The Costs of Deceptive Advertising

0 Likes

 

Of all the sales practices, deceptive advertising is the subject of much law and business-related consumer research. The practice's inherent unethical marketing element makes it under the scrutiny of both consumers and law-making bodies. On top of this, law enforcement agencies find a growing number of companies into deceptive advertising.

The Federal Trade Commission enforces truth-in-advertising laws, no matter where an ad appears – in newspapers and magazines, online, in the mail, or on billboards or buses. Photo Credit: ftc.gov

In November alone, at least three companies in the country were asked to pay for damages due to advertising deception. Included in the list were Spirit Airlines, Merck & Co., Inc., and HomeServe USA. They were fined from $50 thousand to a whopping $950 million. While authorities are rooting for the deterrence effect of the said monetary fines, more and more businesses are engaging in the practice.

According to the Federal Trade Commission (FTC), deceptive advertising is either the omission of information, which is crucial to a consumer's decision or the inclusion of information, which mislead the consumers in buying or using a product. FTC, by virtue of Federal Trade Commission Act (FTCA), can put into effect a cease and desist order against a company that is found to be running a deceptive ad or advertisement. It can also require the company in question to pay civil penalties, reimbursement to consumers, and other regulatory fines. Moreover, each of the 50 states has consumer protection laws that pertain to deceptive advertising.

All these legal measures thus far show that the government is committed in protecting consumers from unfair and deceptive business practices. It is puzzling, however, that cases of breaking public's trust through deceptive practices is still on the rise. What is with deceptive advertising that it becomes the norm in business promotion? Is it in a small business' best interest to cuckold prospective customers through putting out misleading ads?

A small business manager's decision to utilize deceptive advertising is based on the assumption that it has the capacity to make a difference in sales. In Deceptive and Subliminal Advertising in Corporate America: Value Adder or Value Destroyer?, authors Bahaudin Mujtaba and Arthur Jue confirmed this assumption. Mujitba and Jue said that well-crafted deceptive ad may positively influence consumers' affective impulses, which eventually affect purchasing behavior. They, however, pointed out that the said reinforcement only happens when consumer is not aware of the intention of the ad. Thus, deceptive advertising's positive effect to sales is usually short term. In the long term, it has its adverse consequences, which can be irreparable.

Like Mujtaba and Jue, Michael Phillips and Salli Rasberry, authors of Marketing Without Advertising, believe that advertising is not capable to make a solid customer base, which will determine the lifespan of a small business. As a matter of fact, according to Phillips and Rasberry, more than two-thirds of small businesses in the country, which are in good financial standing, do not buy into the assumed sales magic of advertising. These profitable small businesses rather bank on their reputations, personally knowing their customers, and sometimes, on salespeople or commissioned representatives.

This article is not meant to discredit the functions of advertising in the promotion of a company's products and/or services. Rather, to show that, advertising when utilize to deceive or mislead consumers can work against a small business. Deceptive advertising can indeed offer any firm a faster way to increase sales. However, "faster" does not necessarily mean "smarter". Consumers can be lured in buying products with deceptive ads on the spur of the moment, but its after-effect, when costumers find out that they were duped, can result to great financial loss through one, combination, or all of the factors below:

1.) Expenses to develop and run an ad, which may not be translated to sales. According to the Advertising Coalition, businesses in the country irrespective of size spend $279 billion in advertising annually. Of all media platforms, advertising in television is the most costly. Average cost to run an ad via the medium is $200, 000 for one 30-second commercial during primetime. Added to the said amount are expenses for developing the ad. While businesses bombard consumers with TV ads, 62 percent of the 104 advertisers across 21 major industries surveyed by the Association of National Advertisers (ANA) and Forrester Research Inc. (FRI) expressed lack of confidence in the effectiveness of the method. The said survey was conducted in 2010.

2.) Fine if proven running a deceptive ad. As with the case of Merck & Co., Inc., its misleading ad for the drug, Vioxx, cost the company $950 million. In September, Reebok was fined $25 million in refunds to consumers for its EasyTone and RunTone shoes. Reebok's ad claimed that those products were effective muscle toners. The claim could not be proven, thus, under the FTC's standards, fell within the deceptive ad category.

3.) Legal fees if sued by the consumers and/or government authorities. Legal expenditure is another facet of that mounting financial loss associated with running a deceptive ad. A lawyer or a law firm may charge a good sum of money for legal research to court appearance and other expenses incurred while representing a small business and its owner (s).

While financial loss has its bearing, broken trust and the lost of loyalty among customers are more pressing reasons for a small business not to engage in deceptive advertising. Retaining customers, which is relevant under this economic condition, will be a big challenge for a small business found running a deceptive ad. Loyal customers may switch to or welcome other product/service providers. This attitude change can significantly decrease the repeat or a halt in their purchasing activity and the willingness to recommend a deceptive firm's products/services to other consumers. These implications can effectively work against a small business' long-term profitability.

Employing deceptive advertising is like digging a small business' own pit. It can backfire and shoo the very reason why in the first place a small business runs a misleading ad: to boost sales. In the long run, a small business may find itself at the losing end of that great sales chase because of having business-turn off label, a deceptive organization. Such label can translate to decreased business in the future, and worse, an early retirement for a possibly successful small firm.

 

__

Note: If you are interested in reposting or reprinting one of my blog posts, please check out my Permissions Policy page. Thank you in advance for your cooperation.

 

No Comments Yet.

Leave a comment

Follow

Get every new post delivered to your Inbox

Join other followers: