Deceptive Advertising

Assignme nt DECEPTIVE ADVERTISING AND MARKETING PRACTICES

BUSINESS ETHICS Submitted To: Prof. Premanand Shetty

Submitted By: GAURAV KUMAR 08PG304 Marketing B

DECEPTIVE ADVERTISING AND MARKETING PRACTICES

Introduction Deceptive advertising and marketing practices have been around since the beginning of time and are still prevalent today. Sometimes it is done unknowingly by an advertiser, however, more often than not, it is done with the intent to mislead the consumer, making deceptive advertising a relevant marketing ethics issue. This paper will first define deceptive advertising and marketing, and describe different types of deception. Next, it will examine what makes an advertisement or marketing practice deceptive. A look into the deceptive advertising issues of the 1990’s as well as reviewing the monitoring agencies, and addressing liability issues and the penalties associated with deceptive advertising will also be covered. What is Deceptive Advertising and Marketing? An advertisement or marketing practice is considered deceptive if there is a "representation, omission, or practice that is likely to mislead the consumer". The advertisement does not necessarily have to cause actual deception, but, according to the Federal Trade Commission (FTC), the act need only likely mislead the consumer (Federal Trade Commission, 1998 [on-line]). Types of Deceptive Advertising According to David Gardner (1975) there are three types of deceptive advertising: Fraudulent advertising which is an outright lie; false advertising which "involves a claim-fact discrepancy", such as not disclosing all the conditions to receive a certain promotion or price; and misleading advertising which involves a "claim-belief interaction" (Assael, 1998). An example of claim-belief deception is the WarnerLambert Listerine case. The label on the Listerine mouthwash bottle stated "Kills Germs By Millions On Contact" immediately followed by "For General Oral Hygiene, Bad Breath, Colds, and Resultant Sore Throats". This misled consumers to believe that by using Listerine, it could prevent the common cold and sore throat (Warner Lambert, 1978). Listerine had to redo its advertising and delete "colds and resultant sore throats". What Makes Advertising Deceptive? According to the Federal Trade Commission (FTC), the government agency responsible for regulating and monitoring advertising practices, there are three

common elements they look for in deceptive advertising and marketing claims. First, there must be "a representation, omission or practice that will likely mislead the consumer", such as misleading price claims, or a oral or written misrepresentation of a product or service. Second, the FTC examines the misrepresentation from the view of a "reasonable" consumer or particular target group such as the elderly. And finally, "the representation, omission, or practice must be a ‘material’ one". This means that if the misrepresentation is likely to affect the consumer’s decision whether or not to use or purchase a certain product or service, this is considered material since the consumer may have decided differently if not for the deceptive advertising (Federal Trade Commission, 1998 [on-line]). Oral and Written Misrepresentation or Omission Let’s look first at oral or written misrepresentation, or omission, which is the most common form of deceptive marketing. According to the Better Business Bureau, "an advertisement as a whole may be misleading although every sentence separately considered is literally true. Misrepresentation may result not only from direct statements but by omitting or obscuring a material fact" (Better Business Bureau, 1998 [on-line]). This includes "bait and switch" advertising and selling, which is an alluring offer to sell a product or service in which a company has no intention to sell to the consumer. The goal of "bait and switch" is to get the consumer in the door ready to purchase one product that was advertised and then get them to switch their purchasing decision to a higher priced product or service. Vague generalities are also included in this category. A vague generality is when an advertisement makes a vague claim. There are numerous examples of vague generalities such as "our clothes are made in the USA, our cars are fuel efficient, our frozen desserts are low in fat". According to Mary Azcuenaga, Commissioner of the FTC (1994), "should we assume that these claims apply to every individual item in the product line? To most or nearly all of the products in the line? Or is the message that, on average, the products have the characteristics?". These generalities often bring up more questions than they answer for the consumer, and can be misleading and confusing. The Reasonable Consumer The FTC also believes that in order for an advertisement to be deceptive, the act or practice must be considered from a reasonable consumer’s point of view, or if a particular group is targeted, a reasonable member of the groups perspective; the key word being "reasonable". In fact, a company is not liable for every consumer’s point of view. One example is that some consumers may believe that a "Danish Pastry" is made in Denmark. This miscomprehension is not considered to be deception since this message is not likely to mislead a significant segment of targeted consumers (Federal Trade Commission, 1998 [on-line]). If a particular product or service is marketed to a

particular group, the FTC will use the targeted group as their "reasonable member". The thought behind this decision is that some groups may be more susceptible to exaggerated claims such as an overweight person believing in a miracle pill that will make them lose weight. (Federal Trade Commission, 1998 [on-line]). Materiality The third factor the FTC looks for in deceptive advertising is materiality. As mentioned earlier, a material misrepresentation is one that will likely effect the buying decision of consumers. Examples of material misrepresentations include certain claims and omissions of information, particularly those that involve safety and health issues. An example would be a consumer who is very involved in environmental issues and may only purchase environmentally safe products. If a product advertises that it has reduced emissions of air pollutants by 70%, this may encourage the consumer to purchase the product, when in fact the product may still be emitting a high level of air pollutants. Additionally, "information is likely to be material if it concerns durability, performance, warranties or quality" (Federal Trade Commission, 1998 [on-line]). The FTC believes that if a consumer can easily evaluate a product, it is inexpensive, and a regularly purchased item, the Commission will take a closer look at the deception before filing a claim. The FTC believes that companies rely on repeat sales of these items and therefore if they do not live up to their claims, consumers will not purchase them again (Federal Trade Commission, 1998 [on-line]). Counter-Measure Misconceptions Many advertisers feel that they have safeguarded themselves against deceptive advertising by providing money-back guarantees, warranties, and by adding disclaimers to ads. According to the FTC this is not accurate. Money-back guarantees do not eliminate deception. Sears and Roebuck learned this in 1980 when the FTC noted that "a money-back guarantee is no defense to a charge of deceptive advertising. A money back guarantee does not compensate the consumer for the often considerable amount of time and expense incident to returning a major-ticket item and obtaining a replacement" ((Federal Trade Commission, 1998 [on-line]). What a money-back guarantee and a warranty may avoid however, is prosecution if the guarantee or warranty is honored since the FTC looks more favorably on those that comply with their guarantees and warranties. Disclaimers, accurate text or small print do not remedy the effect of a false headline either. The FTC has ruled that many reasonable consumers may only read the headline and be mislead or deceived by the advertisement, therefore, the headline must also

make sure that it complies with fair advertising standards (Federal Trade Commission, 1998 [on-line]). Deceptive Advertising Issues of the 90’s The 1990’s have brought on some new targets for deceptive advertisers as well as a new focus for the FTC and the BBB. The main targets of the 90’s include: antioxidant claims; the diet industry for misrepresenting weight loss claims; environmental or green marketing claims for products claiming that they are good for the environment and are not; 900 numbers for misrepresenting the costs of phone calls, and the Internet (Federal Trade Commission, 1998 [on-line]). In one year, United Weight Control, Nutri/System, Inc., the Diet Center, Physician Weight Loss Clinic, Weight Watchers International, Inc., and Jenny Craig had all been cited for deceptive advertising and were made to modify their advertising and marketing practices. On one weight loss television commercial, an average weight loss is printed on the screen so consumers are not misled to believe that they will lose as much weight as the women/men in the commercial (Federal Trade Commission, 1998 [on-line]). The Internet has also been a major source of deceptive advertising, particularly in regards to privacy issues. The Internet has allowed online companies to "collect and use personal information about consumers, often without the consumers’ knowledge or consent", and even use web sites as a guise to collect medical and financial information, and even collect information about children (American Marketing Association, 1998 [on-line]). Monitoring Agencies Besides the Federal Trade Commission, there are several other agencies that monitor advertising and marketing practices. Next to the FTC, the Better Business Bureau (BBB) is the key proponent of monitoring truth in advertising, and was the primary reason that the BBB was formed. The National Advertising Review Council (NARC) is another agency that was developed by advertising associations and the BBB to foster "truth and accuracy in national advertising through voluntary self-regulation". The National Advertising Division and the Children’s Advertising Review Unit (CARU) are investigative arms of the self-regulating programs in place by the NARC. The CARU was established in 1974 to promote responsible children’s advertising and is particularly interested in protecting children’s privacy and rights taking into account the vulnerability of the child audience. The FTC is the only legal enforcement arm of deceptive advertising. All other groups rely on voluntary cooperation and selfregulation (Better Business Bureau, 1998 [on-line]).

Competitors and consumers are also two important monitoring groups. Competitors can be the best watchdogs for deceptive advertising in their industry and under the Lanham Act, they are able to sue their competitors for making deceptive claims. Consumers can also monitor companies and report any deceptive advertising or marketing act directly to the Better Business Bureau or file a complaint with the National Advertising Division who will investigate the accusation. Liability & Penalties So who is liable for deceptive advertising? Clearly, the company who’s product or service it is, but it does not stop there. Advertising agencies are now being held liable "if the agency participated in the creation of the advertising and knew, or reasonably should have known, that the advertising was deceptive". It is the responsibility of the ad agency to substantiate the claims that a company makes and not rely on the advertiser’s word. Producers of infomercials are also held under scrutiny when a deceptive advertising claim is made against an infomercial. Producers must ask for information to back up the claims being made or risk being liable (Better Business Bureau, 1998 [on-line]). According to Section 5 of the FTC Act, unfair or deceptive advertising, or marketing acts or practices are illegal and therefore subject to penalties. The penalties for deceptive advertising and marketing practices include 1. Cease and desist orders ~ the FTC can make a company pull an ad or stop a deceptive marketing practice immediately. This also carries an $11,000 per day per ad penalty if a company violates the law again. 2. Civil penalties, consumer redress, and monetary remedies. This could include monetary payments of millions of dollars, to giving refunds to consumers who purchased the product. 3. Corrective advertising, disclosures, and other informational remedies. This may include purchasing additional advertising to correct the misinformation or making the company inform those that purchased the product about the deception. 4. Bans and Bonds: In really bad cases of deception, a company may be required to leave the industry or post a bond before reentering the business (Federal Trade Commission, 1998 [on-line]). Conclusion As this paper has demonstrated, deceptive advertising is an ongoing ethical, and in some cases, controversial issue. What may appear to be a harmless advertisement to one person or group, may be very misleading to another. With the increase in technology and the ever-increasing use of the Internet, consumers remain prime targets for deceptive advertising and marketing practices. Fortunately, the laws and monitoring agencies continue to improve, and will continue to protect the consumer from many deceptive advertising and marketing practices.

Real Case of Deceptive Advertising:

BEFORE THE FEDERAL TRADE COMMISSION

COMPLAINT SEEKING ACTION AGAINST THE BANK OF AMERICA FOUNDATION FOR DECEPTIVE ADVERTISING REGARDING ITS FINANCIAL SUPPORT OF ANIMAL EXPERIMENTS CONDUCTED BY THE MARCH OF DIMES

Submitted to: Federal Trade Commission CRC-240 600 Pennsylvania Ave. N.W. Washington, DC 20580 Submitted by: People for the Ethical Treatment of Animals, Inc. Jeffrey S. Kerr, General Counsel 501 Front Street Norfolk, VA 23510 Tel: 757-622-7382 Fax: 757-622-0457 December 30, 2002

NATURE OF THE COMPLAINT 1. This complaint requests that the Federal Trade Commission (Commission) take action against the Bank of America Foundation’s (hereinafter "BOAF") ongoing deceptive advertising practice of falsely representing that it does not fund national health organizations in an apparent attempt to evade public criticism of its support for the March of Dimes, a national health organization engaged in animal experimentation. For more than two years, People for the Ethical Treatment of Animals, Inc. (hereinafter "PETA"), on behalf of its more than 750,000 members and supporters, together with several other charities and their supporters, has conducted a nationwide educational campaign to inform banking consumers that the BOAF provides millions of dollars annually to the March of Dimes for use in animal experimentation. The growing national opposition to animal experimentation makes the BOAF’s support of that practice a material factor in the decision of compassionate consumers to conduct their banking elsewhere. PETA recently learned that despite its ongoing, multi-million dollar support of the March of Dimes, the BOAF falsely advertises that "[n]ational health organizations (or their local affiliates) or research/disease advocacy groups" such as the March of Dimes are ineligible for BOAF support. Accordingly, the BOAF advertisements are unlawfully deceptive and an appropriate subject of Commission action. PARTIES 2. PETA is a nonprofit charitable corporation organized under the laws of Virginia and is exempt from federal income tax pursuant to §501(c)(3) of the Internal Revenue Code. PETA is headquartered at 501 Front St., Norfolk, VA 23510. PETA and its members are committed to ameliorating the suffering of animals and ensuring their humane treatment. PETA has conducted investigations into and campaigned extensively against the use of animals in experiments and maintains several Internet Web sites that detail the horrific suffering and abuse inflicted on primates, mice, rabbits, and other animals by the animal experimentation industry. Since September, 2000, PETA has specifically directed its efforts toward protesting the March of Dimes for funding experiments on animals. PETA maintains a Web site dedicated to this educational campaign at MarchofCrimes.com. PETA files this complaint for itself and on behalf of its members. 3. Upon information and belief, the BOAF is a private foundation established by the Bank of America Corporation, a for-profit banking institution, for the purpose of managing all charitable operations of Bank of America offices and branches around the United States. The BOAF is located at 315 Montgomery St., 8th Fl., San Francisco, CA 94194-1866. According to its Web site (www.bankofamerica.com/foundation), the BOAF is an extremely sophisticated organization, boasting the largest philanthropic budget of any financial institution in the U.S. It donated a total of $87.4 million in 2000 and more than $85 million in 2001. Control over the BOAF’s funds is placed in the hands of local executives who determine where the funds go and in what amounts. The BOAF also advertises that proposals not aligned with its focus will not receive funding. For many years, the BOAF has been a large corporate sponsor of the March of Dimes, including its annual Walk America walk-a-thon fundraising events. Upon information and belief, local Bank of America offices across the country donate funds and send representative teams of walkers to many of the individual walk events each year. According to the March of Dimes, the BOAF generally contributes more than $1million each year to the March of Dimes.

JURISDICTION 4. Jurisdiction is appropriate in this matter pursuant to the Federal Trade Commission Act, 15 U.S.C. § 41, et seq. 5. The advertisements in question have been disseminated, and continue to be disseminated via the Internet, mail, and in person.

STANDARD OF REVIEW 6. An advertisement is unlawfully deceptive where there is a material representation, omission, or practice that is likely to mislead a reasonable consumer who is a member of the particular consumer group targeted or is likely to be affected by the ad. Omissions of material fact can be as unlawfully deceptive as affirmative misrepresentations, particularly where the omitted information is needed to discover that an ad’s claims are false. 7. As set forth in the Commission’s policy statement on deceptive advertising, the test for materiality is "whether the act or practice is likely to affect the consumer’s conduct or decision with regard to a product or service." 8. Intent to mislead is not required for an advertisement to be unlawfully deceptive, but it can be a factor for the Commission's consideration. The Commission has acknowledged in its policy statement that an interpretation of an ad claim will be deemed both reasonable and material if it is the claim that the advertiser intended to convey. 9. Over the last 30 years, animal treatment issues have become an integral part of consumer purchasing decisions on a wide variety of products and services. Especially prominent among these considerations is the issue of animal testing, as demonstrated by the thousands of products that are advertised as cruelty-free, having not been tested on animals. Therefore, an advertiser’s statements or omissions concerning its support of or opposition to animal testing is a material consideration in the purchasing decisions of millions of consumers on a daily basis. In short, consumers purchase more than just an advertiser’s products or services, they also purchase the advertiser’s corporate ethics.

PETA’S CAMPAIGN AGAINST THE MARCH OF DIMES AND THE BOAF

10. Since September 2000, as part of its educational program to convince charities to stop funding experiments on animals, PETA has conducted an extensive national campaign against the March of Dimes’ practice of funding animal experimentation. PETA’s efforts have included hundreds of demonstrations and protests at the March of Dimes’ offices and events around the country. PETA’s Web site at MarchofCrimes.com details the nature and extent of that campaign. 11. PETA’s campaign has focused attention on the cruelty and absurdity of March of Dimesfunded animal experimentation, including sewing shut the eyelids of newborn kittens and killing them one year later to study the effect on their brains (even though the March of Dimes admits that no clinically relevant information came from such studies), and giving cocaine and alcohol to pregnant rats to determine the effect of the drug on their offspring (although the use of such substances by pregnant women is well-known to cause birth defects and other severe problems in newborn children). 12. One aspect of PETA’s campaign has been to encourage consumers opposed to animal experiments to pressure the March of Dimes’ major corporate sponsors to restrict their donations for non-animal uses. This approach has achieved remarkable success, resulting in national March of Dimes sponsors, including K-Mart, Sara Lee, and Jamba Juice, restricting their donations for use in non-animal programs. Restricted donations are common among sophisticated charities like the March of Dimes and the BOAF where funds are required to be used only for a specified purpose or prohibited from being used for a particular purpose. 13. During Fall 2000, PETA learned that the BOAF is among the March of Dimes’ top five corporate sponsors, donating more than $1 million per year. A March of Dimes news release even reported that a senior Bank of America official was installed on the March of Dimes national board of advisors. Therefore, PETA began contacting the BOAF to request that it halt its donations to the March of Dimes or restrict them to non-animal uses. 14. Despite the positive responses of the other March of Dimes sponsors listed above, the BOAF refused to meet with PETA on this subject and continued to fund the March of Dimes to the tune of millions dollars each year through it’s local affiliates’ support of Walk America and possibly other fund raising events. As a result, PETA began a national campaign encouraging its members and the public to boycott the Bank of America (which is the source of funding for the BOAF) until it changes its policy of donating funds to the March of Dimes that can be used in animal experiments. PETA was a long time Bank of America customer prior to this campaign and removed its business, totaling millions of dollars annually, from its local Bank of America branch in protest of its support for the March of Dimes. Other corporate, charitable, and individual Bank of America accounts also have been closed as a result of PETA’s campaign and the revulsion of compassionate consumers to animal experimentation.

THE BOAF’S DECEPTIVE ADVERTISEMENTS

15. The contents of the BOAF Web site are clearly directed to existing and potential banking customers and are designed to encourage people to begin or continue using the Bank of America. As such, the Web site contents constitute a series of advertisements for the Bank of America and the BOAF. A December 30, 2002, printout of the BOAF Web site is attached as Exhibit A with the pages numbered sequentially for the Commission’s ease of reference. Upon information and belief, the Web site advertisements discussed in this complaint have appeared in their current form for several months at the least. 16. In the wake of PETA’s national campaign opposing the BOAF’s funding of March of Dimes’ animal experimentation, the BOAF Web site provides as follows: a.

The BOAF has adopted "new guidelines" to focus its resources on helping children succeed by

funding programs only in the following areas: early childhood development, economic and financial education, and teacher development. Exhibit A, pp. 1-5.

a.

The BOAF’s Application for Charitable Giving explicitly provides that "proposals not aligned

with our focus...will not receive funding." Id., at p. 4 (emphasis added). Included among the specifically enumerated "Ineligible categories for funding" are "National health organizations (or their local affiliates) or research/disease advocacy groups." (Emphasis added.) The foregoing BOAF giving guidelines are hereinafter collectively referred to as "the Advertisements."

17. The March of Dimes is a national health organization, composed of local affiliates across the country and, therefore, is ineligible for BOAF funding according to the Advertisements’ clear terms. 18. Neither the Advertisements nor any other part of the BOAF Web site makes any mention whatsoever of the BOAF’s support for the March of Dimes or any other national health organization. This omission, together with the Advertisements’ stated funding guidelines and exclusions, would lead any reasonable banking consumer concerned about animal experimentation and the BOAF’s support of the March of Dimes to believe that the BOAF no longer provides financial support to the March of Dimes, any of its local affiliates, or any other national health organization that may be involved in funding animal experimentation. 19. Suspicious of the Advertisements, in November, 2002, a PETA member residing in New York state contacted Raichelle Glover, the BOAF regional contact for New York (see id., at p. 11), to verify that the BOAF no longer funds the March of Dimes as represented in the Advertisements. In response, Ms. Glover first mailed the person a copy of the Advertisements, including the funding guidelines and the prohibition against funding national health organizations. Upon receipt of the Advertisements, the PETA member telephoned Ms. Glover to inquire specifically about the status of the BOAF’s support for the March of Dimes. Ms. Glover informed the person that, in fact, the BOAF does still fund the March of Dimes through its local affiliates and also funds the American Cancer Society, another national health organization,contrary to the plain language of the Advertisements that state unequivocally the BOAF’s prohibition of gifts to such ineligible organizations. Therefore, the Advertisements are materially false and deceptive.

20. The consumers most likely to be misled by the Advertisements are those conscientious and compassionate people who reasonably do not want to provide their banking business (and the corresponding direct financial support) to a bank that donates millions of dollars to an organization that funds experiments on animals. Being misled by the Advertisements is an entirely reasonable response by such consumers, as the Advertisements specifically and affirmatively state that national health organizations like the March of Dimes that conduct experiments on animals are specifically excluded from receiving BOAF funds, and the Advertisements omit any mention of the BOAF’s contributions to the March of Dimes contrary to the Advertisements. When the Advertisements are taken at face value by reasonable consumers, this omission precludes them from discovering that the Advertisements are false. 21. The materiality of the Advertisements’ deception is apparent. Whether the BOAF does or does not provide unrestricted financial support to the March of Dimes and other national health organizations that conduct or fund experiments on animals is a simple yes or no question, and the reasonable consumer is eminently entitled to rely on the untruthful negative response contained in the Advertisements, precisely because of this simplicity.

CONCLUSION 22. The essence of our laws prohibiting deceptive advertising is the right of consumers to make informed purchasing decisions, including the selection of banking services. The BOAF Advertisements induce consumers to make decisions based on misinformation by purposely and grossly misrepresenting and hiding the BOAF’s support for the March of Dimes and other organizations that fund animal experimentation. 23. The BOAF’s deceptive Advertisements injure compassionate consumers and PETA requests that the Commission take all appropriate action to prohibit these and any similarly false and misleading advertisements. Respectfully submitted,

Jeffrey S. Kerr, Esq. General Counsel, People for the Ethical Treatment of Animals, Inc. 501 Front St. Norfolk, VA 23510 Tel: 757-622-7382, Ext. 1490 Fax: 757-622-0457