Customer Service: FTC advertising guidelines: a matter of law, ethics and trust

Since the advertising industry barely squeezes in above lobbyists and car salespeople in regard to honesty and ethics (according to consumers in a December 2007 Gallup poll), adhering to legal and ethical guidelines is crucial to attaining consumers’ trust.

The Federal Trade Commission works closely with U.S. government agencies and legislatures to protect consumers and economic competition. Given the authority to adopt communications industry trade regulations by Congress in 1975, the FTC cites a goal of maintaining a marketplace free of “unfair and deceptive acts or practices.” In order to achieve that goal, the FTC has outlined a number of policies directly pertinent to the advertising and marketing field to protect not only consumers, but advertisers as well.

There are three basic tenets of advertising regulation by the FTC: advertising must be truthful and non-deceptive, advertisers must have evidence to back up claims, and advertisements cannot be unfair to consumers or competitors.

Deceptive/Unfair Advertising

Per the FTC Deception Policy Statement, a deceptive ad contains or omits information that is likely to mislead reasonable consumers or is important to a consumer’s decision to buy or use the product or service. The FTC defines an unfair ad as one that causes or is likely to cause substantial harm to consumers, and it is not outweighed by the benefit to consumers. The FTC will review the ad in context from the point of view of the average consumer to determine whether it is deceptive. They examine both express and implied claims, which the advertiser must substantiate.

Advertising Substantiation

Advertisers must have a “reasonable basis” – or objective evidence-for any claims made in ads and other marketing materials before disseminating them to consumers. What exactly is a “reasonable basis?” The FTC determines this on a number of factors, including the type of claim, consequences of a false claim and the amount of substantiation that experts in the field believe is reasonable. The advertiser or agency must be able to substantiate any objective claims made about the item or service advertised. This is especially true in the cases of health and safety ads, and ads that make assertions such as, “Doctors recommend” or “Studies show.” The FTC will pay very close attention to objective claims like, “Such-and-Such juice helps prevent cancer,” but less attention to more subjective claims like, “So-and-So biscuits are delicious.”

Comparative Advertising

The FTC supports the use of brand comparisons, as they are valuable sources of information to consumers and can help them make purchase decisions. It also encourages product innovation and service improvement, which thusly helps consumers and businesses in the marketplace. However, brand comparisons must be truthful, substantiated and non-deceptive.

One interesting case to examine: Subway is suing Quiznos for a “make your own Quiznos vs. Subway ad” contest with user-generated content comparing the two sandwich chains. Subway alleges that Quiznos is responsible for several participants of the contest making false claims and depicting the Subway brand in a negative light. The case will go to trial in 2009.

Penalties

The FTC can issue cease-and-desist orders against advertisers. They are legally binding, and require the advertiser to stop running the deceptive ad immediately, to have substantiation in future ads, report periodically to the FTC, and pay a fine of $11,000 per day per ad if the company continues to violate the law. They may also issue civil penalties (from thousands to millions of dollars, depending on the violation), or demand full or partial refunds to all consumers who purchased the product. Finally, they can order the advertiser to run costly corrective advertising and disclosures.

In summary, be truthful, back it up, and compete fairly. Following the guidelines set forth by the FTC is not only a legal matter, but also an ethical one. It is our duty as responsible businesses and advertisers to be honest, accurate and fair to our competitors and consumers. If the advertising industry hopes to ever climb significantly higher than lobbyists and car salespeople, self-regulating and adhering to these guidelines are crucial.

Lili Vianello is President of Visionworks, a Columbia-based full-service marketing and communications firm. Contributions to this article were made by Visionworks staff members. Visit them online at www.visionworks.com.