Free items are promotional devices used to attract customers. When a product has a free offer, the price of the pruchased product must not be increased from its regular price. Besides that, if a product is “free” or offered at a lower cost along with the purchase of another item, the advertisement must clearly disclose all terms and conditions of the promotion. Important information like terms affecting the offer’s cost must be placed near the advertised price.
Advertisements promoting rebates should state the before rebate price and the amount of the rebate. This way, consumers have the information they need to make comparisons. Rebate ads should also disclose other conditions and terms including additional fees and when consumers should expect to receive the rebate.
The FTC’s regulations on endorsements state that all endorsements made by celebrities or experts should reflect his or her honest opinion or experience of the product, and not just the experience of a few satisfied customers. The endorsement should not contain any deceptive, unsubstantiated representations. The ad must also disclose if consumers can expect the same results or limited results as the endorser’s experience.
For expert endorsements, the endorser must meet certain qualifications before he or she is considered an expert in the field. Simply being an expert, however, isn’t enough. There has to be an actual evaluation or product testing other experts would normally conduct to support the concludes made in the expert endorsement.
Advertisements on the Internet are subject to the same laws as traditional advertising. All claims made on Internet advertisements have to be substantiated and truthful. Advertisers also need to be aware of privacy issues in internet marketing. The FTC encourages marketers and companies to implement four fair information practices:
1) Give consumers notice about the website’s information practices
2) Offer consumers the choice as to how their identifying information can be used by the website
3) Provide consumers with access to the private information the website collected about them
4) Ensure the security of all private information collected
Marketers also need to be aware of the Children’s Online Privacy Protection Act, which requires verifiable parental consent before using, collecting, or disclosing any personal information about minors.
Ad agencies behind infomercials must need proof that will back up all implied and express claims made by the advertisement about the product. Besides that, the infomercial must not deliberately copy the format of talk shows, news reports, or other independent programs. The FTC also requires that the ad agencies disclose that the program is a paid advertisement during the start of the infomercial and before the ordering information is shown. Since most infomercials feature endorsements from experts and consumers, the FTC also has regulations about the use of endorsements and testimonials. Should the infomercial fail to comply with the FTC’s regulation, the manufacturer and marketer are both held liable.
The Federal Trade Commission Act can impose the following penalties on a deceptive ad, depending on the nature of the violation.
Cease and desist. This legally binding order requires the company to stop running the ad and/or the practice, to pay a fine of $11,000 per day if the company violates the law, to have substantiation for any claims made in future ads and to report these to the FTC.
Civil penalties. This can range from thousands to millions of dollars, depending on the violation. Some advertisers give partial or full refunds to those who purchased their product.
Corrective advertising. Advertisers are required by the law to take down the new ad, correct the misleading information, notify consumers about the deceptive claims, and include disclosures in future ads.
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