Managerial Accounting and Legal Aspects of Business

Managerial Accounting and Legal Aspects of Business

The Federal Trade Commission protects customers through the regulation of competition between brands by preventing deceptive, anti-competitive, and unfair business practices. It enforces laws regulating advertisement practices and participates in education and advocacy without burdening legal business activities (Becker, 2015). Business owners must be educated about the Federal Trade Commission to avoid violating its advertising regulations because such violations affect the brand image and result in heavy fines that could limit a business’s profitability. Business owners also need to know the terms of the different sections of the Federal Trade Commission Act to ensure that their activities do not violate the Act because violation could lead to consequences that have a long-term negative impact on the business, such as a bad brand image or a bad business reputation. According to Becker (2015), the sections include deceptive advertising, labelling and packaging laws, and sales. Business owners must also know the complaints handled by the Federal Trade Commission in case they would like to report their competitors’ unfair business practices.

Most businesses, especially those operating in highly competitive markets, engage in deceptive advertising to attract customers. For instance, the Activia yogurt brand used deceptive advertising to persuade customers to purchase its yogurts. The deception included providing false information about the yogurt’s ingredients. The advertisement stated that Activia yogurt had a unique ingredient that could boost the immune system and improve digestion (Heilpern, 2016). The false information was used to justify the yogurt’s high price because the nutritional value of the yogurt was viewed as a strong value proposition. The deceptive advertising resulted in a $45 million fine after customers filed a class action upon discovering that the yogurt had no unique ingredients, as mentioned in the advertisement. The class action also destroyed the brand’s image resulting in reduced sales and profitability.

References

Becker, G. (2015). Federal Trade Commission Act. Wiley Encyclopedia of Management, 1-2. https://doi.org/10.1002/9781118785317.weom080017

Heilpern, W. (2016, March 31). 18 false advertising scandals that cost some brands millions. Business Insider. https://www.businessinsider.com/false-advertising-scandals-2016-3?r=US&IR=T#activia-yogurt-said-it-had-special-bacterial-ingredients-2

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Consumer laws were established to protect purchasers of goods and services.

Respond to the following in a minimum of 175 words:

What purpose does the Federal Trade Commission serve, and why must business owners be educated on Federal Trade Commission practices?
Consider 1 of the following sections of the Federal Trade Commission Act:
Deceptive Advertising
Labeling and Packaging Laws
Sales
Regarding the section you chose, provide an example of when a deceptive practice has been used in business and the consequence(s) for the deceptive practice.