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Truth in Advertising

Truth in Advertising

Author: James Howard

Determine the type of false advertising used by businesses.

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Hello and welcome to this tutorial on truth in advertising. And as always with these tutorials, please feel free to fast forward, pause, or rewind as many times as you need in order to get the most out of the time that you're going to spend here. So let me ask you a question, how do you know if what's advertised is real? Are there instances where companies will take advantage of advertising or your lack of knowledge of something to make a claim the just isn't true? Well, let me ask another question. Have you ever done something where you haven't divulged everything about a particular thing you're going to sell or something that you told someone a little white lie, for instance?

What we're going to be looking at in this tutorial is going to be truth in advertising. We're also going to be looking at ethics in pricing. Now the key term for this lesson is going to be "truth in advertising." So let's get started with truth in advertising and the definition.

Truth in advertising is a requirement by the Federal Trade Commission that advertising does not make fraudulent or deceitful claims. Well, what's fraudulent and deceitful, you might ask? Well, let's say I have a food item and I'm going to claim that I have natural supplements. Natural supplements, these are things that are not heavily regulated like medicines, things like vitamins, things like that.

What harm could this possibly have? Well, because it's not heavily regulated by the FDA, companies are freer to claim certain health benefits that haven't been backed by scientific research. So we start to enter into a little gray area here with natural supplements as far as what is truth in advertising. Is it truthful as far as they believe or is it truthful in fact?

There's a great case that's kind of an example of something called colloidal silver. It was sold as a natural supplement for people to help cure various ailments. And this one gentleman decided he was going to take this for a long, long, long time. He took a lot of this stuff. Well, there's not really any dosing protocols for colloidal silver. So when he took it after years and years and years his skin turned blue.

Now I know what you're thinking, it's got a blue tinge to it or there's a little blue around the mouth or something like that. No, no, he looked like a six foot tall, 65-year-old Papa Smurf. His skin was as blue as the screen that you're looking at. Now he said he felt greatly except for his skin turning blue. Now, did the company know that people's skin would turn blue? Well, probably not. But if they did they didn't advertise it. So my question to you is, were they being truthful in their advertising?

Other examples would be things like something called a bait and switch that's obviously a patently false form of advertising. And what bait and switch is, is when a store will advertise a certain item that they know is out of stock at a particular price to get people to come into the store. Then when they get in the store they will try to sell them something else that's more expensive. And this is patently false and also illegal.

Now when we get into food items there's other things here, coloring for instance. Companies will add food coloring to certain items to make them more appealing to the customer. They'll also kind of hide the portion size from you with the packaging size. You'll notice over time the amount of chips in a chip bag has gotten smaller and smaller. The chip bag stays the same, but the amount inside gets smaller.

And there's also something called angel dusting. Now angel dusting is when someone puts a healthy or beneficial active ingredient in something, but it's not really enough to do anything. There's a certain breath mint company out there that used to advertise their breath mints contained something called retsyn. Well, retsyn was this awesome thing, but no one really knew what it was, all we knew was it was retsyn. Well, retsyn is actually vegetable oil, and it doesn't really do much, but it could claim that it contained this wondrous product with this really neat sounding name called retsyn.

Another example of patently false advertising is going out of business sales or sales that kind of give you a false impression as to what's going on. You ever wonder how certain electronic items can be sold so cheaply around Christmastime? How they're able to accomplish this is they get bulk orders from the manufacturer.

Now the regular price that the retailer advertises was never the intended price of that item for that particular season. So they'll advertise a price that's higher than they were meaning to charge because of the price they got on the item. Then they can sell it to you at what they intended to sell it to you at and advertise it as a huge discount.

Now, this is not just limited to Christmas. There are other stores out there who do this. Now, it's not technically illegal to do it, but I wonder if it's ethical. And we'll get into ethics in pricing here in just a second.

The last one we're going to look at is going out of business sales. Ever seen these, going out of business? Now, a lot of these are well, they're real. But there was a furniture company back home when I was growing up and they had a going out of business sale every week for about five years. It's amazing how they stayed in business. And I wonder if they were being truthful in their advertising that they were actually going out of business.

So let's talk about ethics in pricing for a sec. What is ethical pricing? Well, don't companies have to make a profit? And won't customers stop buying something when the price gets too high? So how can ethics get into pricing? Well, there are certain restrictions that companies cannot do, price gouging is one of them.

Now you hear this a lot with staples like milk, bread, gasoline, around the time of a emergencies where the price rapidly goes up. But is it price gouging or are they simply anticipating higher costs to get that goods? And in some cases it actually does cost them more to replace that product on the shelf, so they charge the customer more in order to be able to replace that product or get it in a timely fashion to fulfill that need.

But if you're taking advantage of a situation where you're the only game in town and you're simply pricing something that's incredibly unreasonable like $10 gas when I've got 10,000 gallons of gas under the ground and I've got another five trucks waiting, there's not really a shortage there. That's price gouging. And in some states, it's actually illegal.

Now there are some gray areas here, as you can imagine. If you've paid attention to the discussion we've had so far, there's grey area with pricing and what is actually truthful and not. A lot of times it doesn't necessarily have to do with what's legal, it has to do with what's ethical, which as we know, can be very, very different. I could be following the law and still be unethical.

What about movie popcorn? Why does it cost $6 to have a bag of popcorn at a movie? Well, one of the reasons is that's how the movie theater makes their money and stays in business. They don't make a lot of money on the actual ticket sales, believe it or not, a lot of that money goes back to the studio. So when they get you inside the movie theater and trapped they want to sell you refreshments. And they're going to charge a premium for you to buy those.

Go back to the gasoline for a second. If it actually cost me that much money to get that gallon of gasoline and I pass that cost on to the consumer, the company is trapped or the retailer is trapped by the price you're having to pay for the gasoline. Now for a customer that might seem like a lot of money, but it costs that much money to get the gasoline.

So here again, just because something looks like price gouging, it doesn't necessarily mean it is. And that's why it's so difficult to define, and another reason why only some states consider this practice illegal and not every state, because you have a very tough time with this grey area as far as what price gouging really is. Interesting discussion, huh?

Well, what did we talk about in this lesson? We talked about truth in advertising. We also looked at ethics in pricing and how those two kind of overlap. What is truthful and what's not? What it is being deceitful? Is saying you're going out of business when you're really not going out of business deceitful? Is an unethical? And is it deceitful enough to be considered illegal?

Well, what about ethics in pricing? Natural disasters, if it costs me more to actually get that product in is it really price gouging to charge more for that product or should I take that loss because the people really need this product at a reasonable and fair price? Food for thought.

As always, I want to thank you for joining me. I hope you had a good time and I'll see you next time.

Terms to Know
Truth in Advertising

A requirement by the Federal Trade Commission that advertising does not make fraudulent or deceitful claims.