Regulation in the 80's: What Is the Role of Consumer Researchers?

Citation:

Debra L. Scammon and Mary Jane Sheffet (1984) ,"Regulation in the 80's: What Is the Role of Consumer Researchers?", in NA - Advances in Consumer Research Volume 11, eds. Thomas C. Kinnear, Provo, UT : Association for Consumer Research, Pages: 463-465.

Advances in Consumer Research Volume 11, 1984      Pages 463-465

REGULATION IN THE 80'S: WHAT IS THE ROLE OF CONSUMER RESEARCHERS?

Debra L. Scammon, University of Utah

Mary Jane Sheffet, Indiana University

The decade of the 70's saw the evolution of a very important role for consumer researchers in what had previously been undiscovered applications for their output--contribution to the development of regulatory policy and the defense and/or critique of business practices in courts of law. Overcoming some of the traditional obstacles to the use of survey results and findings from experimental studies was no small task. Opponents t reliance on the "hearsay rule" to keep that type of data out of legal proceedings was slowly undermined as the legal community was educated to the scientific nature of sampling, controlled experiments, questionnaire design, data collection, etc. (Morgan 1979).

Toward the latter part of the decade there was a movement toward instituting courses on research methods and analytical tools into law school curricula. Innovative programs such as the degree offered by the University of California at Berkeley in Law and Public Policy integrated a good deal of training in empirical research techniques. Firms specializing in the development of empirical evidence for use in legal proceedings began to spring up, i.e., Stanford Research Institute and Litigation Sciences. Law firms began to use consumer researchers and their techniques to pretest courtroom presentations (Gottschalk 1979). Practicing attorneys were offered in-service training and seminars to aid them in the interpretation of research data -- econometric, behavioral and psychological. At the same time there was an effort on the part of business professional and academic organizations to inform marketing researchers as to the special needs of the legal arena and of the special requirements for research data to be introduced as evidence in courts of law or before regulatory agencies. (See sessions included in the past programs of both American Marketing Association and Association for Consumer Research as well as numerous articles in professional journals).

The reality is that today few questions are addressed in legal analyses of marketing practices that do not include a myriad of documents presenting, critiquing, and rebutting marketing and consumer research, or at the very least, the "expert opinions" of professionals in these fields. Despite the obvious acceptance of marketing and consumer research these "new" uses, researchers must keep up with the currently relevant legal issues and policy questions if they and their work are to remain in high demand. The purpose of this pane; discussion is .o call u?on leaders from the business, government, legal and academic communities to discus the directions they see the application or consumer research in legal proceedings going in the future. As discussion leaders, we would like to suggest a few areas that, from our perspective, may be useful avenues for future research of the members of ACR.

THE REGULATORY CLIMATE

The role of the FTC in regulating competition in the marketplace has been changing over the last ten years and the appointment of James C. Miller III as Chairman has had a major impact on the thinking of the Commission. Chairman Miller has a very different view of the role of government in the regulation of competition than did his predecessor, Michael Pertschuk (Crock 1981, p. 6). Chairman Miller and his counterpart at the Justice Department, William Baxter, see a minimal role for government regulation and believe that if left alone the "free market" will operate efficiently and effectively. However, both Miller and Baxter have stated that when necessary to correct marketplace failures, their agencies would be ready to intervene and correct such failures.

Chairman Miller has been in office for two years and has been involved in some controversies. Congress has been debating on whether to renew or revise the FTC's mandate and Chairman Miller has contributed to the debate by asking for Congressional clarification of "unfair" business practices. To the FTC representatives we would like to ask, what are some of the specific changes in government regulation that have been instituted under Miller and what changes can we look forward to? How will these changes affect marketers and consumer researchers?

MAJOR TRENDS

There appear to be two major trends developing at the FTC which may have a significant impact on how consumer research will be used both by the FTC and by businesses. One is the changing emphasis away from industry-wide Trade Regulation Rules toward more case investigations. The other is a shift in focus away from advertising practices toward more merger, pricing and basic issues of competition. Some general comments from the two panelists from the FTC regarding the priorities establishing these two trends would be useful. Additionally, responses from all of the panelists to some specific questions should help clarify how these trends will affect consumer researchers.

Trade Regulation Rules Versus Cases

There has been a tremendous slowdown in the process of rulemaking at the FTC. In fact, there have been no new rules proposed for quite some time. Does this mean that industry-wide issues and problems will no longer be addressed through Trade Regulation Rules and thus that researchers can no longer hope to contribute to their resolution?

The FTC is currently under Congressional mandate (Regulatory Flexibility Act 1981) to review all rules that have become final and to reevaluate the potential impact of those rules still in process. Will the impact and the cost/benefit evaluations of these rules involve consumer research? Will the evidence necessary to establish actual and potential impacts--both direct and indirect--be different from the research data presented during the rule-making hearings? That is, will studies be constrained by the availability of baseline data? Will time series studies be more important? Will new research methods for assessing and quantifying subjective and psychological impacts be required? Will sampling procedures be affected? Will contract funds be made available to researchers in response to Requests for Proposals from the FTC?

With much less activity in the rule making area, will the Commission be returning to a case-by-case definition of deceptive and unfair business practices? If so, what are some of the FTC's priorities in case investigations? In cases, will a higher priority be placed on expert testimony or empirical research? Or will a combination of both be used in case investigations? Should advertisers be aware o' any standards that the FTC uses in evaluating research evidence?

How will the move toward case investigations influence the preparations made by advertisers and their agencies for establishing ad claims? Will the type and amount of consumer research change? Kill the timing of research efforts change? Will the selection of researchers, i.e., commercial research houses versus academic researchers, be influenced? Will research monitoring the impact of campaigns be more or less important?

For the academic researcher, will opportunities for contributing to FTC activities be enhanced or limited? Will public participation funds still be available for intervenors such as academic researchers? Who will procure the services of academic researchers? What sorts of research will they be hired to perform? Will any changes in research procedures be necessitated?

SPECIFIC PROGRAMS

The two broad areas of activity at the FTC--the regulation of advertising practices and the regulation of competition - offer very different opportunities for consumer researcherS. Information on new programs developing in these two areas should help clarify how consumer researchers can contribute to these public policy activities.

Advertising Practices

Ad Substantiation. Recently there has been a good deal of press regarding the changing standards for ad substantiation. There is some evidence that the FTC is requiring less proof by advertisers to back their claims (Saddler 1983, p. 27). The orders in the Britol-Myers Co. and Sterling Drug Inc. cases handed down in July this year abandoned the criterion of "two clinical studies" to back up claims, the standard which had been established in the 1981 American Home Products case. Additionally, the AHP rule said that even if an ad doesn't mention test data, claims of superiority must be backed by two clinical studies. The 1983 analgesic orders relaxed that rule saying that if the company's ads do not refer to any drug research, it may be able to rely on other kinds of scientific evidence. Further, the FTC said it (the agency) would decide whether the research presented to substantiate a claim is reasonable. There is a hint that an advertiser may no longer be required to possess test data verifying claims prior to making claims so long as such data can be produced should a claim be challenged.

Some people argue that relaxation of the standard will not affect advertising practice since advertisers will still want their ads to be useful, truthful, and credible. Will the change in stance by the FTC with respect to ad substantiation have any impact on the type of claims made by advertisers? On the type of evidence they provide to back up their claims? How will these moves affect the type, amount and timing of research commonly developed by advertisers?

What is the current position (f the FTC regarding the development of standardized research protocols acceptable for substantiation evidence? If standards are developed, will they vary by product category, i.e., tooth paste versus analgesics? By type of claim, i.e., health related versus social acceptance?

Comparative Advertising. Although the FTC has encouraged the use of comparative advertising as a means of increasing the availability of "useful" commercial information, quite a few recent cases have involved allegedly deceptive comparative ads. What are some of the "triggers" the FTC looks for in deciding whether to investigate a firm using comparative ads? Does the choice of competitors matter? The choice of product attributes? The degree of difference between compared brands? Examination of consumers' images of two brands might reveal whether the two brands were perceived by consumers as competitors. Tests of the difference between two brands on an advertised attribute could establish whether the difference was statisticallY significant and also whether the difference was Perceived by consumers as significant. Could consumer research answer questions such as these?

Regulation of Competition

The application of consumer research to the issues relevant in the regulation of competition seems to have lagged behind that in the area of advertising. An obvious question is why consumer research has not been used more in this area? Perhaps two more interesting questions are whether consumer research will be used more extensively in the future, and if so, in what ways it can be useful?

One of the questions always at issue in antitrust cases is the proper definition of the product market. Some of the criteria frequently employed in developing such a definition are product substitutability, functional interchangeability and perceived quality. How can consumer research be used to illuminate these criteria in specific cases? Econometric data are typically used to examine the notion of substitutability - that is, price elasticity, cross elasticity of demand, etc. Could consumer perceptions help refine the conclusions drawn from econometric data?

Could consumer research, or more broadly, marketing research, be used to define product and geographic markets in merger and acquisition cases? Can consumer research be used in evaluating whether a proposed acquisition will broaden a firm's market penetration or whether the new acquisition will cannibalize an existing brand? Could consumer research be helpful in assessing the impact on consumers and on competition of manufacturer-imposed restraints on distribution such as exclusive distributorships, refusals to deal, resale price maintenance agreements? Could consumer research help determine the net impact of restraints of trade on inter- and intra-brand competition and how that impact affects consumers in terms of price and choice in the marketplace?

PRIVATE LITIGATION

Have the Reagan Administration's philosophies really begun to be felt in the marketplace in terms of relaxed governmental enforcement? Has there been any increase in private litigation? Are firms looking for private avenues for protection from anti competitive behavior of their rivals to replace the activity of governmental agencies? For example, are there a greater number of private as opposed to government antitrust suits being filed? Are suits for deceptive comparative advertising being filed on a private basis under the Lanham Act? What other private actions are increasingly being taken? Is the result of private litigation any different than if governmental agencies had been involved? In what ways are the outcomes and the processes different?

INVITATION TO PANELISTS

We have presented some of the questions which have come to our minds relative to the role consumer researchers can play in the formulation and enforcement of public policy regarding marketing. We invite all of the panelists and members of the audience to respond to these questions and to raise other issues they feel are important.

REFERENCES

Crock, Stan (1981), "FTC Chief Miller Questions Agency Role in Consumer Protection, Anti Trust Areas," The Wall Street Journal, Oct. 27, 6.

Gottschalk, Earl C. Jr. (1979), "While More Firms Try Jury Consultants, Debate Grows Over How Much They Help," The Wall Street Journal, Nov. 10.

Morgan, Fred W. (1979), "The Admissibility of Consumer Surveys as Legal Evidence in Courts," Journal of Marketing, 43, 4, 33-40.

Regulatory Flexibility Act, 1981, P.L. 96-354.

Sadler, Jeanne (1983), "FTC Easing Rule Requiring Firms to Support Ad Claims," The Wall Street Journal, July 21, 27.

----------------------------------------