Introduction
In the case discussed in this report the problem discussed is related to advertising and liability in relation to advertisements. Advertising plays an important role in business as it is often through this channel that a business can acquire new customers (Warner 2009, p. 359). In advertising value is created by building a brand image which in turn is useful in selling the product. In the best case scenario an advertisement will help build brand image and sell products.
However, as is common in commerce there is always the possibility of things going awry as is the case in this report. At such times contingency planning is essential and often crucial at maintaining brand image. At the same time there are costs associated with satisfying customers and a good legal background is essential to help the company. For example in an advertisement the parties often place some conditions within the advertisement (Beaty & Samuelson 2006, p. 374).
These conditions may be expressly declared or implied in the advertisement and form the basis of rulings in legal proceedings involving contracts. The court will enforce any condition that the contract may have directly stated or implied (Beaty & Samuelson 2006, p. 374). And also of the condition is not satisfied the court will discharge one party from the obligations of the contract (Beaty & Samuelson 2006, p. 376). For this reason this case will require us to identify any conditions that may exist in the advertisement and the implications of this.
At the same time it should be noted that despite the fact that US law does not recognize the role of good faith in negotiations, it is recognized in the enforcement and performance of a contract (Klass 2010, p. 40). It would be important to consider the bounds of ‘good faith’ in this case to establish the limit of liability and to deal with potential customer complaints. It should be noted that good faith affects both parties in the contract and not just the seller.
Consumer Culture
In understanding the role of advertising in business it is crucial to provide some information on the prevalent culture among the clients. In most developed countries a consumer culture exists which suggests more and more needs are being satisfied through the market (Lury 2011, p. 2). An important indicator of the increase of the trend is the privatization of previously state operated activities such as education and health among others. In addition to this it is observed that the consumer culture is also depicted by a society that indicates shopping as a leisure pursuit.
This culture exists in the UK, USA and other developed countries. Statistics from the UK indicate shopping is second most popular leisure pursuit after watching television. It is estimated that an individual may spend as much as 6 hours per person per week on shopping (Lury 2011, p.2).
By 1987, the UK had more shopping malls than high schools and annual retail sales from such outlets were above $3 trillion. In the US consumer spending is thought to account for more than two thirds of annual economic growth. This data suggests that the huge incentive from sales provides motivation for increased advertising and with that the threat of unfair practices due to competition.
Due to this culture advertising is mainly geared towards the development of brands with increased visibility inside and outside the economy (Lury 2011, p. 3). The development of brands and brand loyalty requires major investments in advertising. This is supported by reports indicating over 20,000 advertisements are seen by children in these countries (Lury 2011, p. 3). It is due to this rapid consumption of products and services that these economies are growing at such an accelerated pace. For those reasons it is crucial for some form of regulation to exist with regard to advertising.
Regulation for Advertising
From the above point it is clear to see that the population that lives in these countries that thrive on consumption can be seriously and adversely affected by advertising in the absence of regulation. For this reason advertising regulation is seen to be connected with ethics and the maintenance of values in the business community (Hackley 2010, p. 241).
The inspiration for regulation in advertising comes from identifying what is good and applying that to the context of social policy. As a result it is concerned with formation of policies that satisfy the largest part of the society. It should be evident that the business community can not be expected to regulate themselves seeing their interests and those of the customers are diverse.
In addition to providing mechanisms to address the issues of consumer protection the regulatory bodies also address ethical issues regarding the industry. This is especially in recent actions with regard to fast food advertising in the US and UK (Lury 2010, p. 241). It has been observed that obesity is on the rise in both countries and it has been suggested it may be due to poor eating habits motivated by excessive advertising of fast foods. In addition to this the regulatory bodies concern themselves with ensuring the content of the advertisement is within acceptable norms of the society.
However, since 1961 the UK has preferred a self regulatory approach to advertising that is aimed for broadcast media such as television and radio (Mackay 2005, p. 333). The non broadcast media such as newspapers, cinema, etc. are still regulated by the ASA (Advertising Standards Authority).
The ASA is concerned with addressing complaints about advertising and just as in the case of Relax Ltd. Before the ASA provide adjudication on a breach they perform investigations to establish whether there was a of the advertising code breach (Mackay 2005, p. 334). In the event of a complaint in relation to the advertisement by Relax Ltd it would be expected that this is procedure that would be followed. Therefore it is essential that Relax Ltd. Adhere to the code and that their reaction be recognized as within the bounds of the code.
Defining a Misleading Advertisement
Having already established that the advertisement is indeed a binding contract between the seller and buyer it is important to establish whether the advert was misleading. Based on law a misleading advert is any that is likely to deceive the person(s) for whom it was intended (Kolah 2002, p. 181). Furthermore a deceptive advertisement is any advertisement that may cause reasonable injury to the consumer which is not reasonably avoidable.
The injury must also not be outweighed by the countervailing benefits to consumers or competition (O’Guinn, Allen & Semenik 2008, p. 128). An example of a misleading advertisement is an advert on slimming products with misleading information on the ingredients. Another form of misleading advertising is any advertising that appears to provide erroneous information
It has also been observed that some businesses are in the habit of presenting advertisements that though are not misleading follow an unethical practice known as bait and switch (Moore, Farrar & Collins 1998, p. 128). Under this mode of business the customer is baited to the store using and advertisement quoting a low price. Once they visit the store the salesperson attempts to switch them to a higher priced product by using the excuse that the advertised product has been sold out (Moore, Farrar & Collins 1998, p. 128).
It is reported that the practice is outlawed in most states it is still practiced by business people. It may be assumed that this attempt by Relax Ltd was a practical example of this unethical business practice. The proponents of such an argument may argue the company had adequate time to prepare the advertisement but opted to use the ‘mistake’ ploy to lure in buyers.
Though the advertisement is difficult to classify as misleading by virtue of its contents, it is difficult to say that it was not manufactured to serve the purpose of luring buyers to the premises. For this reason therefore it becomes crucial that further reading be done with regards to advertising and any legal measures to be instituted.
For an advertisement to be classified as deceptive it is important to note that it has satisfied three important points. These three points have been identified by the Federal Trade Commission (ASA) which can be considered as the authoritative voice when discussing matters of advertising (O’Guinn, Allen & Semenik 2008, p. 127).
The first condition is the advert must contain a representation or omission that is likely to deceive a consumer (O’Guinn, Allen & Semenik 2008, p. 127). As far as the advertisement by relax Ltd is concerned this condition holds. This is based on the fact that the price quoted in the advertisement is not the actual price offered for the furniture in question. This point is deceptive and could be construed as bait whose sole purpose is to lure consumers to the premises.
The second condition is the representation or omissions must be judged from the perspective of a reasonable consumer (O’Guinn, Allen & Semenik 2008, p. 127). This implies that such an assumption of deceit must be built based upon the perceived reaction of a consumer acting reasonably. Once again it would appear that Relax Ltd had the objective of deceiving consumers based on the initial reactions of the consumers. We are assuming that the consumer’s who placed orders and made enquires were all acting within reason.
The third point to consider when identifying deceptive advertising is whether the representation or omission is a material one that would result in loss or injury on the part of a consumer (O’Guinn, Allen & Semenik 2008, p. 127). In the case of Relax Ltd this is the single point that appears to allow us conclude the advertisement was not deceptive.
Despite the advertisement meeting the first two conditions it is clear that it does not meet this condition. Despite the advertisement having already run in the newspaper no client has incurred any losses due to the information. The company has not taken advantage of the situation to reap any material benefits and as such it is difficult to conclude on the intent.
The ASA approach with regard to deceptive advertising is as such because it is as yet difficult to prove or establish what is deceit? At the same time it is necessary to provide some guidelines to prevent the actions of reckless customers.
Reasons behind Deception in Advertising
The use of deceit to market products has become very widespread in the commercial circles of today. This is because it has been established that through effective advertising the business landscape can be changed dramatically. Further the large amount of funds that are required to finance effective marketing campaigns are in short supply (O’Guinn, Allen & Semenik 2008, p. 128). As a result the companies that cannot afford to hold the costly campaigns are forced by circumstances to develop mechanisms to stay alive. Among these approaches is the use of deceptive campaigns.
What makes a contract Binding?
In discussing the case presented in this report it will be crucial that the advertisement is clearly understood. To quickly recap the issues, the advertisement involves an offer that was cancelled due to an erroneous price. The issue is the cancellation was done a day after the advert had run and some responses had been generated. Such an event may cause litigation to recover damages for a breach of contract (Casenote Legal Briefs 2009, p. 64).
Though the cancellation was made it is important that the Company makes an effort to understand the law with regards to contracts to assist in dealing with possible litigation. It has been stated that an advertisement is considered a binding contract when the text leaves nothing open to negotiation (Casenote Legal Briefs 2009, p. 64).
This can be concluded if the facts in the advertisement appear to suggest some performance in exchange for something. In which case the advertisement posted by Relax Ltd can be taken as a binding contract based on the wording used. The advertisement states terms of payment and the number of clients it intends to satisfy under those terms and can be considered to have left nothing to negotiation.
In addition to this fact there are several legal pre conditions that need to be satisfied before a contract becomes legally binding. The first condition is there must be an offer and an acceptance of the offer (Adamson 2008, p. 109). The party making the offer, in this case Relax Ltd is known as the offeror. While the party benefiting from the offer, in this case the readers is known as the offeree (Adamson 2008, p. 109). The terms made in the contract must be definite and accepted without change.
The second condition with relation to contracts that make them legally binding is the requirement of genuine assent. This condition suggests that there must be no pressure between the parties with regard to accepting the contract (Adamson 2008, p. 109). The third condition further insists that the product or service to be offered in the contract must be legal.
The contract can not be considered legal if it involves an illegal action e.g. implied fraud. There is also a requirement that the contract meets the condition of consideration. The condition of consideration requires that both parties receive what is considered as value in some permissible form (Adamson 2008, p. 109).
The fifth condition that is required for a contract to be considered legally binding is both parties must exhibit the capacity to contract for themselves. This position suggests that both parties in the contract are mentally capable of deducing the terms implied in the contract (Adamson 2008, p. 109).
In addition to this it implies both parties must have met the minimum age requirement for persons intending to form a contract. The last condition for the contract to be considered legally binding is the writing itself. Some contracts require documentary evidence that can be used as proof (Adamson 2008, p. 109). In our case the news paper advert is adequate to meet this condition.
Based on the above information it is clear to see that the advertisement meets the criteria that sets it as a legally binding contract. Even when considering the preconditions that make an offer legally enforceable Relax Ltd appears to be bound by the terms of the advertisement. For an offer to be binding there are there conditions namely; offer must have contractual intent, offer must be communicated between parties and essential terms of the offer must be complete and defined (Adamson 2008, p. 110).
Recommended Action: Corrective Advertising
It has been reported that when a firm is guilty or suspected of misleading it clients on of the best approaches is corrective advertising (Shemp 2008, p. 623). The purpose of such an action would be to correct any deceptions that may have been formed in the minds of the customers. This approach has been found to be particularly effective as a deterrent from deception instead of the use of punitive measures (Shemp 2008, p. 623).
This approach has already been followed by Relax Ltd. This can be assumed to be the purpose behind their advertisement in the newspaper the following day to clarify the mistake.
In some instances a company may not take corrective action independently and is then directed to do so. In such cases the intent is to restore the market position to its initial place. An example of this occurred when Novartis Corporation was forced to take corrective advertising measures following the introduction of Doan’s pills (Shemp 2008, p. 623). The company had through advertising depicted a wrong image of competing products and was instructed to take remedial action to correct the situation. This ensures that the company can not continue reaping rewards from deceptive advertising campaigns.
Conclusion
In this report the discussion was in relation to the actions of Relax Ltd and an error that occurred in an advertisement in the local newspaper. Following this the Company required legal advice in relation to the response of three of its prospective customers. It has been recommended that the Company prepare and publish a corrective advertisement that will clarify the error as soon as possible. This, it is hoped will remove the potential claims of guilt on the part of the Company.
In addition it would be wise to respond to the letter from Amy including a reference to this correction and an apology. In reference to the faxes from Chris and Isabel the response with an apology and a reference to the correction should be adequate.
References
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Hackley, C 2010, Advertising and promotion: An integrated marketing communications approach, SAGE publications ltd, London.
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