Environmental, Regulatory, and Ethical Issues

1. Environmental, Regulatory, and Ethical Issues

2. Chapter Objectives After reading this chapter you should be able to: • Appreciate the role of marketing communications in environmental (green) marketing and sustainability. • Recognize the principles that apply to all green marcom efforts. • Explain the role and importance of government efforts to regulate marketing communications. • Be familiar with deceptive advertising and the elements that guide the determination of whether a particular advertisement is deceptive.

3. Chapter Objectives (cont’d) • Be acquainted with regulation of unfair business practices and the major areas where the unfairness doctrine is applied. • Know the process of advertising self-regulation. • Appreciate the ethical issues associated with advertising, sales promotion, and other marcom practices. • Understand why the targeting of marketing communications toward vulnerable groups is a heatedly debated practice.

4. FDA’s Proposed Graphic Visual Health Warnings on Cigarette Packages

5. “Green” Product: Nissan Leaf

6. Industry Responses to Environmental Problems

7. Figure 4.1: Green Advertising Addressing the Biophysical Environment

8. Figure 4.2: Green Advertising Promoting a Green Lifestyle

9. Figure 4.3: Green Advertising Presenting an Image of Environmental Responsibility

10. Industry Responses to Environmental Problems

11. Packaging Responses • Recyclable bottles • Polystyrene to paperboard • Plastic to cardboard • Smaller packages

12. Industry Responses to Environmental Problems

13. Seal-of-Approval Programs • Designed to assist consumers in identifying environmentally-friendly products and brands • Green Seal of Approval and Germany’s Blue Angel • 100% Recycled Paperboard

14. Industry Responses to Environmental Problems

15. Industry Responses to Environmental Problems

16. Point-of-Purchase Programs • Closer consultations with retailers about POP needs: • Fewer unused and discarded displays • More permanent displays • Less trash in landfills and billions of dollars saved

17. Recycling Incineration Source Reduction Landfills Industry Response: Manufacturer Waste Options

18. Appropriate Environmental Claims Green Report: National Association of Attorneys General www.naag.org

19. Guidelines for Green Marketing Federal Trade Commission (FTC) The U.S. government agency that has primary responsibility for regulating matters such as deceptive and unfair business practices.

20. FTC Green Guides (7/28/92): General Principles • Qualifications and disclosures should be clear and prominent. • Qualification/ application of claim issues • Not overstate benefit • Comparative claims and basis

21. FTC Green Guides (7/28/92): Specific Example Areas • General environmental benefits • Degradable/ biodegradable/ photodegradable • Compostable • Recyclable • Recycled content • Source Reduction • Refillable • Ozone safe and ozone friendly • What has not been addressed?? Updates to Guides?

22. Why Regulate Business?? • Regulation of Competition (e.g., FTC, DOJ) • Regulation of Marketing Communications • Federal Regulation (e.g., primarily FTC, FDA) • Lanham Act (companies suing one another in federal court over false claims) • State Regulation (e.g., NAAG, state attorney generals) • Self-Regulation (e.g., ASRC: NAD, NARB, CARU) Advertising Self Regulatory Council: National Advertising Division, The National Advertising Review Board, Children’s Advertising Review Unit • Primary FTC Marketing Communications Coverage: all promotion/advertising claims; all environmental claims/packaging; online marketing claims • Primary FDA Marketing Communications Coverage: all package claims and labeling; all prescription drug claims/ packaging

23. Benefits of Regulation • Consumer choice improved through information • Product quality tends to improve • Reduced prices

24. Costs of Regulation • Cost of complying • Enforcement costs • Unintended side effects

25. FTC Organizational Chart

26. Federal Trade Commission (FTC)Regulatory Authority Deceptive Advertising Unfair Practices Information Regulation FTC Regulatory Authority on Marketing Communications

27. 1983 FTC Deception Policy Statement • Misleading.There must be a representation, omission, or practice likely to mislead the consumer. A misrepresentation is defined by the FTC as an express or implied statement contrary to fact. • Reasonable consumer.The act or practice must be considered from the perspective of the “reasonable consumer.” • Material.The representation, omission, or practice must be “material,” involving a central characteristic of the product important to consumers and likely to influence their choice or conduct regarding a product.

28. 1983: Campaign developed by JWT and Kraft due to market share losses 1985-1987: Campaign Oct. 1985: CSPI complained 1987: FTC issued complaint 1989: ALJ initial decision 1991: Commission decision 1992: 7th Circuit denied appeal (affirmed) 1993: Supreme Court (cert. denied) Kraft Case History: FTC Deception CaseExample

29. Kraft’s Appeal of ALJ’s Initial Decision and Order • Commission must rely on extrinsic evidence for implied claims • ALJ erred in finding consumers took misleading claims • Calcium immaterial • Order would be a restraint on free speech (Ist Amendment)

30. Kraft Materiality Question • “How important are the following in your purchase decision for Kraft individual cheese slices?” • Results: “extremely important” or “very important” • One through eight below above 50% agreement: • Good tasting • Made by a company you can trust • Real cheese flavor • Individually wrapped for freshness • Consistent quality • Convenient to use • Reasonably priced • A source of calcium • A source of Vitamin C

31. Materiality is presumed when ...(see 1983 FTC Deception Policy Statement, footnotes 47-58) • Express claims • Seller knowledge of false/omitted claim • Health, safety, or other areas of concern (e.g., central characteristics of product) • Purpose, safety, efficacy, or cost of product • Durability, performance, warranties, or quality • Finding of materiality by another agency (e.g., EPA)

32. FTC Unfairness Definition (1994) “... The act or practice (1) causes or is likely to cause substantial injury (e.g., monetary, health/safety) to consumers, (2) which is not reasonably avoidable by consumers themselves and (3) not outweighed by countervailing benefits to consumers or competition.” • Not whether the ad practice is immoral, unethical, offends public policy... Applications of Unfairness: • Basis for Advertising Substantiation • Children (and other vulnerable populations) • Trade Regulation Rules (as opposed to case by case actions)

33. For Major Regulations/Unfairness: • Central Hudson 4-part test to determine the validity of the regulation of commercial speech(All four must be met to regulate) • The speech must concern lawful activity and must not be misleading (rules out deception) (Note: Does 1st Amendment protect deceptive commercial speech??) • The government’s interest is substantial • The regulation directly advances the government’s interest. • The regulation is not more extensive than necessary to serve its stated purpose Central Hudson Gas and Electric Corporation v. Public Service Commission of New York, 447 US 557, 566 (1980) 44 Liquormart v. Rhode Island, 116 S.Ct. 1495, 1500 (1996)

34. FTC Regulatory Process (deceptive advertising and information regulation) • IF company agrees to complaint and initial order: no admission of guilt/order negotiation • IF company does not agree: goes to trial and no order negotiation if they lose • Order Provision Options (remedies): • cease and desist • affirmative disclosure (triggered disclosure, corrective advertising) • consumer redress • asset seizure (federal court)

35. Information Regulation Corrective Advertising A firm that misleads consumers should have to use future advertisements to rectify any deceptive impressions it has created in consumers’ minds

36. Regulation of Product Labeling • Food and Drug Administration (FDA) • Responsible for regulating information on the packages of food, drug, and tobacco products • Responsible for regulating ads for prescription drugs • Requires advertisers to present a balanced perspective when advertising drugs

37. Lanham Act and State Agencies’ Regulation of Marketing Communications • Lanham Act (companies suing one another in federal court over false claims – must have extrinsic evidence in the case of implied claims) • Most, if not all, states have departments of consumer affairs or consumer protection. • The National Association of Attorneys General (NAAG) –includes attorneys general from all 50 states (Note: major case – 1998 master settlement agreement and restrictions with tobacco industry)

38. Advertising Clearance Process • Advertising Clearance Process • Advertising agency clearance • Approval from the advertiser’s legal department and perhaps also from an independent law firm • Media approval

39. Advertising Self-Regulation • Advertising Self-Regulatory Council (ASRC) consists of three units: • Council of Better Business Bureau’s National Advertising Division (NAD) • National Advertising Review Board (NARB) • The Children’s Advertising Review Unit (CARU) • Note: resolution process with company is voluntary.

40. NAD/NARB Complaint Resolution Process

41. Ethical Issues in Marketing Communications • Ethics in our context involves matters of right and wrong, or moral, conduct pertaining to any aspect of marketing communications Honesty Honor Virtue Integrity

42. Ethics of Targeting to Children/ Teens and Vulnerable Populations • “Old Joe the Camel”/ RJR tobacco marketing • Marketing violent entertainment to kids • Food marketing practices and childhood obesity

43. Advertising Targeting Marcom Public Relations Ethical Issues in Marketing Activities and Communications Internet Marketing Sales Promotions Packaging Communications Sources of Ethical Issues

44. The Ethics of Targeting • Ethical Debate • Is it ethical to target products and communications efforts to segments that vulnerable or put at risk by these actions? • Is Targeting Unethical or Just Good Marketing? • When does a good targeting strategy become a method of unfair (unethical) advantage?

45. Fostering Ethical Marketing Communications (see also utilitarian rule; categorical imperative)