In this lesson, you will learn about the political and legal environment of marketing. Learn which federal legislation, state laws and regulatory agencies have an effect on businesses.
Breaking the Law
Detective Lombardo has been called to an emergency town meeting! He is needed ASAP to educate businesses on the political and legal environment of marketing. Why? It seems like many local places are not informed and are running into trouble with the law!
One local company just had their magnetic toy product recalled by a large agency. This recall was the result of kids being injured. The company now has to handle the logistics of the recall and very poor public relations.
Why Are Laws Needed?
Why are laws needed? Detective Lombardo's first task of the meeting was to explain to the business owners that laws are important for protection and growth. Governmental laws protect businesses' interests and they can also protect one business from another business. Most importantly, laws help protect consumers. Marketing managers must be aware of the laws in order to successfully and legally execute the marketing mix. There are three main areas that Detective Lombardo will cover tonight to make sure that all of the businesses in town stay out of trouble with the law.
Detective Lombardo introduced major federal laws that can affect the marketing decisions of a company. The first law he discussed was the Sherman Act of 1890. This act makes monopolies or attempts to monopolize illegal, and it ensures fair competition. The next law is the Robinson-Patman Act of 1936, and this makes it illegal to offer different prices to different buyers of merchandise of like grade and quality. The Federal Trade Commission Act of 1914, the Hart-Scott-Rodino Act and the Celler-Kefauver Antimerger Act of 1950 all were passed to regulate the competitive environment. These acts give the federal government more power to approve corporate mergers and maintain the correct competitive business balance.
Recent CPSC recalls include hazardous humidifiers, toys, and bunk beds.
Detective Lombardo also insisted that the community investigate state laws. Each state has different laws for companies to follow. For example, in California, the state has passed laws to lower energy consumption on an assortment of appliances. It is important to keep updated on state government changes within the state the business is located.
Detective Lombardo then introduced the regulatory agencies. These agencies are known to pursue businesses that violate regulatory laws. He spent the most time briefing the marketing managers about three specific agencies.
The Consumer Product Safety Commission (CPSC) is a federal agency established to protect the health and safety of consumers in and around their homes. This agency sets safety standards for all consumer products. They can impose large financial fines on companies and even send corporate executives to jail. They're allowed to ban products, and every year they recall over 400 different products due to safety issues. Just this year alone, they recalled products such as baby seats that resulted in skull fractures, dehumidifiers that caught fire, toys that were choking hazards and certain bunk beds that have been known to break apart. Detective Lombardo stressed that trying to evade the safety laws can lead to injured consumers, fines and bad public relations.
The Federal Trade Commission (FTC) is another federal agency empowered to prevent persons or corporations from using unfair methods of competition in commerce. The agency can investigate unfair company mergers and deceptive advertising. Recently the FTC went after Reebok for advertising that their EasyTone and RunTone shoes actually toned a consumer's body. There was no proof in this claim, and Reebok ended up having to pay $25 million for customer refunds.
The last agency Detective Lombardo briefed the executives on was the Food and Drug Administration. This agency handles regulations against selling and distributing misbranded or hazardous food and drug products. The agency has gone against the tobacco industry for years and has recently decided to target fast food companies due to the increase in obesity. The agency wants fast food companies to publish calories and fat content of their products to educate consumers about what they're eating.
Detective Lombardo finished the session by reminding the executives to keep abreast about new federal, state and regulatory laws. They also need to be ready to handle recalls of their product if an agency ever requests such an action. Most importantly, it is imperative to create products that follow current laws and will provide safety to consumers.
After watching this lesson, you should be able to:
- Identify some federal regulations that affect businesses
- Summarize the functions of the Consumer Product Safety Commission, the Federal Trade Commission and the Food and Drug Administration