50 Years of Advertising Industry Self-Regulation

The Biggest Hidden Secret in Advertising 

On May 18, 1971, the National Advertising Review Board (NARB) and its investigative arm, the National Advertising Division (NAD), are formed. 

About NAD & NARB

More Visibility, More Complaints 

A meteoric rise in the number of American households with TVs combined with the growth of cable TV led brands to compete for consumer attention. The consumerism movement began to mount well-publicized attacks on the business community and advertising. While leaders in the advertising industry rejected the sweeping indictments, they felt there was sufficient evidence of poor, or even indefensible practices to warrant action. The former Council of Better Business Bureaus worked closely with executives from the American Association of Advertising Agencies (4A’s), the Association of National Advertisers (ANA), and the American Advertising Federation (AAF) to develop plans for an advertising self-regulatory system later named the National Advertising Review Board (NARB).

The First Four Years: Part Cop, Part Conscience 

A key to the operating success of NARB was the National Advertising Division (NAD), designated the investigative arm of NARB, responsible for monitoring and evaluating the truth and transparency of national advertising through a combination of independent monitoring and competitor disputes. NAD analyzes evidence and makes decisions on complaints, which then can be appealed to NARB. Each complaint is reviewed and evaluated on its own merits, establishing precedent, and released to the public for full transparency about the details of all case actions. 

Expansion of the Advertising Self-Regulatory Model 

In response to mounting political pressure from consumer organizations, the Federal Trade Commission (FTC) established a subcommittee to draft a code governing advertising directed at children. The advertising community came together to establish a solution, a new sister program to NAD, the Children’s Advertising Review Unit (CARU), established in June 1974. CARU was tasked with monitoring the unique children's marketplace for advertising that is misleading, inappropriate, or inconsistent with laws and guidelines, and taking enforcement action where necessary. 

About CARU 

"The best example of self-regulation that I am aware of in American industry.” Former Federal Trade Commission Chairman Robert Pitofsky 

Before moving on, listen to the podcast With Great Power Comes Great Responsibility, which helps explain the differences between self-regulation and independent, industry self-regulation. 

FTC Support for Industry Self-Regulation Grows 

Many felt that the FTC was overly aggressive in its consumer protection mission during the 1970s. With the Reagan Administration the FTC's priorities shifted course. For example, efforts to increase regulation of advertising to children were curtailed. Instead, NAD, NARB, and CARU worked in tandem with the FTC to promote truth in advertising. In 1981, The Federal Communications Commission gave infomercials a comeback, by lifting the prohibition on program-length advertisements, and the infomercial become one of the fastest-growing areas in cable TV advertising. 

“Year in and year out major national advertisers agree to comply with [NAD] decisions, which demonstrates how strongly the industry as a whole values truthful standards. Moreover, the fact that this system acts in sixty days and handles hundreds of cases that would otherwise clog the courts and agencies produces real benefits to businesses, consumers, and government." Former FTC Chairman Janet Steiger 

Let’s Get Digital: Advertising is Introduced to the World Wide Web 

With the introduction of the world wide web in the 1990s came a new medium for advertising, the Internet – and with this came a new set of issues. As early as 1996, regulators, legislators, and consumer advocates were sounding the alarm. Google launched in 1998. By this time, NAD had heard more than 3,300 cases, with voluntary compliance of NAD's recommendations in more than 90% of cases. Internet ad spend was around $300 million in the U.S., increasing 263% by the start of the next decade. The 90's were a game changer. 

1994: The first banner ad appears on Hotwired.com, the same year NAD holds its first Annual Conference. 

The first banner ad was purchased by AT&T ($30k for a 12-week ad). 

1995: The first internet-based ad was brought before NAD for self-regulatory review. NAD began regularly monitoring the internet for misleading advertising and reviewing the advertising of internet providers as well. 

"The Internet as a new marketing phenomenon has brought a renewed focus and urgency to questions regarding personal privacy and to what extent it can or should be protected. Marketers may soon be able to microtarget consumers and collect and use richly-detailed personal information based in part on where the consumer browses the Internet.” Former FTC Chairman Janet Steiger 

Increased Advertising Opportunities Lead to New Lanes of Self-Regulation 

In another fast-paced decade for advertising, when Google launched AdWords (2000), Facebook went live (2004), and Apple unveiled the first iPhone (2007), industry self-regulation took on new, targeted areas of the marketplace in need of reform. Towards the end of this decade, to combat the invention and quick growth of online behavioral advertising, the same associations that established NAD and NARB came back together, joining with others newer to the marketplace, to tackle this new challenge. 
 

NAD Reviews First Banner Ad 

In 2001, NAD reviewed its first internet banner advertisement. The banner ad used a misleading user interface, a practice that would come to be known as a "dark pattern" on the internet. The ad was for Bonzi Buddy's InternetBOOST and was designed to look like a Microsoft Windows error message containing many familiar icons and components of the real thing. The text of the ad warned "Your Internet Connection is Not Optimized." NAD was concerned that consumers may reasonably interpret the advertisement to be a real warning from their computer. As more than 90% of advertisers are, Bonzi Buddy was cooperative throughout the self-regulatory process and followed NAD's recommendation to revise the ad. 

A decade after infomercials got a boost from deregulation, the Electronic Retailing Self-Regulatory Program (ERSP), backed by the Electronic Retailing Association (ERA), was established to build consumer trust in direct-to-consumer advertising, like infomercials and shopping channels. ERA was confident that industry self-regulation could increase the truthfulness of the market. In 2006 the Council for Responsible Nutrition (CRN) took a similar step and partnered with NAD to review dietary supplement advertising so that consumers were not promised benefits the products could not deliver. This industry self-regulation partnership lasted successfully for more than 15 years. 

“I would like to congratulate the National Advertising Division and the Council for Responsible Nutrition on the success of their 10-year partnership. The CRN/NAD initiative shows just how impactful meaningful self-regulation can be.” Edith Ramirez, former FTC Chairwoman 

Growing Concerns Over Childhood Obesity 

In 2006, the successful CARU program had proven its ability to curb negative practices in the children's advertising and privacy landscape and was called upon by the FTC to tackle a new challenge: childhood obesity. The FTC saw an opportunity to tackle this challenge via the foods that were marketed to children. The food and beverage industry, in partnership with CARU, helped establish a new program called the Children's Food and Beverage Advertising Initiative (CFBAI) to establish new principles and nutrition criteria for marketing food or beverages to children under age 12.  

About CFBAI 

Online Behavioral Advertising 

In 2009 the founders of NAD and NARB reconvened 40 years later to address advertising's new consumer protection challenge: online behavioral advertising. The group established the Self-Regulatory Principles for Online Behavioral Advertising in an effort to better foster transparency, knowledge, and choice for consumers. The Principles outline the importance of providing consumers with 'enhanced notice' for behavioral advertising so consumers know when they are being tracked online. The Digital Advertising Alliance was entrusted with guidance over the Principles and established the Digital Advertising Accountability Program (DAAP) as the third-party watchdog to enforce them. 

About DAAP 

Customer Empowerment: Influencer and Native Advertising 

In the 2010s, advertising appeared everywhere. Advertisers were no longer limited by the boundaries of TV, radio, or out of home advertising. Now advertising was in your newsfeed, on social media, and carried everywhere with you on your phone. Integrated campaigns could reach consumers wherever they were, with narratives and persuasive messaging that flowed from platform to platform. This immersive new landscape presented a host of new challenges for ad law. 

A New Name for an Old Problem 

Buzzfeed seamlessly weaved advertising into its editorial content with advertising that looked and felt like it belonged alongside its lists, quizzes, and news pieces. Other media soon followed their lead and a new term emerged: native advertising. NAD provided early guidance in its cases that made clear this new trend could violate old rules on deceptively formatted advertising if consumers did not know when they were looking at advertising. 

NAD’s first native advertising challenge 

Consumers also grew more autonomous in making purchases. The increasing ease of accessing information on the internet led people to research on their own, rather than rely on advertisers or salespeople to guide them. Consumers turned to influencers and peers for product recommendations and reviews. The new reliance on influencer marketing and consumer reviews presented additional challenges for ad law. Quickly, industries used NAD to hold each other to truth and transparency standards when using influencers and consumer reviews in their advertising. 

As ecommerce and on-demand services took hold, consumers gained further independence. These trends have fundamentally shifted the marketing landscape, completing the transition from push to pull. 

Growing steadily since 2001, this new marketplace included the birth of a new era for the direct selling industry, which gained new momentum on social media. When the industry began to draw new criticism, leaders across the industry determined "it's time for not just evolution, but revolution." The Direct Selling Self-Regulatory Council (DSSRC) was established in 2019 as a result of a collaborative effort led by the Direct Selling Association. This new third-party watchdog was designed to proactively monitor the marketplace, develop and enforce program standards, and promote truth and transparency, including on social media platforms. 

About DSSRC 

With everyday people using new platforms like social media, blogs, and online reviews, consumers became empowered like never before. No longer were brands controlling the conversation. No longer could frustrated voices be silenced. As the decade came to a close, brands are increasingly expected to be socially conscious and do more than just talk the talk. As brands use advertising to take these stances and make their claims, our system of self-regulation will help keep those claims truthful.