Business · 3 Marketing

3.4.1 Legal controls related to marketing

Before you start

Promotion (3.3.4): sales promotions such as special offers and discounts, and advertising such as social media, targeted emails, leaflets and billboards.
Product (3.3.1): packaging and brand image.
The role of marketing includes maintaining customer loyalty and building customer relationships (3.1.1). A business caught misleading its customers damages exactly these.
Ecommerce (3.3.5): customers buying online cannot see or test a product before they pay.
Legal controls over employment issues (2.1.2): the same idea — the law setting minimum standards a business must meet — applied there to employees and here to customers.

Syllabus objectives covered (2)

the purpose of legal controls to protect customers: misleading promotion, faulty goods
the effects of legal controls on marketing

Part 1 of 6

Why customers need legal protection

When a customer buys something, the business nearly always knows more about the product than the customer does: what is really in it, how well it has been tested, how long it will last. The customer has to rely on what the business tells them — on the label, in the advert, from the sales assistant.
Most businesses are honest, because they want customers to come back. But a business trying to raise sales quickly has a reason to exaggerate, and one trying to cut costs has a reason to cut corners on quality. Legal controls exist so that customers are protected when that happens.
The syllabus names two things customers are protected from: misleading promotion and faulty goods. Those are the two you must be able to explain.
Laws differ from country to country, and the syllabus does not name any particular law, so you are not expected to quote the name of one. What you need is the purpose of the controls (objective 1) and their effects on a business's marketing (objective 2).

Part 2 of 6

Misleading promotion

Misleading promotion is advertising, labelling or other promotion that gives customers a false or inaccurate impression of a product — what it does, what it contains, how much it costs, or how it compares with others — so that they buy something they would not otherwise have bought, or pay more than they expected.
Examples of the kind of promotion that legal controls aim to stop. A claim that is not true: a face cream advertised as removing all wrinkles in 7 days when it does not. A false 'sale': 'was 80 dollars, now 40 dollars' when it was never sold at 80. Hidden charges: an advertised price that leaves out compulsory fees added at the checkout.
More examples. Misleading pictures or packaging: a photograph far bigger or better than the real product, or a large box that is mostly empty. False labels: 'sugar-free' or 'organic' when the product is not.
The purpose of controls on misleading promotion. First, customers can make informed choices, because the information they rely on is accurate. Second, customers do not waste money on products that cannot do what was claimed.
Third — easy to forget, and useful for analysis — honest businesses are protected. If a rival can claim its batteries last twice as long when they do not, an honest business loses customers it deserved to keep. Controls on misleading promotion make competition fairer.
Trap: persuasive is not the same as misleading. Promotion is meant to persuade — bright colours, exciting music, a well-known person using the product. Legal controls do not stop a business persuading; they aim to stop it giving customers false information that they rely on when they buy.

Part 3 of 6

Faulty goods

Faulty goods are products that do not work properly, are damaged, are not of an acceptable quality, or do not match their description. A kettle whose switch breaks after a week; a phone charger that overheats; a jacket sold as waterproof that lets rain through.
Some faults are only annoying. Others are dangerous: an electrical product that could catch fire, a toy with small parts that come loose, food that makes people ill. The customer cannot test for these risks before buying — which is exactly why the law steps in.
The purpose of controls on faulty goods. Customers get what they paid for. A customer who receives a faulty product can have it put right — typically by a repair, a replacement or a refund, though the exact rights depend on the country's laws. And customers are protected from products that could injure them.
Controls also give businesses a strong reason to check quality before goods reach customers, because putting a fault right afterwards is far more expensive.
Trap: a product the customer simply does not like is not faulty. Shoes that fit and work but turn out to be the wrong colour for the buyer are not faulty goods. Whether she can return them depends on the seller's returns policy and local rules, not on the protection against faulty goods.

Part 4 of 6

Effects of legal controls on marketing, through the four Ps

The second objective is about the business: what changes in its marketing because these laws exist. The clearest way to find effects is to go through the four Ps.
Promotion. Adverts, labels and offers must be accurate. The business must be able to back up claims such as 'battery lasts 10 hours', which may mean paying for tests before an advert runs. Adverts may have to be less dramatic, and may need checking before release, which takes time and money.
Product. Products must meet quality and safety standards, so the business may need better materials, more testing and more quality checks. Labels and packaging must be accurate. That raises the cost of each unit and can delay a launch.
Price. Prices must be shown honestly — no fake 'was' prices, no hidden fees. And the extra costs of testing and quality control either push up the price customers pay, or reduce the profit margin if the price stays the same.
Place. Wherever the product is sold — its own shop, a retailer, a website — faulty goods have to be dealt with when customers bring or send them back. For an online seller that can mean arranging and paying for items to be returned.
If the law is broken. The business may be fined, have to pay compensation, have to withdraw an advert, or have to recall a faulty product — contacting customers and taking back the units sold. On top of the direct cost, bad publicity damages the brand image, customers stop trusting it, and sales fall.

Part 5 of 6

Not only costs: how legal controls can help a business

It is easy to write that legal controls are simply a cost. A strong answer, and any evaluation, sees the other side.
Customer trust. Customers are more willing to buy — especially online, where they cannot see the product — if they know claims must be true and faulty goods can be put right. That can increase sales across the whole market.
Fair competition. An honest business is protected from rivals who would otherwise win customers with false claims, so it can compete on genuine quality.
Reputation. A business that goes beyond the minimum — clear labels, easy returns — can use that in its own promotion to build loyalty.
Fewer expensive disasters. The quality checks the law pushes a business into are much cheaper than a product recall, a fine, or a scandal spreading on social media.
So the effect depends on the business. For one whose adverts are already truthful and whose quality is high, the controls cost little and protect it from dishonest rivals. For one that relies on exaggerated claims or has a high fault rate, the controls force costly changes. Use the stem to decide which kind of business you are looking at.

Part 6 of 6

Writing an effects answer that scores

First, check which objective the question is testing. 'Customers are protected from false adverts' is a purpose — objective 1, the customer's side. 'The business has to change its adverts, which costs money' is an effect on marketing — objective 2, the business's side. Giving a purpose to an effects question answers a different question.
Then build each effect as point, context, consequence. Point [k]: 'the business must make sure its advertising is not misleading'.
Context [app]: 'GlowSkin cannot claim its face cream removes all wrinkles in 7 days unless it has evidence'. The claim and the product come from the stem, so the sentence could only be about GlowSkin.
Consequence [an]: 'so it may have to pay for tests or rewrite the advert without its strongest claim, which increases costs or makes the promotion less persuasive, so fewer customers buy'.
In an 8-mark part (d) asking whether legal controls are more of a benefit or a problem for a business, the evaluation is strongest when it uses what kind of business this is — its claims, its fault rate, its reputation — to decide which side weighs more for this business.

Worked examples

Example 1. GlowSkin sells a face cream for 45 dollars. It advertises on social media with the claim 'Removes all wrinkles in 7 days — guaranteed'. It has no test results to support the claim. Outline two reasons why legal controls on misleading promotion protect GlowSkin's customers. [4]

Show the working

The question asks about the purpose — protecting customers — so every point is about the customer. Outline, 4 marks: point [k] and stem fact [app] for each reason.
Reason 1. Point: customers can make an informed choice based on accurate information. Application: customers would believe the '7 days — guaranteed' claim when deciding whether to buy.
Reason 2 must be different. Point: customers do not waste money on a product that cannot do what is claimed. Application: the cream costs 45 dollars and there is no evidence it removes wrinkles.
Check that the two reasons are not the same idea said twice. The first is about the decision (information); the second is about the money lost.

Answer: 1. Customers can make informed choices using accurate information [k], rather than buying because they believe a claim that all wrinkles will be removed in 7 days, which GlowSkin cannot prove [app]. 2. Customers are protected from wasting money on a product that cannot do what is claimed [k] — each pot of cream costs 45 dollars and there is no evidence that it removes wrinkles [app].

Example 2. ZapCharge sells portable phone chargers online for 25 dollars each. Last year it sold 40 000 chargers. Tests have now found that 2% of the chargers it sold last year can overheat while charging. Explain two effects of legal controls on ZapCharge's marketing. [6]

Show the working

'Effects on marketing' — the business's side. Explain, 6 marks: knowledge, application, analysis for each of two effects.
Work out the numbers first, because figures make strong application. 2% of 40 000 is $0.02 \times 40 000 = 800$ chargers. If every one is refunded at 25 dollars, that is $800 \times 25 = 20 000$ dollars.
Effect 1 (product / place). Knowledge: faulty goods must be repaired, replaced or refunded, or recalled if dangerous. Application: 800 chargers that can overheat; sold online. Analysis: refunds of up to 20 000 dollars plus the cost of returns, which reduces profit.
Effect 2 (product / price). Knowledge: it must meet safety standards, so more testing and quality checks before selling. Application: overheating is a safety risk in a product people leave charging. Analysis: higher cost per charger, so either the 25-dollar price rises or the profit margin falls.
Possible third effect, if you need another: promotion — ZapCharge must not describe the chargers as safe or reliable without evidence, and bad publicity from the fault could reduce sales. Two are enough here; do not write a third.

Answer: 1. Legal controls mean ZapCharge must put right faulty goods, and recall any that are dangerous [k]. About 800 of the chargers it sold last year can overheat [app], so refunding them at 25 dollars each could cost up to 20 000 dollars, plus the cost of collecting chargers bought online, which reduces its profit [an]. 2. ZapCharge must make sure its products meet safety standards [k], and chargers that overheat are a fire risk [app], so it will have to spend more on testing and quality checks, which increases the cost of each charger, so it must either raise its 25-dollar price or accept a lower profit margin [an].

Example 3. Use the ZapCharge information above. In addition: ZapCharge has many online reviews that praise its fast delivery, and several of its competitors sell cheaper chargers with no safety information. Do you think legal controls on marketing are more of a benefit than a problem for ZapCharge? Justify your answer. [8]

Show the working

Plan: one benefit and one problem, each developed, then a justified decision. The question is about ZapCharge, the business.
Problem: cost of refunds or a recall. Application: 800 overheating chargers, up to 20 000 dollars. Analysis: lower profit, and bad publicity may reduce sales.
Benefit: fair competition. Application: competitors sell cheaper chargers with no safety information. Analysis: if those rivals must also meet safety standards, they cannot undercut ZapCharge by cutting corners, so ZapCharge can compete on safety and quality.
Decide, using a fact neither point used: its reputation for fast delivery and good reviews. That is what it has to protect — and handling the fault well is how it protects it.
Make sure the justification does not simply restate '20 000 dollars' or 'fair competition'. It adds the idea that the cost is a one-off, while the benefit continues, and that the reviews show a reputation worth protecting.

Answer: Problem: legal controls mean ZapCharge must put right faulty goods [k]. About 800 of its chargers can overheat, which could cost up to 20 000 dollars in refunds [app], reducing its profit, and news of the fault could reduce its sales [an]. Benefit: legal controls make competition fairer [k]. Several competitors sell cheaper chargers with no safety information [app], so if they must meet the same safety standards they cannot undercut ZapCharge by cutting corners, and ZapCharge can win customers on quality [an]. Decision: I think legal controls are more of a benefit than a problem for ZapCharge [eval]. The refund cost is a one-off, while protection from unsafe, cheaper rivals continues for as long as it trades; and because its many good reviews show customers already trust it, dealing with the fault quickly and openly can keep that reputation instead of losing it [eval].

Where people go wrong

Mistake: Answering an 'effects on marketing' question with the purpose: 'customers are protected from false adverts'.

Instead: Effects are on the business: it must change its adverts, test its products, handle refunds or recalls — with the cost or sales consequence.

The two objectives are different sides of the same laws. Purpose is about the customer; effects are about the business's marketing. Answering the wrong one does not answer the question.

Mistake: Treating all persuasive promotion as misleading.

Instead: Promotion is allowed to persuade. It becomes misleading when it gives customers false information — about what a product does, contains or costs — that they rely on when they buy.

If every attractive advert were misleading, no business could promote anything. The controls target false impressions, not persuasion.

Mistake: Writing that legal controls are only a cost to businesses.

Instead: They also build customer trust, protect honest businesses from dishonest rivals, and push businesses into quality checks that are cheaper than recalls.

An 8-mark question asks you to weigh benefits and problems. An answer that sees only costs has nothing to evaluate against.

Mistake: Thinking you must quote the name of a specific consumer protection law.

Instead: Explain the purpose of the controls and their effects on marketing; the syllabus does not name any law.

Laws differ between countries. What the objectives ask for is understanding of why the controls exist and what they change for a business.

Mistake: Calling any product a customer wants to return 'faulty goods'.

Instead: Faulty goods do not work properly, are damaged, are of unacceptable quality or do not match their description. A working product the customer no longer wants is not faulty.

The protection is against being sold something defective or not as described. A change of mind is handled by the seller's returns policy and local rules, not by that protection.

Check yourself

Define 'misleading promotion'.
Answer
Advertising, labelling or other promotion that gives customers a false or inaccurate impression of a product — for example of what it does, what it contains or how much it costs — so they buy something they otherwise would not, or pay more than they expected.
State three examples of misleading promotion.
Answer
Any three from: a claim about what a product does that is not true; a false 'sale' price that was never charged; hidden compulsory charges left out of the advertised price; pictures or packaging that make the product look bigger or better than it is; false labels such as 'sugar-free' when the product is not.
State two purposes of legal controls on faulty goods.
Answer
Any two from: customers get products that work and are as described; customers can have faulty products put right (typically repair, replacement or refund); customers are protected from unsafe products that could injure them.
One advert says 'The most delicious pizza in town!' Another says 'Contains half the fat of other pizzas' when it actually has the same amount. Which is misleading promotion, and why?
Answer
The second. It gives customers a false fact that they may rely on when choosing a healthier product. The first is persuasive opinion that customers are unlikely to treat as a fact they can check.
Identify one effect of legal controls on each of product, price and promotion.
Answer
Product: must meet safety and quality standards, so more testing and quality checks. Price: prices must be shown honestly, with no fake discounts or hidden charges (and extra costs may push prices up). Promotion: claims must be true and able to be backed up, so adverts may need testing or rewriting.
Explain how legal controls on marketing can benefit an honest business.
Answer
Dishonest rivals cannot win customers with false claims or unsafe cheap products, so the honest business can compete on genuine quality; and customers trust the market more, so they are more willing to buy, which can increase its sales.
A customer buys shoes online. They fit and are not damaged, but she decides she does not like the colour. Are these faulty goods?
Answer
No. The shoes work, are undamaged and match their description. Whether she can return them depends on the seller's returns policy and local rules, not on the protection against faulty goods.

Exam questions

Try each part first. Open the mark scheme after you have written your answer.

Question 1. KettleKing Ltd makes electric kettles. It sells 120 000 kettles a year at 35 dollars each, through large retailers and on its own website. Its adverts say its kettles 'boil in 60 seconds', but in tests a full kettle took 95 seconds. Last year customers returned 240 kettles because the switch stopped working. KettleKing is planning a new advertising campaign on social media and billboards.

(a) Define 'misleading promotion'. 2 marks No calculator

Mark scheme

pt2 Award 2 marks for clear understanding, 1 mark for some understanding. Clear understanding: promotion / advertising / labelling that gives customers a false or inaccurate impression of a product, so they buy something they otherwise would not (2). Some understanding, e.g. lying in adverts / adverts that are not true (1). Do not award examples on their own, as they do not define the term.

(b) Outline two reasons why there are legal controls to protect KettleKing's customers from faulty goods. 4 marks No calculator

Mark scheme

k1 First reason identified, e.g. customers get products that work as they should / customers can have faulty products repaired, replaced or refunded / protects customers from unsafe products / customers do not waste money.
app1 Relevant application of the first reason, e.g. 240 kettles returned because the switch stopped working / kettles cost 35 dollars / an electric kettle boiling water could burn or cause a fire if faulty.
k1 Second, different reason identified.
app1 Relevant application of the second reason. The reference must make sense in relation to the point being made. Accept all valid responses.

(c) Explain two effects of legal controls on KettleKing's marketing. 6 marks No calculator

Mark scheme

k1 First effect identified, e.g. adverts / claims must be accurate / must put right faulty goods / must meet safety standards / may face fines or have to withdraw adverts if the law is broken.
app1 Relevant application of the first effect, e.g. 'boil in 60 seconds' when tests show 95 seconds / 240 kettles returned with faulty switches / new social media and billboard campaign.
an1 Relevant development of the first effect, e.g. so the claim must be changed before the new campaign, making the adverts less persuasive / redesigning the campaign increases costs / refunds of 240 kettles at 35 dollars (8400 dollars) reduce profit.
k1 Second, different effect identified.
app1 Relevant application of the second effect.
an1 Relevant development of the second effect, e.g. more quality checks on switches increase the cost of each kettle, so the price may rise or profit margin fall / bad publicity damages the brand and reduces sales through retailers. Effects must be on KettleKing's marketing, not only on customers. Accept all valid responses.

(d) Do you think the benefits of legal controls on marketing for KettleKing are greater than the problems? Justify your answer. 8 marks No calculator

Mark scheme

k2 Up to 2 marks for identification of relevant points. Benefits, e.g. customer trust / fair competition / protects reputation / encourages quality control that avoids recalls. Problems, e.g. costs of changing adverts / cost of refunds or replacements / cost of testing and quality control / fines and bad publicity if broken.
app2 Up to 2 marks for relevant application, e.g. kettles / 120 000 sold a year / 35 dollars each / large retailers and own website / 'boil in 60 seconds' claim versus 95 seconds / 240 faulty switches / social media and billboard campaign. The reference must make sense in relation to the point being made.
an2 Up to 2 marks for relevant development, e.g. higher costs reduce profit / less persuasive adverts reduce sales / retailers and customers trust the brand so sales continue / fairer competition against rivals making false claims.
eval2 Up to 2 marks for a justified decision about whether the benefits are greater than the problems, which does not repeat earlier points. E.g. the benefits are greater: 240 faulty kettles out of 120 000 is only 0.2%, so the cost of putting them right is small, and correcting the 60-second claim before a large public billboard campaign protects the brand from much more damaging publicity. OR the problems are greater: its main selling point is speed, so if it can no longer claim 60 seconds the new campaign loses its strongest message just as it spends heavily on billboards. Accept all valid justified decisions.

Question 2. Glimmer is a sole trader who makes handmade soaps and bath products and sells them online. She describes all of her products as '100% natural' and 'suitable for sensitive skin'. She has not had the products tested.

(a) Identify two ways a business's promotion could mislead customers. 2 marks No calculator

Mark scheme

pt1 First valid way, e.g. false claims about what a product does or contains / fake sale or discount prices / hidden charges not included in the advertised price / pictures or packaging that make the product look bigger or better / false labels. Only award the first two answers given.
pt1 Second, different valid way. Accept all valid responses.

(b) Explain one advantage and one disadvantage for Glimmer of legal controls on marketing. 6 marks No calculator

Mark scheme

k1 Advantage identified, e.g. customers trust products bought online / fair competition with larger or dishonest sellers / protects her reputation.
app1 Relevant application of the advantage, e.g. customers buying soaps online cannot test them first / handmade, natural products / a sole trader competing with larger cosmetics businesses.
an1 Relevant development of the advantage, e.g. so customers are more willing to buy from a small online seller, increasing her sales / so rivals cannot win customers with false 'natural' claims.
k1 Disadvantage identified, e.g. must be able to prove claims / cost of testing / must change labels or promotion / risk of fines or bad publicity.
app1 Relevant application of the disadvantage, e.g. '100% natural' and 'suitable for sensitive skin' claims / products have not been tested / sole trader.
an1 Relevant development of the disadvantage, e.g. testing is expensive for a sole trader and reduces her profit / removing the claims makes her products less attractive to customers with sensitive skin, so sales may fall. Accept all valid responses.

How this is examined

Whether legal controls on marketing are more of a help or a hindrance to the business in the question.: An 8-mark part (d): 'Do you think the benefits of legal controls on marketing for [business] are greater than the problems? Justify your answer.' One developed problem (refunds, recalls, testing costs, less dramatic adverts — each tied to the stem and ending in higher costs, lower profit or lost sales) and one developed benefit (customer trust, fair competition against dishonest rivals, reputation). Then a decision with a new reason — what kind of business this is: does it rely on exaggerated claims, does it have a high fault rate, does it have a reputation worth protecting?
What legal controls change in a business's marketing.: A 6-mark 'Explain two effects of legal controls on [business]'s marketing'. Effects on the business, not purposes for the customer. Point [k] such as 'must make sure its claims are true' or 'must replace or refund faulty goods'; a stem fact such as the actual claim, the number of faulty units or the price [app]; the consequence — higher costs, lower profit margin, delayed launch, less persuasive advert, fines or bad publicity if broken [an]. Working out a figure from the stem (faulty units × price) makes strong application.
Why customers need protecting from misleading promotion and faulty goods.: A 4-mark 'Outline two reasons why there are legal controls to protect [business]'s customers from…'. Two different purposes, each applied to the stem: informed choices based on accurate information; not wasting money on products that cannot do what is claimed; having faulty goods put right; protection from unsafe products; fair competition. Tie each one to the product, claim or fault in the question.
What misleading promotion is, and what it looks like.: A 2-mark Define of 'misleading promotion', or 'Identify two ways a business's promotion could mislead customers'. Define: a false or inaccurate impression of a product given through advertising, labelling or other promotion, so that customers are misled into buying — for 2; 'lying in adverts' shows only some understanding. An example is not a definition. Identify: two different kinds, such as false claims, fake sale prices, hidden charges, misleading pictures or packaging, false labels.

Words to know

Legal controls: Laws and regulations that set rules a business must follow — here, to protect customers when products are marketed and sold.
Misleading promotion: Advertising, labelling or other promotion that gives customers a false or inaccurate impression of a product, so they buy something they otherwise would not.
Faulty goods: Products that do not work properly, are damaged, are of unacceptable quality or do not match their description.
Product recall: When a business asks customers to return a product that has been found to be faulty or unsafe.
Consumer protection: The general name for laws that protect customers from unfair or unsafe business practices.

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