Research Questions and Findings

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For readability sake – and since these research questions are only for internal use - we will not give in text references. All our references can be found on the bottom of this page.

What is advertising?

Generally speaking, advertising is any paid form of nonpersonal promotion of goods, services, companies and ideas, usually by an identified sponsor. Marketers see advertising as part of an overall promotional strategy (i.e. one of the elements of the marketing mix). Other components of the promotional mix include public relations & publicity, personal selling, direct marketing, events and sales promotion.

What are the objectives of advertising?

Advertising objectives can be classified according to whether their aim is to inform, persuade, remind or reinforce.

• Informative advertising. Aims to create brand awareness and knowledge of new products or new features of existing products.
• Persuasive advertising. Aims to create liking, preference, conviction and purchase of a good or service.
• Reminder advertising. Aims to stimulate repeat purchase of a good or service.
• Reinforcement advertising. Aims to convince current purchasers that they made the right choice.

How does advertising fit in marketing?

Marketing consist of numerous value-enhancing decisions/activities. One traditional depiction of marketing activities is in terms of the "marketing mix", the four Ps:

• Product (e.g. quality, design, packaging, warranties)
• Price (e.g list price, discounts, credit terms)
• Promotion (e.g. advertising, public relations, direct marketing)
• Place (e.g. channels, transport, coverage)

Since people play such an important role in marketing (for instance, they can have a tremendous impact on how customers perceive a company) a fifth P is often added: people.

Why is advertising necessary?

Advertising is, as said before, an essential part of the marketing communication mix. This communication mix affects, on its turn, the brand equity of a company. Brand equity is the customer’s subjective and intangible assesment of the brand, above and beyond its purely perceived value. In a market where many products are rather similar, the brand can have a large effect on whether the customer wants to buy the product and the price they will pay. Brands therefore add more and more value to the basic product. How the communication mix and brand equity are related, is visualized in the figure below.

<<figure to be added>>

What is the general advertising process and which parties are involved?

Organizations handle advertising in different ways. In small companies, advertising is handled by someone in the sales or marketing department, who works with an advertising agency. A large company will often set up its own department, whose manager reports to the “big boss” of marketing. The department’s job is to propose a budget, develop strategy, approve ads and so on.

Most companies use an outside agency to help create advertising campaigns and to select and purchase media. Today, advertising agencies are redefining themselves as “communication companies” that assist clients to improve their overall communications effectiveness. They do this by offering strategic and practical advice on many forms of communication.

The general process can be described with 5 major decisions, the 5 Ms.

NB: Although this is not a complete picture it gives a very good picture of how it works in general.

How can the Product Life Cycle be related to advertising? What will be the life-span accordingly? (what do I have to do with this last question?)

The figure below shows the Product Life Cycle. Each stage of a product’s life requires a different approach of advertising.

• Start-up stage. Build product awareness among early adopters and dealers.
• Growth stage. Build awareness and interest in the mass market.
• Maturity stage. Stress brand differences and benefits.
• Obsolesence stage. Reduce to level needed to retain hard-core loyals.

What is the impact of Internet on advertising?

With the dawn of the Internet have come many new advertising opportunities. Popup, Flash, banner, and email advertisements (the last often being a form of spam) are nowadays widely known.

The Internet has emerged as a medium for marketing and advertising since 1994. The Internet is different from conventional advertising media in several respects. First, it can serve as not only a communications channel but also a transaction and distribution channel. Consumers can get information and make purchases and payments all through the Internet. No other medium can accomplish these marketing functions instantly, without resorting to other means. Second, the Internet is by nature interactive. Users can initiate a shopping process by visiting a Web site and then clicking on hyper-linked text for more information. It is a two-way communication, with the Internet serving as a provider of customized content that meets an individual's needs. Third, it has the capacity for multimedia content. It can carry not only text and graphics but also audio and video content. The multimedia nature of the Internet is suitable for high-impact advertising. The Internet has become an integral part of the media mix for many advertisers, and new forms of advertising have filled the World Wide Web landscape, including animated banner ads, sponsor logos, interstitials, “advertorials,” “advertainment,” and 3-D visualization.

What are the media costs?

Advertising rates are more stable for print media than broadcast media largely because print media can adjust the number of advertising pages on an issue-to-issue basis while broadcast media have a fixed amount of daily programming hours. Thus, demand by advertisers has a stronger impact on the rates for broadcast time. Newspaper space is usually sold according to rate cards; buyers of large volumes get discounted rates. Magazine space is sold similarly. Advertising rates for radio and television are normally determined through negotiation and often vary by the time of day. A 30-second spot on network television costs the most in prime time (8:00 p.m. to 11:00 p.m.) and the least during daytime (10:00 a.m. to 4:00 p.m.). According to Optimum Media, in the third quarter of 1999, a 30-second commercial on U.S. network television cost $190,000 in prime time but $21,960 in daytime. Advertisers use CPM (cost per thousand impressions) and CPP (cost per rating point) to compare media costs. CPM is used for both print and electronic media while CPP is more popular for electronic media. CPM is calculated by multiplying the unit cost of a media vehicle by 1,000 and dividing the result by the audience size of the vehicle. The unit cost of a media vehicle is the cost for a single ad placement in that vehicle. Fro example, if a 30-second commercial in a TV program costs $5,000 and the program has an audience of 250,000, then CMP for the commercial will be $20. CPP is calculated by dividing the unit cost of the media vehicle by the rating of the vehicle. If a 30-second commercial in a TV program costs $5,000 and the program has a rating of 10 in the market, CPP for the commercial will be $500. CPP can also be used to compare newspaper or magazine costs if the audience is described as a percentage.

Which industries advertise most? And which less?

What are the differences between B2C and B2B advertisement?

Although the target of the advertisement is not the same as B2C, there is no difference in the way the advertisement is set up. The way the advertisement is brought to the other business is the same. Focus on B2B advertisement besides product is also service and long term relations.

'Is advertisement mostly done by the company themselves or is it outsourced? ’

At this moment most of the MNC’s have their own advertising departure or they have an entire advertisement company fully available. Nike is a nice example how their advertisement company grew together with Nike and how both existence now rely on each other. Like the outsourcing trend of IT, also advertisement follows the trend to be outsources. While the first major outsourced location was India, now the trend moves slowly to China, Philippines, Malaysia, Singapore, South Africa and Australia. Studies show that this will increase in the future when the western knowledge of these countries improves.

What are general qualities/benefits of advertisements? And what are the qualities/benefits of other methods?

Advertising General Qualities:

• Public presentation
• Pervasiveness
• Amplified expressiveness
• Impersonality

Sales Promotion Benefits:

• Communication
• Incentive
• Invitation

Public Relations and Publicity Distinctive qualities:

• High credibility
• Ability to catch buyers off guard
• Dramatization

Personal Selling Distinctive qualities:

• Personal confrontation
• Cultivation
• Response

Direct Marketing Distinctive qualities:

• Nonpublic
• Customized
• Up-to-date
• Interactive

Is the role of advertisement changed in the last decades? And how?

Over the years, the public perception of advertising has become very negative. It is seen as a medium that inherently promotes a lie, based on the purpose of the advertisement - to encourage the target audience to submit to a cause or a belief, and act on it to the advertising party's benefit and consequently the target's disadvantage. They are either perceived as directly lying (stating opinions or untruths directly as facts), lying by omission (usually of terms unfavorable to the customer), portraying a product or service in a light that does not reflect reality or even making up realities where their product has a new role.

What are the available advertisement media types? (e.g. newspaper, TV, internet, radio)

The most common forms of advertising media types are:

• Television: Broadcast, Syndicated and Cable
• Radio
• Internet
• Newspapers
• Magazines
• Direct Mail
• Yellow Pages
• Outdoor: Billboards, Posters, etc.
• Word of mouth (“the buzz”)

What are the advantages and limitations of these media types?

Within the Internet media type, several advertising approaches exist. While banners and pop-up ads are the most common forms of Internet advertising, other methods similar to direct mailing are often employed over email. Furthermore, the Internet offers the best ways to customize advertising for each unique person. Based on the content of the website and the available information on the user, appropriate and relevant advertisements can be displayed to the user. This benefit is the easiest to achieve with the Internet compared with other media types.

Physically printed ads such as in newspapers or magazine have the limitation that a single message is broadcasted to the audience, and no form of customization exists. In order to reach a specific target market, advertisements have to be printed in more focused/dedicated printed media. Televised advertising has the advantage of containing video. However, Internet advertising is already at the stage where advertising videos are often embedded in websites. Thus television no longer is the only media type with that feature.

What advertising media types will diminish due to the growth of new advertising methods?

Especially televised advertising will become less effective due to the users’ ability to avoid advertisements with technologies like video-on-demand. Furthermore, the common consensus is that many advertisements are a nuisance and intrusive, and therefore users prefer advertisements that they can switch off or avoid. Here also lies the advantage of newer media types like Internet because advertisements can be customized to be more relevant to the user, and hence is less likely to be considered a nuisance. Other possible growth media types including mobile phone or PDA advertising. However it will be difficult to advertise over these channels without giving off a spam-like notion.

What's the people's perception related to advertising?

Statistics show that an average person is exposed to thousands of advertisements through the course of a day from printed ads, to logos on clothes and buildings, to banners on websites. The general consensus is that advertisements are a nuisance and often intrusive. With the rise of new media types such as the Internet, there is a chance that more relevant advertising will diminish this negative perception of advertising somewhat. Having said that, some people may perceive targeted advertising over new media types to be an even greater breach of their privacy. Thus overall the image of advertising is likely to remain something that while ubiquitous is rather intrusive and annoying.

What can be said about advertising timing? (see page 582, Kotler)

<Can’t find my Kotler. Will fill in tomorrow>

Chen Li:
What are important non-technological trends which affect advertising?
Non-technological trends are direction or sequence of events that has some momentum and durability (from Kotler).

Globalization:
Globalization will bring changes in all levels from culture to communicating methods. Globalization is a very general descrpition, a 'megatrend' which influence almost every 'subtrends'.
One excisting model of scenarios analysis of globalization developed by last year's IIB students is illustrated below:

According to this model, the three different results means many different possible situations in culture trends, global ecnomic trends, social trends, etc. Forthcoming research questions will give detail analysis in these trends.
Product customization:
There is no doubt that the market differentiation is becoming more explicit. Certain groups of customers’ needs are unique. Their favor, and the way to reach them is diversified. The consistency of the advertisement's content, media type, targetd market, and the product's sustainable competitive advantage is the criteria for a eligible advertisment.

Economic trends
Ecnonmic trend can deeply influence people’s living style, purchase behavior, which has direct or indirect impact on advertising.
One forthcoming research question will give detailed explaination.

Culture trends
Because advertising is very culture sensitive, culture trends will certainly influence advertising.
One forthcoming research question will give detailed explaination.

Other trends
Social trends, political trends can also impact on advertising.

What are the social factors which will influence on advertising?
Source: Wikipeida:

There have been increasing efforts to protect the public interest by regulating the content and the reach of advertising. Some examples are the ban on television tobacco advertising imposed in many countries, and the total ban on advertising to children under twelve imposed by the Swedish government in 1991. Though that regulation continues in effect for broadcasts originating within the country, it has been weakened by the European Court of Justice, which has found that Sweden was obliged to accept whatever programming was targeted at it from neighbouring countries or via satellite.

In Europe and elsewhere there is a vigorous debate on whether and how much advertising to children should be regulated. This debate was exacerbated by a report released by the Henry J. Kaiser Family Foundation in February 2004 which suggested that food advertising targeting children was an important factor in the epidemic of childhood obesity raging across the United States.

In many countries - namely New Zealand, South Africa, Canada, and many European contries- the advertising industry operates a system of self-regulation. Advertisers, advertising agencies and the media agree on a code of advertising standards that they attempt to uphold. The general aim of such codes is to ensure that any advertising is 'legal, decent, honest and truthful'. Some self-regulatory organisations are funded by the industry, but remain independent, with the intent of upholding the standards or codes (like the ASA in the UK).

Critiques of the medium

As advertising and marketing efforts become increasingly ubiquitous in modern Western societies, the industry has come under criticism of groups such as AdBusters via culture jamming which criticizes the media and consumerism using advertising's own techniques. The industry is accused of being one of the engines powering a convoluted economic mass production system which promotes consumption. Some advertising campaigns have also been criticized as inadvertently or even intentionally promoting sexism, racism, and ageism. Such criticisms have raised questions about whether this medium is creating or reflecting cultural trends. At very least, advertising often reinforces stereotypes by drawing on recognizable "types" in order to tell stories in a single image or 30 second time frame. Recognizing the social impact of advertising, MediaWatch, a non-profit women's organization, works to educate consumers about how they can register their concerns with advertisers and regulators. It has developed educational materials for use in schools. The award-winning book, Made You Look - How Advertising Works and Why You Should Know , by former MediaWatch president Shari Graydon, provides context for these issues for young readers.

Public interest groups and free thinkers are increasingly suggesting that access to the mental space targeted by advertisers should be taxed, in that at the present moment that space is being freely taken advantage of by advertisers with no compensation paid to the members of the public who are thus being intruded upon. This kind of tax would be a Pigovian tax in that it would act to reduce what is now increasingly seen as a public nuisance. Efforts to that end are gathering momentum, with Arkansas and Maine considering bills to implement such taxation. Florida enacted such a tax in 1987 but was forced to repeal it after six months, as a result of a concerted effort by national commercial interests, which withdrew planned conventions, causing major losses to the tourism industry, and cancelled advertising, causing a loss of 12 million dollars to the broadcast industry alone.

Public perception of the medium

Over the years, the public perception of advertising has become very negative. It is seen as a medium that inherently promotes a lie, based on the purpose of the advertisement - to encourage the target audience to submit to a cause or a belief, and act on it to the advertising party's benefit and consequently the target's disadvantage. They are either perceived as directly lying (stating opinions or untruths directly as facts), lying by omission (usually of terms unfavorable to the customer), portraying a product or service in a light that does not reflect reality or even making up realities where their product has a new role.

Effects on communication media

Another effect of advertising is to modify the nature of the communication media where it is shown. The most clear example is television. Channels that get most of their revenues from publicity try to make their medium a good place for communicating ads. That means trying to make the public stay for long times and in a mental state that will make spectators not to switch the channel through the ads. Programs that are low in mental stimulus and require light concentration and are varied are best for long sitting times and make for much easier emotional jumps to ads, that can become more entertaining than regular shows. A simple way to understand the objectives in television programming is to compare contents from channels paid and chosen by the viewer with channels that get their income mainly from advertisements.

Future

With the dawn of the Internet have come many new advertising opportunities. Popup, Flash, banner, and email advertisements (the last often being a form of spam) abound. Recently, the advertising community has attempted to make the adverts themselves desirable to the public. In one example, Cadillac chose to advertise in the movie 'The Matrix Reloaded', which as a result contained many scenes in which Cadillac cars were used. Similarly, product placement for Rolex watches and BMW cars featured in recent James Bond films.

Each year, greater sums are paid to obtain a commercial spot during the Super Bowl. Companies attempt to make these commercials sufficiently entertaining that members of the public will actually want to watch them.

Particularly since the rise of "entertaining" advertising, some people may like an advert enough that they wish to watch it later or show a friend. In general, the advertising community has not yet made this easy, although some have used the Internet to widely distribute their adverts to anyone wishing to see or hear them.

What are the economic trends and how can it impact advertising?
Trends in Economy: (Source: Faith Popcorn's Popcorn report 1996)

I marked trends will definately influence advertiseing with *, and give my explaination of it.

Anchoring - The tendency to use ancient practices as anchors or support for modern lifestyles: aromatherapy, meditation, yoga, & Eastern religions.

• New lifestyles means new behaviors, also means new channels, new ideas for advertiseing.

Being Alive - The desire to lead longer and more enjoyable lives: vegetarianism, low-tech medicine, mediation.
ashing out - The desire for a simpler, less hectic lifestyle. A nostalgic return to small-town values.

• Above two trends are related people's attitude to life. According to that, advertisement with a 'fallow' style may be more popular.

Clanning - The need to join groups in order to confront a more chaotic world: Harley-Davidson's Harley Owners Group (Hog).

• People are willing to join groups, which means there can be ways to reach similar people more efficiently. TV advertisements broadcasted in Salons are good examples.

Cocooning - The impulse to stay inside when outside gets too tough and scary: redecorating, watching TV & rental movies, ordering from catalogs.

• No matter traditional TV will change to internet based or not, people will still spend much time watch TV programms and movies with their family theater. There are tools to block advertisements in TV, but it will still remain be the best way to reach your customers.
  

Down-Aging - The tendency for older people to act and feel younger than their ages: youthful clothes and hair coloring, adult toys, adventure vacations.

Egonomics - The wish to individualize oneself through passions & experience: customized goods, services, experiences.

• Advertisements will also be customized. Internet can achieve that easily, many search engines give you relevant commercials while searching.

Fantasy Adventure - The need to find emotional escapes: safari vacations, exotic foods.

99 Lives - Doing many things at once, "multitasking": cluster marketing enterprises-all-in one service stops.

S.O.S. (Save our Society) - The desire to make society more socially responsible: education, ethics, the environment.

Female Think - The recognition that men and women act and think differently.

Mancipation - The emancipation of men from stereotypical male roles of being macho and strong, and instead showing them as nurturing dads and concerned husbands.

• These are all trends that distinguish one group of people from others.

Small Indulgences - The desire to indulge in small-scale splurges to obtain an occasional emotional lift.

Pleasure Revenge - The proud and public pursuit of pleasure as a rebellion against self-control and self-deprivation.

Icon Toppling - The return to interest in smaller and more local organization and products.

• How can an advertisement give consumers this feeling.

The Vigilant Consumer - Intolerance for shoddy products and poor service.

• Quality of advertisement is important, too.

From the analysis above we can see that the economic trends have significant impact on people's lifestyle and consuming behaviors.

What affects the advertising budget?

www.doubleclick.com made an research on the current situation. According to their number, online advertisement spending grew 63% from 2000 to 2004 in absolute terms ($4.3 billion in 2000 to $7.1 billion in 2004). The Internet’s growth, meanwhile, was 52.7% as a share of total consumer media ad spending (excluding direct mail and yellow pages) in that same period. By comparison, overall ad spending in the same period on TV grew 10.6% in absolute terms (from $51 billion to $62 billion) and 3.6% as a share of total consumer media ad spending. The newspaper sector was the biggest loser in the media mix in terms of share of all ad dollars. Its readership is aging and declining, and its important base of classified ad revenue faces stiff competition online from the likes of eBay, Craig’s List, Monster.com and Match.com. Newspaper ad revenues were down 4.3% in absolute terms over the last five years ($49 billion to $47 billion), and they fell 10.4% in terms of share of media spend.

But those numbers do not tell the whole story. While at a high level, the growth of the industry remains steady and the budget allocation among media outlets is shifting only gradually.

Source: The decade in online advertising. www.doubleclick.com 2006

How much time does a person spend on Internet and watching TV? how will it influence advertising?
Number of hours people spend on Internet

Data source: Digital Future report 2004, by Jeffrey I. Cole, Ph.D., University of California.

Number of hours people watch TV

HOURS/PERSON/YEAR        1998  1999  2000  2001  2002  2003  
Total Mdia Usage        3,347 3,469 3,519 3,570 3,623 3,661 
Television              1,551 1,588 1,640 1,661 1,661 1,656 
 Broadcast TV             884   867   865   815   810   798 
  -Network stations       710   706   805   753   749   736 
  -Independent stations   174   162    61    62    61    61 
 Cable & satellite TV     667   720   774   846   851   858 
  -Basic                  565   617   638   692   698   706 
  -Premium                101   103   137   154   153   152 

Data Resource: FCC Annual Report 2003.

From the first figure we can see that the time people spend on Internet grew from 9.4 hours/week to 12.5 hours/week, a rise of 30%. And the time people spend on watich TV grew from 3519 hours/year to 3661 hours/year, that is 67.5 hours/week to 70.2 hours/week, a rise of 4%.

A reaserch made by the PRWEB company in 2006 shows that 55% of the online population uses the internet to search for local products and information in US. Source:http://www.wsicorporate.com/images/upload/211_StateoftheClickpr.pdf

We can see that till the year 2003, althrough internet usage is still grow at a high rate, but people still spend 57.7 hours more on TV, and there is no trend that this people will spend less time on TV now. In the newest release on March 07, 2006 of FCC's 12th annual report on TV competition, FCC declear that the death of TV hasn't quite happened yet as the average american household watched 8 hours and 11 minutes of TV per day last year. This was an all time record. The average american person in the average amercan household watched 4 hours and 32 minutes, another all time record.

A personal statics number shows that advertisement consist around 30% of total broadcasting time. http://www.waynesthisandthat.com/commerciallength.htm

Another news is that more and more people now get used to record TV programs, by which mean they can very easily skip all the advertisements. New products like Harddisk recorder, DVD recorder is becoming more and more popular.

From the consumer side, we can conclude that people are spending more time on Internet, people use Internet to search product information. The opportunity for online advertising is still growing. There is no trend that TV advertising will die, but there are certain threats like DVD recorders.

What are the legal issues?
Source: Federal Trade commission of US

General rules:

   * advertising must be truthful and non-deceptive;
   * advertisers must have evidence to back up their claims; and
   * advertisements cannot be unfair.

Additional laws apply to ads for specialized products like consumer leases, credit, 900 telephone numbers, and products sold through mail order or telephone sales. And every state has consumer protection laws that govern ads running in that state.

What makes an advertisement deceptive? According to the FTC's Deception Policy Statement, an ad is deceptive if it contains a statement - or omits information - that:

   * is likely to mislead consumers acting reasonably under the circumstances; and
   * is "material" - that is, important to a consumer's decision to buy or use the product.

What makes an advertisement unfair? According to the Federal Trade Commission Act and the FTC's Unfairness Policy Statement, an ad or business practice is unfair if:

   * it causes or is likely to cause substantial consumer injury which a consumer could not reasonably avoid; and
   * it is not outweighed by the benefit to consumers.

How does the FTC determine if an ad is deceptive? A typical inquiry follows these steps: The FTC looks at the ad from the point of view of the "reasonable consumer" - the typical person looking at the ad. Rather than focusing on certain words, the FTC looks at the ad in context - words, phrases, and pictures -ÿto determine what it conveys to consumers. The FTC looks at both "express" and "implied" claims. An express claim is literally made in the ad. For example, "ABC Mouthwash prevents colds" is an express claim that the product will prevent colds. An implied claim is one made indirectly or by inference. "ABC Mouthwash kills the germs that cause colds" contains an implied claim that the product will prevent colds. Although the ad doesn't literally say that the product prevents colds, it would be reasonable for a consumer to conclude from the statement "kills the germs that cause colds" that the product will prevent colds. Under the law, advertisers must have proof to back up express and implied claims that consumers take from an ad. The FTC looks at what the ad does not say - that is, if the failure to include information leaves consumers with a misimpression about the product. For example, if a company advertised a collection of books, the ad would be deceptive if it did not disclose that consumers actually would receive abridged versions of the books. The FTC looks at whether the claim would be "material" - that is, important to a consumer's decision to buy or use the product. Examples of material claims are representations about a product's performance, features, safety, price, or effectiveness. The FTC looks at whether the advertiser has sufficient evidence to support the claims in the ad. The law requires that advertisers have proof before the ad runs.

What kind of evidence must a company have to support the claims in its ads? Before a company runs an ad, it has to have a "reasonable basis" for the claims. A "reasonable basis" means objective evidence that supports the claim. The kind of evidence depends on the claim. At a minimum, an advertiser must have the level of evidence that it says it has. For example, the statement "Two out of three doctors recommend ABC Pain Reliever" must be supported by a reliable survey to that effect. If the ad isn't specific, the FTC looks at several factors to determine what level of proof is necessary, including what experts in the field think is needed to support the claim. In most cases, ads that make health or safety claims must be supported by "competent and reliable scientific evidence" - tests, studies, or other scientific evidence that has been evaluated by people qualified to review it. In addition, any tests or studies must be conducted using methods that experts in the field accept as accurate.

What penalties can be imposed against a company that runs a false or deceptive ad? The penalties depend on the nature of the violation. The remedies that the FTC or the courts have imposed include: Cease and desist orders. These legally-binding orders require companies to stop running the deceptive ad or engaging in the deceptive practice, to have substantiation for claims in future ads, to report periodically to FTC staff about the substantiation they have for claims in new ads, and to pay a fine of $11,000 per day per ad if the company violates the law in the future. Civil penalties, consumer redress and other monetary remedies. Civil penalties range from thousands of dollars to millions of dollars, depending on the nature of the violation. Sometimes advertisers have been ordered to give full or partial refunds to all consumers who bought the product. Corrective advertising, disclosures and other informational remedies. Advertisers have been required to take out new ads to correct the misinformation conveyed in the original ad, notify purchasers about deceptive claims in ads, include specific disclosures in future ads, or provide other information to consumers.

Will the FTC review my company's ads before they run to make sure that we've complied with the law? FTC staff cannot clear your ads in advance. However, there is guidance to help you comply with the law. Information about advertising particular kinds of products (for example, foods, dietary supplements, or "environmentally friendly" merchandise), advertising credit, and guidelines for advertising on the Internet is available at www.ftc.gov.

Alcohol Advertising

Does the FTC regulate ads for alcoholic beverages? The FTC can take action if an alcohol ad is deceptive or unfair. The Bureau of Alcohol, Tobacco and Firearms (ATF) also has jurisdiction over deceptive or misleading alcohol labeling and advertising.

Is it legal to advertise distilled spirits on TV? Until 1996, there was a voluntary policy within the distilled spirits industry not to advertise on television. Many broadcasters still do not accept ads for distilled spirits.

Are there limits on where ads for alcoholic beverages can run and what they can say? Like ads for all other products, ads for alcoholic beverages must be truthful and any claims must be substantiated. In addition, alcohol ads by their content or placement may not be directed to underage consumers. Some broadcasters and publishers place additional restrictions on where or when alcohol ads can run. For more information about voluntary codes, self-regulatory programs, and industry "best practices" in the area of alcohol advertising, ask the FTC for its Report to Congress, Self-Regulation in the Alcohol Industry: A Review of Industry Efforts to Avoid Promoting Alcohol to Underage Consumers.

Bait and Switch It's illegal to advertise a product when the company has no intention of selling that item, but instead plans to sell a consumer something else, usually at a higher price. For more information, ask the FTC for its Guides Against Bait Advertising.

Children's Advertising

The FTC pays particular attention to ads aimed at children because children may be more vulnerable to certain kinds of deception. Advertising directed to children is evaluated from a child's point of view, not an adult's. The FTC also works with the Children's Advertising Review Unit (CARU) of the Council of Better Business Bureaus. CARU is a private, self-regulatory group affiliated with the BBB that publishes self-regulatory guides for children's advertising.

My company is thinking about doing a website for kids. Are there any issues involving children and the Internet that we should be aware of? The Children's Online Privacy Protection Act, a federal law that requires websites to obtain verifiable parental consent before collecting, using, or disclosing personal information from children, including their names, home addresses, email addresses, or hobbies. The FTC has issued a rule outlining the procedures for commercial websites to use in obtaining parental consent. The rule applies to operators of commercial websites and online services directed to children under 13, and general audience sites that know that they are collecting personal information from a child. For more information, ask the FTC for How to Comply with the Children's Online Privacy Protection Rule. Visit the FTC's website (www.ftc.gov/kidzprivacy) for more information about how to protect kids' privacy online.

Clothing and Textiles

The labeling and advertising of clothing and textiles are governed by special statutes and regulations. For example, mail order catalogs and websites must disclose whether the fabric was imported or made in the United States. There are other requirements also. For more information, ask the FTC for the Rules under the Wool Products Act, the Fur Products Labeling Act, and the Textile Fiber Products Identification Act, and Threading Your Way Through the Labeling Requirements Under the Textile and Wool Acts.

Comparative Advertising Comparative advertising is legal as long as it is truthful.

Rules about ads for Contests and Sweepstakes Sweepstakes-type promotions that require a purchase by participants are illegal in the United States. Other agencies, including the United States Postal Service (USPS) and the Federal Communications Commission (FCC), also enforce federal laws governing contests and prize promotions. And each state has laws that may require promoters to make disclosures, seek licensing, or post a bond. Since state laws vary, check with the Attorney General's Office in the state(s) in which you plan to advertise. If a contest or promotion involves telephone calls, the FTC's Telemarketing Sales Rule requires specific disclosures, such as the odds of winning a prize, how to participate without buying anything, and that no purchase or payment is required to win. If pay-per-call services are involved, the FTC's 900 Number Rule requires certain disclosures. For more information, ask the FTC for the publications Complying with the Telemarketing Sales Rule and Complying with the 900 Number Rule.

Credit What information must be included in ads for consumer credit? According to the Truth in Lending Act and other federal and state laws, ads for consumer credit must include certain disclosures about the terms and conditions of credit. These laws specifically require the disclosures to be "clear and conspicuous" so that reasonable consumers can read (or hear) and understand the information. For more information, ask the FTC for the publication How to Advertise Consumer Credit: Complying with the Law.

Dietary Supplements Claims for dietary supplements and similar products must be truthful and advertisers must have substantiation for any objective product claims they make. Ask the FTC for Dietary Supplements: An Advertising Guide for Industry.

Disclosures and Disclaimers Some laws and regulations enforced by the FTC, such as the 900 Number Rule, the Truth in Lending Act, and the Consumer Leasing Act, have specific requirements that apply to advertising, including that certain information must be "clearly and conspicuously" disclosed. For more information, ask the FTC for the publications Complying with the 900 Number Rule and Advertising Consumer Leases. You also can see the publication How to Advertise Consumer Credit: Complying with the Law on the FTC's website.

How prominent does a disclaimer or disclosure have to be in other kinds of ads? When the disclosure of qualifying information is necessary to prevent an ad from being deceptive, the information should be presented clearly and conspicuously so that consumers can actually notice and understand it. A fine-print disclosure at the bottom of a print ad, a disclaimer buried in a body of text unrelated to the claim being qualified, a brief video superscript in a television ad, or a disclaimer that is easily missed on a website are not likely to be effective. Nor can advertisers use fine print to contradict other statements in an ad or to clear up misimpressions that the ad would leave otherwise. For example, if an ad for a diet product claims "Lose 10 pounds in one week without dieting," the fine-print statement "Diet and exercise required" is insufficient to remedy the deceptive claim in the ad. To ensure that disclosures are effective, advertisers should use clear and unambiguous language, place any qualifying information close to the claim being qualified, and avoid using small type or any distracting elements that could undercut the disclosure. Although there is no hard-and-fast rule about the size of type in a print ad or the length of time a disclosure must appear on TV, the FTC often has taken action when a disclaimer or disclosure is too small, flashes across the screen too quickly, is buried in other information, or is otherwise hard for consumers to understand. Most importantly, if you are concerned that a disclaimer or disclosure may be necessary to clarify a claim, evaluate your ad copy and substantiation carefully to ensure that you are not misleading consumers.

What about disclaimers and disclosures online? Regardless of whether you advertise on TV or radio, in print ads, through direct mail or online, the law is the same: disclaimers and disclosures must be "clear and conspicuous." Dot Com Disclosures offers special guidance for online advertisers regarding 'Net specific issues such as banner ads, pop-up windows, scrolling, hyperlinks, etc.

Drug Advertising Rules on advertisements for over-the-counter (OTC) drugs The FTC handles most matters regarding claims in advertisements for over-the-counter drugs. The Food and Drug Administration (FDA) handles most matters regarding the labeling of OTC drugs. As with any other product, claims for OTC drugs must be truthful and non-deceptive. Given the health and safety issues that can arise in marketing these products, advertisers should take care in substantiating their claims. Depending on the claim, advertisers may be required to back up their representations with competent and reliable scientific evidence, including tests, studies, or other objective data.

Endorsements and Testimonials Rules on how endorsements may be used in ads The FTC's Guides Concerning the Use of Testimonials and Endorsements offer practical advice on endorsements by consumers, celebrities, and experts. All endorsements must reflect the honest experience or opinion of the endorser. Endorsements may not contain representations that would be deceptive, or could not be substantiated, if the advertiser made them directly.

Endorsements by consumersmust reflect the typical experience of consumers who use the product, not the experience of just a few satisfied customers. If an endorsement doesn't reflect users' typical experience, the ad must clearly disclose either what consumers can expect their results to be or the limited applicability of the endorser's experience. Saying "Not all consumers will get these results" or "Your results may vary" is not enough. Endorsements by celebrities must reflect the celebrity's honest experience or opinion. If the endorsement represents that the celebrity uses the product, that celebrity actually must use the product. Once a celebrity (or expert) has endorsed a product, the advertiser has an obligation to make sure the endorsement continues to reflect the endorser's opinion. To give an expert endorsement, a person must have sufficient qualifications to be considered an expert in the field. But just being an expert isn't enough. Expert endorsements must be supported by an actual evaluation, examination, or testing of the product that other experts in the field normally would conduct to support the conclusions in the endorsement. Advertisers also must disclose any material connection between a person endorsing a product and the company selling the product. A "material connection" is defined as a relationship that might affect the weight or credibility of the endorsement. For example, if an endorser is an employee or relative of the advertiser, that fact must be disclosed because it is relevant to how much weight a consumer would give to the endorsement. Similarly, an advertiser must disclose if a consumer has been paid for giving an endorsement.

Energy Savings Claims Rules for making energy savings claims in ads The FTC's Appliance Labeling Rule and the R-Value Rule address energy savings claims for appliances, lighting products, and insulation. For example, under these rules, energy efficiency claims in ads must be based on specific standardized tests. If you advertise appliances online, ask the FTC for Disclosing Energy Efficiency Information: A Guide for Online Sellers of Appliances.

Environmental Advertising Rules for using environmental claims like "recycled" or "ozone-friendly" The FTC's Guides for the Use of Environmental Claims cover how words like biodegradable, recyclable, and environmentally friendly can be used in ads. In addition, some states have laws governing environmental claims. Check with the Attorney General's office of the state(s) where you plan to advertise. If you make environmental claims or use environmental symbols on your direct mail advertising, ask the FTC for Making Environmental Marketing Claims on Mail.

Food Advertising What kind of health claims can be made in food ads? When can advertisers use words like "lite," "low fat" or "high fiber"? The FTC handles most matters regarding claims in food advertisements. The FDA handles most matters regarding food labels. For guidance on how the FTC evaluates claims made in food ads, ask the FTC for the Enforcement Policy Statement on Food Advertising.

Franchises and Business Opportunities

Rules apply to ads for franchises or business opportunities The FTC's Trade Regulation Rule on Franchises and Business Opportunities ("Franchise Rule") governs the sale of franchises and business opportunities. The law requires sellers to make specific disclosures, give prospective buyers a document containing certain key information about the business opportunity, and be able to substantiate any earnings claims. For more information about buying or selling a franchise, ask the FTC for the Franchise Rule and Your Legal Rights: A Guide To The FTC Franchise Rule. In addition, visit the FTC website (www.ftc.gov/bizop/index.html) for information on what entrepreneurs need to know before buying any kind of business opportunity and alerting them to the latest "bizop" scams. Many states also have laws governing these transactions. Check with the Attorney General's office in the state(s) where you plan to advertise.

"Free" Claims and Rebate Offers When can a company advertise something as "free"? When a "free" offer is tied to the purchase of another product, the price of the purchased product should not be increased from its regular price. For more information, ask the FTC for the Guides Concerning Use of the Word "Free" and Other Representations and the Guides Against Deceptive Pricing. In addition, if you're advertising a product as "free" or offering it at a low cost in conjunction with the purchase of another item, the ad should clearly and conspicuously disclose the terms and conditions of the offer. Disclose the most important information - like the terms affecting the cost of the offer - near the advertised price. For more information, ask the FTC for Big Print. Little Print. What's the Deal? You also may want to check with the Attorney General's office in the state(s) where you plan to advertise. In addition, the Better Business Bureau has voluntary standards for when something can be advertised as "free."

Rules on advertising rebates to consumers Ads that include rebate promotions should prominently state the before-rebate cost, as well as the amount of the rebate. Only then will consumers know their actual out-of-pocket cost and have the information they need to comparison shop. Rebate promotions also should clearly disclose any additional terms and conditions that consumers need to know, including the key terms of any purchase requirements, additional fees, and when consumers can expect to receive their rebate. The FTC's brochure Big Print. Little Print. What's the Deal? outlines other factors advertisers should bear in mind when making rebate promotions.

Infomercials Policies relating to infomercials? Infomercial advertisers must have proof to back up all express and implied claims that reasonable consumers would take from an ad. In addition, advertisers should make sure that the infomercial doesn't deceptively mimic the format of news reports, talk shows, or other independent programming. FTC cases have required companies to clearly disclose that "THE PROGRAM YOU ARE WATCHING IS A PAID ADVERTISEMENT FOR [NAME OF PRODUCT]" at the beginning of an infomercial and before ordering information is given. Since many infomercials feature endorsements from consumers, celebrities, or experts, ask the FTC for the Guides Concerning the Use of Testimonials and Endorsements for more information.

Responsibility do we have to make sure the claims in informercials are truthful The Commission looks at the facts of each case to determine whether the infomercial producers' role in the promotion makes them liable for deceptive claims in the ad. In many instances, the FTC has taken action against both the manufacturer or marketer of a product and the company that produced the infomercial. Therefore, infomercial producers should ask for materials to back up the claims in the ad. The bottom line: no one involved in the promotion of a product or the dissemination of an ad - whether it's an infomercial, print ad, catalog, or broadcast spot - should look the other way when the claims seem questionable.

Internet Advertising Advertising on the Internet subject to the same laws as other advertising. Ad claims on the Internet must be truthful and substantiated. The Rules of the Road for more information. Dot Com Disclosures offers special guidance for online advertisers regarding how to make sure that any disclaimers and disclosures in online ads are clear and conspicuous. It addresses 'Net specific issues such as banner ads, pop-up windows, scrolling, hyperlinks, etc. Internet marketers also should be aware that the FTC's Mail or Telephone Order Merchandise Rule ("Mail Order Rule") applies to online transactions.

Because the World Wide Web is, as its name implies, worldwide, even small online businesses can reach customers around the globe. Electronic Commerce: Selling Internationally - A Guide for Business discusses some online commerce guidelines endorsed by the United States government and 28 other countries.

Consumer privacy online Advertisers should be aware of the privacy issues raised by Internet marketing. For more information about recent FTC Reports to Congress on consumer privacy on the Internet, visit the FTC's website (www.ftc.gov). Basically, the FTC strongly encourages companies to implement four fair information practices: giving consumers notice of a website's information practices; offering consumers choice as to how their personally identifying information is used; providing consumers with access to the information collected about them; and ensuring the security of the information collected. In addition, companies need to know about the Children's Online Privacy Protection Act and the rule that implements it. The law requires websites to obtain verifiable parental consent before collecting, using, or disclosing personal information from children, including their names, home addresses, email addresses, or hobbies. For more information, ask the FTC for How to Comply with the Children's Online Privacy Protection Rule.

Jewelrys The FTC's Jewelry Guides cover claims made for gold, silver, platinum, pewter, diamonds, gemstones, and pearls and define how certain common terms may be used in ads. For example, the Guides explain when a product can be called "gold plated" or when a diamond can be called "flawless." For more information, ask the FTC for the Guides for the Jewelry, Precious Metals, and Pewter Industries and In The Loupe: Advertising Diamonds, Gemstones and Pearls.

Leasing Information a company must include when advertising leases for cars, household goods, etc. The Consumer Leasing Act and Regulation M include specific rules that apply to ads for consumer leases. For example, if a lease advertisement includes certain terms - such as the amount of any payment due before or at lease inception - the ad also must make other clear and conspicuous mandatory disclosures about the terms of the lease. These rules also apply if the ad contains phrases like "no money down" or "no down payment." For more information, ask the FTC for a copy of Advertising Consumer Leases.

Made in the U.S.A. When can my company advertise that our product is "Made in the U.S.A."? A product has to be "all or virtually all made in the United States" for it to be advertised or labeled as "Made in the U.S.A."

Mail Order Advertising Rules must a company follow if it sells products via mail order. Truth-in-advertising standards - including that companies must have proof to back up express and implied claims made about its products - apply to mail order marketers. In addition, the FTC's Mail or Telephone Order Merchandise Rule ("Mail Order Rule") applies when a consumer places an order by mail, telephone, fax, or computer. Under the Rule, a company must have a reasonable basis for believing that it can ship the product within the time period stated in the ad. If the ad doesn't specify a time period, the company must have a reasonable basis for believing that it can ship within 30 days. The Mail Order Rule applies equally to online marketers. For more information, ask the FTC for A Business Guide to the Federal Trade Commission's Mail or Telephone Order Merchandise Rule and A Business Checklist for Direct Marketers. Companies that advertise online also should get a copy of Selling on the Internet: Prompt Delivery Rules. In addition, the Direct Marketing Association, a trade group for members of the direct marketing industry, has voluntary guidelines on ethical business practices.

Rules for a company to "dry test" a product "Dry testing" describes the practice of placing an ad for a product to see if there is sufficient consumer interest before actually going to the expense of manufacturing the item. Although the Mail Order Rule doesn't specifically deal with this situation, the FTC has issued an advisory opinion that such ads must clearly disclose to consumers the fact that the merchandise is only planned and may not ever be shipped. For more information, ask the FTC for A Business Guide to the Federal Trade Commission's Mail or Telephone Order Merchandise Rule.

Negative Option Offers Rules regarding ads for "negative option" plans The FTC's Negative Option Rule applies to sellers of subscription plans who ship merchandise like books or compact discs to consumers who have agreed in advance to become subscribers. The Rule requires that ads clearly and conspicuously disclose material information about the terms of the plan. Further, once consumers agree to enroll, the company must notify them before shipping to allow them to decline the merchandise. Even if an automatic shipment or continuity program doesn't fall within the specifics of the Negative Option Rule, companies should be careful to clearly disclose the terms and conditions of the plan before billing consumers or charging their credit cards. For more information, ask the FTC for the Negative Option Rule.

"New" Claims When can a company advertise a product as "new"? The answer depends on how the ad uses the word "new." For example, under the rules governing the identification of textiles, fabric cannot be advertised as "new" if it has been reclaimed or respun. The rules governing advertising claims for tires prohibit the use of the word "new" to describe retreads. However, when no specific regulation applies, each case must be considered within the context of the ad. At least one FTC advisory opinion has suggested a six-month limit on the use of the word when advertising the introduction of a "new" product not previously on the market.

Pricing standards governing the advertising of prices The same standards for truthfulness apply when companies make claims about price comparisons, "sale" prices, and the like. For more information, ask the FTC for the Guides Against Deceptive Pricing. Since many pricing issues involve local practices, you also may want to contact the Attorney General's office in the state(s) where you plan to advertise.

Responsibility of a company have to make sure prices are accurate In many jurisdictions, companies are legally required to charge no more than the advertised or shelf price for a product, so good pricing practices are important for both customer satisfaction and a company’s bottom line.

Sales The same standards for truthfulness apply when a company makes advertising claims about sale prices or products being “on sale.” For more information, ask the FTC for the Guides Against Deceptive Pricing. Since this issue often involves local practices, you may also want to contact the Attorney General’s office in the state(s) where you plan to advertise.

Going out of business sale The short answer is: only when a store is going out of business. It would be deceptive to advertise a “going out of business sale” when a store is not going out of business. If a store in your area is advertising what looks to be a bogus “going out of business sale,” contact your state Attorney General’s office.

Subliminal Advertising Is it legal to use subliminal advertising techniques? It would be deceptive for marketers to embed ads with so-called subliminal messages that could affect consumer behavior. However, most consumer behavior experts have concluded that such methods aren’t effective.

Telemarketing Rules must a company follow if it sells goods or services over the telephone As with any other form of advertising or promotion, claims made through telemarketing must be truthful and substantiated. In addition, the FTC’s Telemarketing Sales Rule applies to transactions involving the use of interstate telephone calls to sell goods or services. The Rule requires companies to make specified disclosures in their telephone calls and prohibits misrepresentations. For more information, ask the FTC for a copy of Complying with the Telemarketing Sales Rule.

Telephone Services Rules apply to the advertising of long-distance services, including long-distance calling plans, dialaround (or "10-10" numbers), and pre-paid phone cards The FTC and the Federal Communications Commission work together to ensure that ads for long-distance services are truthful. If ads tout price, companies should make sure that the ads clearly and conspicuously disclose the actual cost to consumers, including monthly fees or per-call surcharges, not just a perminute rate. In addition, ads should clearly and conspicuously disclose any limitations on the advertised service, including time, day, or geographic restrictions. Ask the FTC for the Joint FTC-FCC Policy Statement on the Advertising of Dial-Around and Other Long-Distance Services to Consumers.

Information must be included in ads for 900 number or "pay-per-call" services The FTC’s 900 Number Rule requires that ads for these services “clearly and conspicuously” disclose the cost of the call. The law is very specific about what “clear and conspicuous” means, depending on whether the ad appears on radio, TV, or in print. The rule also requires that 900 number ads directed at consumers under age 18 disclose that parental permission is required before calling. The rule prohibits 900 number services directed at children under 12, unless it is a “bona fide educational service.” In addition, 900 number ads that promote sweepstakes must state the odds of winning or, if the odds cannot be determined, the factors that determine the odds. Ads for 900 number services that provide information on federal programs, but are not affiliated with the government, also must contain certain disclosures. For more information, ask the FTC for a copy of Complying with the 900 Number Rule.

Tobacco Advertising Rules for ads for cigarettes, cigars, and smokeless tobacco The FTC can take action if an ad for cigarettes, cigars, or a smokeless tobacco product is deceptive or unfair. In addition, federal law prohibits the advertising of cigarettes, smokeless tobacco, and little cigars on radio, TV, or other forms of electronic media regulated by the Federal Communications Commission. The FTC also enforces various federal requirements mandating health warnings on advertising, point-ofpurchase displays, and packaging of tobacco products. For more information, ask the FTC for a copy of the brochures Tobacco Products and Cigars: No Such Thing as a Safe Smoke, and the Memorandum to Potential Cigarette Manufacturers and Importers.

Weight Loss Products The FTC has taken action against hundreds of advertisers who have falsely promised easy weight loss. Marketers who promote diet products or services or who make representations about fat loss, weight loss, calorie burning, or the loss of inches or cellulite must make sure that their claims are backed up by sound scientific evidence. The FTC is a member of the Partnership for Healthy Management and supports its Voluntary Guidelines for Providers of Weight Loss Products or Services.

The National Small Business Ombudsman and 10 Regional Fairness Boards collect comments from small businesses about federal compliance and enforcement activities. Each year, the Ombudsman evaluates the conduct of these activities and rates each agency’s responsiveness to small businesses. Small businesses can comment to the Ombudsman without fear of reprisal.