Allstate: Trying to fool investors?

In a new ad for Allstate, the actor Dennis Haysbert scoffs, "These days, money market funds are paying less than two percent, so forget return on investment. Let's talk about return on insurance." He goes on to say that Allstate will pay you back up to five percent of your premium at the end of the year. So insurance is a better "investment"?

Come on now. Do money market funds ever offer a big return, relative to other options? They typically pay just a couple of points above the short-term interest rates set by the Federal Reserve, because they're very safe investments. That means when the Fed's rates are low, so are money market rates. But the reverse is also true.

So, if the Fed had short-term interest rates at 6 percent, and money market funds were paying 8 percent - much more than Allstate's end-of-year "return" - would Haysbert change his tune? Actually, his comment wouldn't be any more relevant. If money market funds are paying 8 percent, corporate bonds are likely to be paying 10 percent or more. That means money market funds don't stack up any better in terms of "return on investment", whether the Fed sets rates low or high.

Allstate's "return" is actually a way to charge different premiums to people at different risk levels, ex post. If you don't have an accident, you pay less. Sound familiar? That's exactly the kind of "lemon-dropping" that was just made illegal for health insurance companies by the new health care reform.

P.S. One other thing - a certain company called Allstate Bank offers money market accounts of their own... and they only pay 0.35 percent.

Cash4Gold: The deception continues

Now Cash4Gold has a new pitch (see my earlier indictment of their advertising here). They're offering a $50 "bonus" to anyone who sends in their old jewelry for a cash payment. A bonus over what? They don't tell you how they appraise the jewelry they receive. It seems very unlikely that they've actually changed the relationship between the amounts they pay and the prices of the precious metals they harvest. Rather, they've probably just decided to call the last $50 of each payment a "bonus", hoping that people who were on the fence about sending in their jewelry will now do so. Cynical.

Sonic: No free tater tots!

It's an old economic chestnut that there's no free lunch. Anything that's worth something generally costs something - even if it's just the effort that it takes to pick an apple off a tree. And one of the most common deceptive practices in advertising is the idea that you can buy something and then get something else free. The word "free" usually doesn't belong.

A current exemplar of this unfortunate phenomenon is the fast-food chain Sonic, whose television ads are offering a "free" medium order of tater tots with the purchase of a double cheeseburger. The fact is, anyone who takes advantage of this deal is still paying one price for two items; Sonic simply decided to charge a lower price for this combination during the promotional period. In principle, that's fine - advertising based on price is one of the forms of publicity that actually provides useful information. But the word "free" is unnecessarily deceptive. Just try ordering the "free" tots on their own, and see how far you get.

(By the way, does anyone actually prefer tater tots to fries, even if they are delivered on roller skates?)

The Hartford: Start making sense

The Hartford has joined the parade of insurance companies claiming that people who switch to their car insurance will save lots of money. For an explanation of why such claims are completely disingenuous, see my earlier post on Allstate here. But The Hartford's new television commercial has another problem: it raises more questions than it answers.

The ad makes the big savings claim first, but the supposed clincher comes later. If you switch to The Hartford, the ad says, the company promises not to "drop" you. Of course, the actors in the commercial don't bother to specify under what circumstances or for how long this promise applies, but the really bizarre part is the context. At the very beginning of the commercial, an offscreen voice asks several actors how long they've had their current insurance. The actors say eight to ten years, or so long that they can't remember. But if that's true, are these make-believe people really in danger of being "dropped"? Their current make-believe insurers certainly don't seem to think so. I have to ask, why does The Hartford even need to make this claim? Is the company notorious for dropping people after they have accidents? That's something real customers would probably want to know.

Cisco Systems: What if the MAYOR is a fake?

If you've read my previous post, then you already know that I'm concerned about people posing as experts and endorsing products. Add another category of deliberate deception: people posing as authority figures and endorsing products. Cisco Systems is running a television ad in which the actress Ellen Page supposedly returns to her hometown of Lunenberg, Nova Scotia. The "mayor" greets her and enthusiastically shows her the small town's new police department, which consists of a room with one officer and a Cisco-supplied system of electronic surveillance.

The problem is, he's not really the mayor. The real mayor of Lunenberg is the Rev. Lawrence Mawhinney, a Presbyterian minister who has worn the mayoral hat since 1979. So, does the real mayor actually endorse Cisco's products? Does he know that a younger, bald man is impersonating him on American television? Does Lunenberg even have a high-tech surveillance system made by Cisco?

Your guess is as good as mine. However, I did find out that Lunenberg does not have its own police department. The city relies on the Mounties instead.

Taco Bell: Can you tell the expert is a fake?

Plenty of television commercials contain dramatizations and ridiculous situations that can't possibly be real. But when a commercial skirts the line between reality and make-believe, does it become deceptive? I think it can, especially when the protagonist is portrayed as an expert who recommends the product being peddled.

To wit: Taco Bell is running a television ad with a supposed "shrimp blogger" who discovers the chain's new shrimp taco. It's so good, he says, that he doesn't know whether to blog about it or keep it to himself. Is this obviously ridiculous? Not quite. It's entirely possible that someone in the world blogs only about shrimp. Could a post on a blog cause Taco Bell to sell out of its shrimp tacos? Well, if the mainstream media picked it up, then sure, why not?

The problem is, some consumers might actually believe that this rugged gentleman with an antipodean accent really is an expert on shrimp. He's not - he claims to have blogged about and eaten something called a "Hercules shrimp", which doesn't exist. But what consumer would have gone to the trouble to check that little factoid? If any consumers do end up believing that Taco Bell has found a real shrimp expert to recommend their product, then this is deliberate, or at least negligent, deception.

American Beverage Association: They WHAT?

New York State is considering a tax on sugary soft drinks, and the American Beverage Association (you can guess who funds them) is running television ads opposing the tax. The ads have a man described as a New York minimarket owner saying that the tax will hurt his customers and his business. In fact, he says, his customers are on such tight budgets that "the majority of them" come into his shop with "notepads and calculators." Really?

Actually, it doesn't matter if he's exaggerating. The state is considering the tax because some politicians think that sugary soft drinks contribute to obesity, which ends up costing taxpayers money through higher costs in government health insurance. If the politicians are right, sugary soft drinks are like cigarettes and alcohol; consuming them makes other people worse off, so it's better for society if you don't consume as many of them as you'd like. That's the argument that the American Beverage Association should be trying to disprove, with scientific research and budgetary studies. But they're not - they're talking about notepads and calculators instead.

U.S. Marine Corps: Not so exclusive after all

The Marine Corps has a relatively new ad campaign called "America's Few" (read about it here). Television spots currently airing claim that many Americans will hear the call to serve, but few will become Marines. That's not exactly true. Figures from past years (I found various sources from the 1980s through 2000, though only anecdotal sources for more recent years) suggest that 85 to 90 percent of recruits do in fact make it through training and become Marines. The vast majority of those who don't are rejected for medical reasons. Now, this may be a testament to the effectiveness of military training or the selectiveness of military recruiting. Indeed, you wouldn't want the Marine Corps's training program to waste a lot of money on recruits who couldn't make the cut. Exclusive, however, it is not.