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Belch: Advertising and
Promotion, Sixth Edition
VII. Special Topics and
Perspectives
21. Regulation of
Advertising and Promotion
responded by suspending the children’s advertising rule and banning the FTC from
using unfairness as a legal basis for advertising rulemaking.
The FTC responded to these criticisms in December 1980 by sending Congress a
statement containing an interpretation of unfairness. According to FTC policy, the
basis for determining unfairness is that a trade practice (1) causes substantial physical
or economic injury to consumers, (2) could not reasonably be avoided by consumers,
and (3) must not be outweighed by countervailing benefits to consumers or competition.
The agency also stated that a violation of public policy (such as of other government
statutes) could, by itself, constitute an unfair practice or could be used to prove
substantial consumer injury. Practices considered unfair are claims made without prior
substantiation, claims that might exploit such vulnerable groups as children and the
elderly, and instances where consumers cannot make a valid choice because the advertiser
omits important information about the product or competing products mentioned
in the ad. 37
The FTC’s statement was intended to clarify its interpretation of unfairness and
reduce ambiguity over what might constitute unfair practices. However, efforts by the
FTC to develop industrywide trade regulation rules that would define unfair practices
and have the force and effect of law were limited by Congress in 1980 with the passage
of the FTC Improvements Act. Amidst calls to end the stalemate over the FTC’s
regulation of unfair advertising by having the agency work with Congress to define its
advertising authority, in 1994 Congress and the advertising industry agreed on a definition
of unfair advertising that is very similar to the FTC’s 1980 policy statement discussed
earlier. However, the new agreement requires that before the FTC can initiate
any industrywide rule, it has to have reason to believe that the unfair or deceptive acts
or practices are prevalent. 38
The FTC does have specific regulatory authority in cases involving deceptive, misleading,
or untruthful advertising. The vast majority of advertising cases that the FTC
handles concern deception and advertising fraud, which usually involve knowledge of
a false claim.
Deceptive Advertising
In most economies, advertising provides consumers with information they can use to
make consumption decisions. However, if this information is untrue or misleads the
consumer, advertising is not fulfilling its basic function. But what constitutes an
untruthful or deceptive ad? Deceptive advertising can take a number of forms, ranging
from intentionally false or misleading claims to ads that, although true, leave some
consumers with a false or misleading impression.
The issue of deception, including its definition and measurement, receives considerable
attention from the FTC and other regulatory agencies. One of the problems regulatory
agencies deal with in determining deception is distinguishing between false or
misleading messages and those that, rather than relying on verifiable or substantiated
objective information about a product, make subjective claims or statements, a practice
known as puffery. Puffery has been legally defined as “advertising or other sales
presentations which praise the item to be sold with subjective opinions, superlatives,
or exaggerations, vaguely and generally, stating no specific facts.” 39 The use of
puffery in advertising is common. For example, Bayer aspirin calls itself the “wonder
drug that works wonders,” Nestlé claims “Nestlé makes the very best chocolate,”
Snapple advertises that its beverages are “made from the best stuff on Earth,” and
BMW uses the tagline “The Ultimate Driving Machine.” Superlatives such as greatest,
best, and finest are puffs that are often used.
Puffery has generally been viewed as a form of poetic license or allowable exaggeration.
The FTC takes the position that because consumers expect exaggeration or
inflated claims in advertising, they recognize puffery and don’t believe it. But some
studies show that consumers may believe puffery and perceive such claims as true. 40
One study found that consumers could not distinguish between a verifiable fact-based
claim and puffery and were just as likely to believe both types of claims. 41 Ivan Preston
argues that puffery has a detrimental effect on consumers’ purchase decisions by
burdening them with untrue beliefs and refers to it as “soft-core deception” that should
be illegal. 42
© The McGraw−Hill
Companies, 2003
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Chapter Twenty-one Regulation of Advertising and Promotion