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Part Seven Special Topics and Perspectives
Belch: Advertising and
Promotion, Sixth Edition
VII. Special Topics and
Perspectives
21. Regulation of
Advertising and Promotion
© The McGraw−Hill
Companies, 2003
“winner” or that his or her name “has been selected” when no prize has been won. The
law carries a fine of $1,000 per incident, which could be $1,000 per letter received by
New York residents. 82 Some of the most ambitious legal actions are taking place in
individual states, where prosecutors are taking sweepstakes and contest companies to
court for misleading and deceptive practices. 83
Premiums Another sales promotion area subject to various regulations is the use
of premiums. A common problem associated with premiums is misrepresentation of
their value. Marketers that make a premium offer should list its value as the price at
which the merchandise is usually sold on its own. Marketers must also be careful in
making premium offers to special audiences such as children. While premium offers
for children are legal, their use is controversial; many critics argue that they encourage
children to request a product for the premium rather than for its value. The Children’s
Advertising Review Unit has voluntary guidelines concerning the use of premium
offers. These guidelines note that children have difficulty distinguishing a product
from a premium. If product advertising contains a premium message, care should be
taken that the child’s attention is focused primarily on the product. The premium message
should be clearly secondary. Conditions of a premium offer should be stated simply
and clearly. “Mandatory” statements and disclosures should be stated in terms that
can be understood by the child audience. 84 However, a recent study of children’s
advertising commissioned by CARU found the single most prevalent violation
involved devoting virtually an entire commercial message to information about a premium.
CARU guidelines state that advertising targeted to children must emphasize the
product rather than the premium offer. 85
Trade Allowances Marketers using various types of trade allowances must be
careful not to violate any stipulations of the Robinson-Patman Act, which prohibits
price discrimination. Certain sections of the Robinson-Patman Act prohibit a manufacturer
from granting wholesalers and retailers various types of promotional
allowances and/or payments unless they are made available to all customers on
proportionally equal terms. 86 Another form of trade promotion regulated by the
Robinson-Patman Act is vertical cooperative advertising. The FTC monitors cooperative
advertising programs to ensure that co-op funds are made available to retailers on
a proportionally equal basis and that the payments are not used as a disguised form of
price discrimination.
As noted in Chapter 16, another trade promotion area where the FTC is becoming
involved is the use of slotting fees or allowances paid to retailers for agreeing to handle
a new product. In 1999 the Senate Committee on Small Business charged retailers
in the grocery, drugstore, and computer software industries with illegally using slotting
fees to lock out competitors and prevent consumers from having their choice of
the best products. Packaged-goods marketers and retailers have argued that examining
slotting fees alone is unfair since they are just part of a wide variety of inducements
marketers use to secure the best shelf space. The FTC is investigating the use of slotting
fees as anticompetitive weapons that make it difficult for small-size companies to
secure retail shelf space. 87 In 2000 the FTC launched its first direct attack on slotting
fees when it accused McCormick & Co., the leading spice maker, of offering discriminatory
discounts on its products to several grocery chains. McCormick agreed to settle
a complaint that the discounts were a way of paying some retailers disproportionately
more in slotting fees than others. The FTC charged that the slotting fees were a way
for McCormick to gain more shelf space at the expense of smaller rivals. The practice
that was deemed illegal by the FTC is a standard way of doing business in the grocery
trade as well as other industries, and some legal experts have argued that this case
could impact the use of slotting fees in the future. 88
Direct Marketing As we saw in Chapter 14, direct marketing is growing
rapidly. Many consumers now purchase products directly from companies in
response to TV and print advertising or direct selling. The Federal Trade Commission
enforces laws related to direct marketing, including mail-order offers, the use of 900