False Advertising
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Part 1
Company Name: Red Bull
Red Bull Inc. is an Australian based multinational company that produces Red Bull, an energy drink. The firm was founded in 1987 by Dietrich Mateschitz, an entrepreneur that was stirred by Krating Daeng, an energy drink that existed at that time. Dietrich borrowed the product idea and improved it to suit the westerner’s tastes. The company joined with Chaleo to enhance its production capabilities. Red Bull is one of the leading firms in this industry, with approximately 7.5 billion cans purchased in a single year. Red Bull is packed in an elongated and trim blue-silver can. Originally, the drink was sugar-free, having nondescript flavour, but the company started adding more flavours to the drink from 2013 to suit different consumer preferences.
Advertising Message.
Red Bull used misleading information that assisted in increasing awareness about its product and attracting consumers. The firm claimed that its product would give its consumers wings to fly.
Investigation
The investigation into the matter was conducted by the Federal Trade Commission (FTC), an agency that promotes consumer protection and implementation of antitrust law in the United States (Investopedia, 2019).
The outcome of the Investigation
The company’s slogan that promised its consumers wings to fly was found to be deceptive. The company agreed to settle the prosed compensation fees passed by the courts.
Part 2
Analysis of the Investigation and the Outcome.
The deceptive lawsuit regarding Red Bull’s advertising was started by Benjamin Careathers, a U.S. consumer who filed the case in one of the courts (Boothroyd, 2014). The consumer believed that the firm’s slogan was dishonest, citing various pieces of shreds of evidence to show that Red Bull could actually not give consumers wings to fly.
Benjamin maintained that the company’s slogan was not stating the clear benefits of the drink to consumers. According to him, he understood that the product was only capable of providing extra energy that was a little bit higher than a normal cup of coffee to individuals rather than giving him or her wings to fly.
During his individual investigations, Benjamin found the reason behind filing a lawsuit. He discovered that the drink contained fewer quantities of caffeine that were even less than a normal coffee cup.
According to the Company’s corporate website, a single 250ml can of Red bull contained equal quantities of caffeine as a mug of coffee that is about 80mg.
After hearing the case, the presiding magistrate agreed with his decision and stated that the company engaged in false advertising. He termed its actions as being deceptive and fake even though the company stated that it was a form of marketing for its product.
Although there was insufficient scientific evidence to support the assertion that the company branded energy drinks offer extra benefits to users more than what a cup of coffee could do, the firm’s defendants determinedly market their commodity as a superior basis of energy that deserves a premium price.
The Federal Trade Commission joined the matter and found that Red bull was indeed guilty of its charges. Despite this, the company confessed no misconduct. The company issued its defence statement to a website and magazine Bevnet intended at the beverage business. The company said that it decided to settle the lawsuit not because it was guilty but because it wanted to avoid distraction and the cost of litigation.
The firm also insisted that its marketing and classification have often been straightforward and precise and denied any liabilities.
During the investigations, all affected consumers who wanted compensation were asked to submit their forms to the courts. Additionally, no proof of purchase, such as till receipt, was required, but they were only required to recall the purchase period from 2001 to October 2014.
Red Bull agreed to settle a $13 million compensation fee with every affected individual expected to receive $10 cash or an equivalent of $15 value of Red Bull goods. Further to this, the firm agreed to cover legal costs amounting to $4.75.
Was the outcome fair?
The outcome of the case was viewed differently by both parties. To the complainant’s side, the outcome was fair since they were deceived and felt very disappointed. Their expectations regarding increased performance, reaction and speed were never fulfilled and, as a result, incurred various damages and costs. They were purchasing this product to gain the stated benefits which failed to occur.
On the contrary, the decision by the court did not favour Red Bull. The company believed that it was using the approach to bolster their marketing approach; hence he agreed for the settlement to evade further costs.
However, due to a lack of evidence regarding the drink’s contents and its evidence, the court’s decisions were fair and just.
Was it satisfactory?
Absolutely, the outcome was suitable since the affected parties were able to get the compensation they deserved. They deserved this because the company misled them and failed to fulfil their expectations. They were determined to acquire the stated benefits as they spend their cash. Also, by agreeing to the terms, the company showed that it was comfortable with the ruling.
Why false advertising can increase profits in the short run, but ruin a business in the long run?
Businesses practice false advertising to increase gains. Though this approach is dangerous to a company, especially in the future. In the short run, companies can gain a lot of benefits by engaging in false advertising practices that omit some essential information, conceal some facts or utilize misleading information images to acquire customers that will make purchases. Indeed false advertising makes products more appealing to consumers hence driving them to make quick purchases. Deceptive advertisements drive consumers to make uninformed decisions that will make them spend on goods or services that will not settle their demands (Xie, Madrigal, & Boush, 2015). The results is, more sales and profits to the business while innocent buyers suffer the side effects. However, when such practices are disclosed to the public, the outcome is a spoilt reputation that kills the customer’s trust and loyalty. This will, in turn, shift to other brands hence limiting its success. Instead of building a dependable customer base, false advertising creates a shakable consumer base.
Additionally, companies can incur extreme financial losses that could permanently damage their operations. For example, if a business is found guilty to have engaged in unethical activities, it may be directed to remove its ads hence wasting all the funds that had been invested. Also, a negative reputation reduces future prospects, a trend that could easily render the business doomed. Moreover, a business could incur higher litigation fees when investigated, transforming to further losses that could not be easily regained.
References
Boothroyd, A. (2014, October). Red Bull to pay $US13 million over alleged false advertising. Food Magazine; . Retrieved August 27, 2020, from https://search.proquest.com/docview/1619173701?accountid=151051
Investopedia. (2019, March 26). Investopedia Stock Analysis – Valueclick: A Short History of the U.S. Federal Trade Commission. (Newstex) Retrieved August 27, 2020, from Newstex Finance & Accounting Blogs; Chatham: https://search.proquest.com/docview/2247398684?accountid=151051
Xie, G.-x., Madrigal, R., & Boush, D. M. (2015, July). Disentangling the Effects of Perceived Deception and Anticipated Harm on Consumer Responses to Deceptive Advertising. Journal of Business Ethics: JBE; , 129(2), 281-293. doi:http://dx.doi.org/10.1007/s10551-014-2155-2