False Advertising as an Ethical Problem in Business

Introduction: The Ethics of Deceptive Advertising

False advertising is a serious ethical problem because it gives an unfair advantage to companies that promote a product or service in ways that may be unwarranted relative to rivals in the market. Through deceptive advertising, companies try to win more customers — or at least attract them to their product or service. It is only after consumers actually use the product that they learn the truth. In the meantime, customers lose money, competitors lose business, and trust is eroded. For these reasons, false advertising is strictly prohibited by law, even though it remains a common practice.

The reason false advertising continues to prevail is that while the law forbids false claims, the operative legal term is deception, which makes it far more complex to determine which ads are false and which are merely deceptive. The law does not allow advertisers to make deceptive claims that would affect a consumer's purchasing decision, but how that standard differs from outright false advertising is not easy to understand. Coleman (2001) sheds light on the complexity of this legal terminology:

Legal Definitions and the Complexity of False Advertising

"We spend billions of dollars a year on advertising and false advertising is one of the best known forms of fraud and deception. Who hasn't seen an advertisement that seems patently false or bought a product whose performance fell far short of the promoter's claims? But the legal definition of false advertising is much more generous to advertisers than most people assume. Although common sense would tell us that false advertising consists of the use of untrue statements in advertising, the law uses a different standard. It is not falsity but deception in advertising that is illegal. [This] means that the deceptive advertisement must somehow affect the purchasing decision of the customer." (pp. 24–25)

Whether an advertisement is false or deceptive makes little difference to a customer who has been cheated. For that consumer, the fact remains that it was a misleading advertisement that cost them money and betrayed their trust. This is a highly unethical business practice, yet even some of the biggest names in business have resorted to such illegal tactics to attract customers.

One prominent recent example is the YAZ birth control commercial — a case in which even the manufacturer acknowledged on television that it needed to make corrections at the direction of the FDA. Bayer, the world leader in pharmaceuticals, manufactures YAZ, which is the most popular birth control pill in the United States. YAZ commercials indicated that the pill does more than offer contraceptive protection, claiming it also helps with acne and PMS problems. The FDA later forced YAZ to correct "a few points" in its commercials, and a revised commercial was aired. It was a rare occasion when the FDA mandated a corrective campaign and required Bayer to spend $20 million on corrective advertising. As reported by Singer (2009): "Regulators say the ads overstated the drug's ability to improve women's moods and clear up acne, while playing down its potential health risks. Under a settlement with the states, Bayer agreed last Friday to spend at least $20 million on the campaign and for the next six years to submit all Yaz ads for federal screening before they appear."

The idea of correcting false claims has given consumers better control over such situations. Previously, advertisers were only required to stop showing a deceptive ad. It was during the 1970s that the Federal Trade Commission (FTC) made it mandatory in certain cases for advertisers not only to cease the commercials but also to run a corrective campaign. The practice of false advertising has persisted for decades; the first case brought to the attention of the FTC occurred in the 1950s, when Colgate-Palmolive made misleading claims about its shaving cream (Pratkanis, p. 115). Since then, laws have become stricter, even if they have not been able to completely stop misleading claims.

High-Profile Cases: YAZ, Match.com, and Yahoo Personals

Another high-profile example emerged in 2005, when Match.com was sued over alleged "date bait" techniques. A resident of Los Angeles alleged that Match.com used fake profiles and sham e-mails to lure people into paying a subscription fee of $29.99 a month. He named a specific individual as a Match.com employee who was used as "date bait" to keep him subscribed. The case was filed on November 10, 2005, in the U.S. District Court in Los Angeles. Match.com denied the charges, and the named individual issued an affidavit stating she had never been an employee or contract worker of Match.com or its parent company, InterActive Corporation.

In a separate case that same year, a Florida resident accused Yahoo Personals of unfair trade practices by inflating the number of potential date-seekers through false entries in its databases. Both Match.com and Yahoo Personals were paid subscription services, and the profits they generated were substantial. Given high profitability, business managers may be tempted to use tactics that push the boundaries of what is legally permissible.

There were multiple problems with the business practices of both companies. Match.com claimed that 20,000 new people join the site every day — a claim impossible to verify. Even if that number were accurate, there is no way to confirm that some users were not duplicating their profiles. There is also the persistent problem of inactive members: both Yahoo and Match.com must acknowledge that many listed members are not active, making claims of large active membership equally dubious.

The ethics involved in Yahoo's case concern professional dishonesty. If members are displayed as active contacts but cannot be reached because they have not paid their monthly subscription, users are left with the impression that the dating service is being deceptive. The company's excuse — that former members are allowed to renew within a fixed grace period and cannot be removed until that period expires — does little to address the misleading impression created. The Match.com case is even more troubling, as the allegations describe clear-cut fraud: if found correct, the company would be guilty of cheating its members, misusing its employees, and misrepresenting its size for financial gain. Hiring individuals to engage members in fake romantic interest could even be construed as operating an illegal escort agency.

If the allegations against both companies are correct, they are in breach of advertising and trading ethics. FTC guidelines require advertisers to tell the truth and not mislead consumers; deceptive or unfair practices in business and advertising are prohibited. Sellers are responsible for the claims they make about their products and services. Businesses are not permitted to withhold material facts, particularly when a consumer is likely to make incorrect assumptions. Bait advertising — in which a seller promotes an attractive product with no genuine intention to sell it — is also against the law (Advertising, 2001).

Although larger, well-known companies generally take steps to avoid legal violations and steer clear of grossly unethical practices, it is not unlikely that individual regional managers might try to boost sales targets by manipulating membership numbers or using marketing techniques that exploit customers — such as sending enticing fake e-mails just before a membership renewal date.