. Primary Demand: Grow demand for industry, product class Secondary Demand: Grow demand for a specific brand Source: inventorspot.com Source: organicvalley.com
  • 34.
  • 35. Advertisers compete for shares of growth
  • 37.
  • 40.
  • 41. The market may segment itself (luxury)
  • 42. Advertisers compete for each other’s shares to maintain revenue
  • 44.
  • 45. The Abundance Principle Self-interest Completeinformation Absence ofexternalities Many buyers& sellers In an economy that produces more goods & services than can be consumed, advertising: Allows more effective competition Keeps consumers informed of alternatives Stimulates competition Self-regulates to keep market free & open
  • 46. Broadcast media licensing Examples: programming times and stations for ED drugs , Janet Jackson’s “wardrobe malfunction” Deceptive, unfair, & comparative ads Example: Activia claim to improve digestion http://www.youtube.com/watch?v=9j9nRJgX5iQ Definitions and labeling of consumer packaged goods and drugs Examples: pharma side effects, Yaz retraction http://www.youtube.com/watch?v=EO-G8O0lHq0 Intellectual property Examples: Coca-Cola logo, contour bottle design, secret formula. Copyrights “works of authorship” Example: GEICO advertising campaigns Federal Regulation Agencies These are the federal departments and agencies that regulate advertising and their areas of responsibility: FCC Federal Communications Commission FTC Federal Trade Commission FDA Food & Drug Administration Patent & Trademark Office Library of Congress
  • 47. FDA Disclosure This ad for Revolution, a topical parasiticide for dogs and cats, has a long disclosure
  • 48. State & Local Regulation Different states have different regulations governing advertising E.g. NC law requires businesses to get a permit before advertising an “out of business” sale National marketers comply with states’ laws Local government regulation: city & county consumer protection agencies
  • 49.
  • 54.
  • 56. International Advertising Foreign governments often regulate advertising more strictly than in the United States Some governments ban specific products Many countries prohibit puffery Many European countries ban coupons, premiums and free tie-ins Across Europe, paid product placements in television programs are typically prohibited Examples from France: Alcoholic beverage companies are banned from sponsoring sporting events, prohibited from advertising on TV, and alcohol advertisements are very restricted in other media. All words in advertisements must be in French, even if the word or phrase is more common in another language. Sources: 1) FTC, www.ftc.org 2) International Business Law and Its Environment, R. Schaffer, F. Agusti & B. Earle, 2008
  • 57. Supreme Court: “speech” or “commercial speech” Tobacco Controversy Consumer Privacy Current U.S. Regulatory Issues Advertising to Children
  • 58.
  • 59. Does restriction serve the government interest?
  • 60. Does regulation advance the government interest?
  • 61. Is the restriction no more than necessary to further the interest?(Case: Central Hudson Gas v. Public Service Commission) In 1993, they determined that the distribution of advertising is as protected as distributing newspapers.
  • 62.
  • 64. No sponsorships at events with youth oriented audience
  • 65. No cartoon characters in advertisingLucky Strikes cartoon ad, 1955: http://www.classictvads.com/classicindex.shtml Goodbye, Joe!
  • 66. Santa had to quit, too!
  • 67. Advertising to Children Current U.S. Regulatory Issues Come on… No one would ever advertise inappropriately to / with children! Would they?
  • 68.
  • 69.
  • 70.
  • 71.
  • 72. Advertising to Children Current U.S. Regulatory Issues Kids are not sophisticated consumers and can’t be treated as such. The Council of Better Business Bureaus established the Children’s Advertising Review Unit (CARU). CARU reviews and evaluates advertising directed at children. CARU seeks voluntary cooperation from advertisers in advertising to children under age 12 (page 41 of text). M&M’s commercial, 1980s: http://www.youtube.com/watch?v=gBZoTxUMPZI M&M’s commercial, today: http://www.youtube.com/watch?v=YEiFIKBPUq8
  • 73.
  • 74. The ability of companies to track behavior online
  • 75. SPAM emailsFor now, the only regulation is self regulation.