1. GOVERNMENTAL
REGULATIONS OF
ADVERTISING
By Rasmus Frost Hansen

2. AGENDA
Governmental regulation in U.S
The Federal Trade Commission
Guidelines
Global differences
International regulation
Examples
Conclusion
Considerations for FTC

3. GOVERNMENTAL
REGULATION IN THE U.S
Capitalist system  advocates freedom of speech
 Regulating deceptive and illegal-product advertising
Self-regulating industry seeks to:
 Protect consumers against false advertising and protect their privacy
 Protect legitimate advertisers from misleading competitors
 Promote public acceptance of advertising as institution in the marketplace

4. REGULATING BODIES
Regulating bodies:
 Federal Trade Commission – most empowered agency
 Federal Communications Commission – TV and Radio
 Food and Drug Administration

5. FEDERAL TRADE
COMMISSION (FTC)
Pros of advertising: (Abernethy and Franke, 1998)
 Brings information to consumers (educational effect)
 Efficient information search increases economic performance
Purpose:
 Prohibit ”unfair methods of competition and unfair or deceptive acts or practices in
commerce” (1998, p. 239)
 Ostensible purpose: ”To raise the information content of factual advertising by penalizing
firms engaged in false or deceptive advertising” (1998, p. 251)

6. DEVELOPMENT OF THE FTC
 1970:
 The FTC was called "a self parody of bureaucracy, fat with cronyism, manipulated by
agents of commercial predators, impervious to governmental and citizen monitoring”
(Abernethy and Franke, 1998, p. 241)
1971 – 1981:
 The FTC had to prove the advertiser’s claims were wrong/untrue
 Increased regulations
 Sought to increase the amount of information available to the consumer
 Increased level of power

7. DEVELOPMENT OF THE FTC
1982 – 1992:
 Less advertising enforcements and regulations
 Reagan believed the marketforces would punish the suppliers of false and misleading claims
 Low staff morale and poor payment while working for FTC
 Shallow dedication to consumer protection
1993 – Present
 Belief in self-regulation, but stronger recognitition of FTC’s role and purpose
Finding:
 Times with more regulation lead to less information for the consumer
 Safer advertising claims

8. POWER OF THE FTC
The FTC has the power to:
 Require the advertiser to stop a deceptive/misleading campaign or claim
 Enforce advertisers to pay large fines
 Imprisonment if the advertiser refuse to cooperate
 Require corrective advertising
Unless:
 The advertiser is able to prove/substantiate the promoted claim

9. GENERAL GUIDELINES
Availability:
 The item must be in store unless ”for a limited time only”
 Scarce products are used as bait
Price:
 It is not a discount if the product has not formerly been sold at a higher price
 ”Market price $15, now $7.5”
Content
 How much of the package does the good make up?

10. GENERAL GUIDELINES
Size:
 a statement should follow depiction of false sizes
”Get a free T-shirt with any jeans purchase”
Usage of endorsers:
 An expert may only endorse within the area of his/her expertise
Product placement
 Advertisers must disclose that the placement of their product is paid for

11. GUIDELINES FOR
CONTROVERSIAL PRODUCTS
Alcohol:
 Bottles must have a health warning
 In CA, gifts/premiums are not allowed to be given when selling alcoholic beverages
Cigarettes:
 Master settlement agreement:
 No billboard advertising
 Disclose company research on health effects
 No use of cartoon characters to sell cigarettes (Joe Camel)
 No use of promotion targeted at people under 18
 MPOWER:
 Monitor, Protect, Offer, Warn, Enforce bans and Raise taxes

12. GLOBAL DIFFERENCES
UK
 Ads should not mislead, cause harm, or offend (Frith and Mueller, 2010)
 Commercials are pre-checked by authorties before launch
 High level of governmental control
Japan
 Similar to the U.S due to post-war influence
 ”Advertising must contribute to the establishment of sound and healthy life of people”
 Unwritten rules due to cultural values (e.g. loss of face and collectivism)

13. INTERNATIONAL
REGULATION The European Union’s Unfair
Commercial Practices Directive
Bait advetising: very low amount of goods at low prices
European Union’s ”Dirty Dozen” Fake ”free offers”
Direct exhortations to children: trying hard to persuade kids
False claims: Claims must be substantiated with proof
The International Chamber of Commerce  self-regulation not clear that the material is sponsored
Advertorials:
 ”duty to be decent, honest, legal, and truthful (soft issues)
 The U.S does not follow soft issues entirely Pyramid Schemes: Get others to join and receive free stuff
Prize winning: ”You have won the right to buy”
Consumer rights: General rigths do not come from the advertiser
only
Limited offers: falsely using the scarcity prinicples
After-sales service should not be in available in 1 language only
Inertia selling: Immediate payment for safe-keeping goods
False guarantee: after-sales service limited to e.g. 1 country

14. EXAMPLE 1
”My kids are always on the go. That’s why at breakfast
it’s important to give them food that helps them going
througout their busy day – like Nutella... It’s made from
natural ingridients ... ”
Nutella (Ferrero USA, inc) had to pay $3 millon to consumers
who filed a claim

15. EXAMPLE 2
No use of cartoon
characters to sell
cigarettes (Master
settlement agreement)

16. EXAMPLE 3
According to the FTC’s complaint, “Dannon
claimed in nationwide advertising
campaigns that DanActive helps prevent
colds and flu, and that one daily serving of
Activia relieves temporary irregularity and
helps with “slow intestinal transit time.”
(http://ftc.gov/opa/2010/12/dannon.shtm)
“These types of misleading claims are
enough to give consumers indigestion,” said
FTC Chairman Jon Leibowitz. “Consumers
want, and are entitled to, accurate
information when it comes to their health.
Companies like Dannon shouldn’t exaggerate
the strength of scientific support for their
products.”

17. CONCLUSION
More regulation  lower level of information
 Safer advertising claims
FTC possess a certain amount of power
 May increase if consumer protection becomes more important in the U.S
Significant global differences in regulation
 Should make advertisers aware that rules of regulation are not universal
Advertisers still make claims they cannot substantiate
 Nutella
 Dannon

18. CONSIDERATIONS
Uniting FTC with e.g. FDA and other regulatory bodies
 To ease administration processes and increase efficiency
 Further limit deceptive and misleading advertising
Consider the effects of regulations
 Boomerang-effect
 Increase in information content during less regulating times (Abernerthy and Franke, 1998)
Adopt ICC’s sense of social responsibility to improve power
 Decency, taste and public opinion
Further focus on Corporate Social Responsibility  less deceptive
advertising

19. SOURCES
Abernethy., A., M. and Franke., G., R. (1998): FTC Regulatory Activity and
the Information Content of Advertising
Frith., K., T. and Mueller., B. (2010): Advertising and Societies
FTC Act:
http://www.ftc.gov/ogc/FTC_Act_IncorporatingUS_SAFE_WEB_Act.pdf
FTC Guide for businesses: http://business.ftc.gov/
Product placement:
http://www.ftc.gov/os/closings/staff/050210productplacemen.pdf
Nutella health claim: http://www.cbsnews.com/8301-504763_162-57423319-
10391704/nutella-health-claims-net-$3.05-million-settlement-in-class-action-
lawsuit/
Dannon: http://ftc.gov/opa/2010/12/dannon.shtm