New FTC Regulations on Word of Mouth Marketing (Updated)
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Written By Kate Zimmermann | December 13, 2006 | Share This
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The Federal Trade Commission is trying to stamp some accountability on Word of Mouth marketing. Yesterday, the FTC announced that anyone being paid to solicit a brand must disclose that relationship. While this is meant to encourage some transparency on social networking sites, it could also affect affiliate marketing networks.
Word of Mouth Marketing is “a term used to describe activities that companies undertake to generate personal recommendations as well as referrals for brand names, products and services.” Online, it’s especially prominent in social media circles, such as on blogs, Myspace, Yelp, or any other site that posts consumer reviews. Many online businesses have recently emerged, like Pay per Post and BzzAgent, that broker paid reviews between companies and users. Critics claim that such WOMM tactics are misleading to the consumer. Advocates, on the other hand, say that users are free to give positive or negative reviews, and that only a small fraction of WOMM reviews are paid.
Regardless, the FTC believes that WOMM is deceptive if users are lead to believe that endorsements are independently made. Violators will be dealt with on a case-by-case basis, with consequences that “could include a cease-and-desist order, fines and civil penalties ranging from thousands of dollars to millions of dollars.”
So far there’s been little protest to the FTC announcement. Some bloggers are worried that the FTC’s warning will put them at higher risk of being sued, but marketers and regulators both agree that disclosing sponsorship is a good thing. In light of consumer backlash against Edelman’s Walmart blog and Sony’s PSP blog, it’s clear that being ‘outed’ for undercover sponsorship does more damage to brand reputation than it contributes to brand visibility and sales. Certainly the ruling could hurt affiliate businesses that are modeled entirely on posting “independent” endorsements, but as CopyBlogger writes, “The real issue is not what affiliates can or cannot get away with. It’s whether the companies and affiliate networks that recruit and pay affiliates will make disclosure part of their terms and conditions due to fear of an FTC or state action.”
UPDATE
For clarification - the FTC did not issue any new guidelines nor initiate an investigation into companies using word of mouth marketing. The announcement was merely to draw attention to the fact that violators of Section 5 of the FTC act could face legal consequences. Their violations, however, will still be dealt with on a case-by-case basis, which as ClickZ writes, “won’t change a whole lot.”
(another) UPDATE
After publication of this post, Joe Chernov, Director of Communications for BzzAgent contacted me to further clarify, “We do not pay any consumer, nor do we require any participant in our system to endorse any product.” He added, “It is worth noting that the author of the FTC’s letter, Mary Engel, spoke this week at the Word of Mouth Marketing Association’s Symposium (which I attended) and she was asked explicitly if rewards (a program which BzzAgent, like many other ethical word-of-mouth organizations, offers) is tantamount to cash. Engle responded that it is not. Specifically she said there is “a difference between being paid cash and being given an incentive.”" An extended version of our correspondence has been published in the comments of this post.
Topics: Advertising: Offline, Advertising: Online, Legal Issues, Social Media |
This is a pretty big move — is this the same for other media - e.g. print/tv/radio? What about being given freebies in return for publicity (commonplace in all forms of media)?
I am the director of communications for BzzAgent, and I am writing to let you know that your blog post titled “New FTC Regulations on Word of Mouth Marketing” contains several errors. Please allow me to point out only the egregious. And please permit me to urge you to correct the misleading and potentially damaging content.
The first inaccuracy is the claim that the FTC issued “new regulations”
or “new rules”. There were no new regulations issued. The FTC made public a Staff Opinion Letter. The letter in fact stated that they would not issue guidance in this area, but rather existing covering commercial endorsements apply to marketers that pay cash to consumers to endorse products. This isn’t the exacting of new rules, but the application of old rules.
The second inaccuracy is related to the first, but merits special attention. And that is the characterization that “the Federal Trade Commission is trying to stamp some accountability on Word of Mouth marketing.” The Letter is addressed to watchdog group Commercial Alert, and the letter rejects the groups request for an investigation of buzz marketers and a plea for formal guidance. If the emphasis of the letter is to deny the petition, how can one reasonably conclude that the Commission is trying to “stamp some accountability”? Your conclusion is simply not supported by the document, itself.
The third inaccuracy is the most damaging because it grossly misrepresents a company’s business model. As you have likely expected given my position, my third concern has to do with your characterization of BzzAgent. You state that BzzAgent pays consumers and you suggest that we run afoul of these “new rules.” Neither is factual. We do not pay any consumer, nor do we require any participant in our system to endorse any product. It is worth noting that the author of the FTC’s letter, Mary Engel, spoke this week at the Word of Mouth Marketing Association’s Symposium (which I attended) and she was asked explicitly if rewards (a program which BzzAgent, like many other ethical word-of-mouth organizations, offers) is tantamount to cash. Engle responded that it is not. Specifically she said there is “a difference between being paid cash and being given an incentive.”
Nevertheless, BzzAgent requires all of our unpaid consumer volunteers to disclose the receipt of any goods affiliated with the marketing campaign, which means that we far exceed even the most conservative interpretation of the FTC’s standards for lawful word of mouth marketing.
I understand this is a very new industry that is filled with many companies with very vague business models. I also understand that reporting on government legislation is a specialty of the highest order.
I do hope you will consider strongly my request for you to publish an alternative version of your FTC article, one that is more reflective of the facts. Your many blogs link to yours, and it is very disconcerting to have such damaging misinformation so easily accessible via Technorati.
Joe Chernov, Director of Communications
BzzAgent, Inc. | http://www.bzzagent.com
One point of clarification. The comments posted above, while authored by me, were sent to Ms. Zimmermann via email. It was my goal to urge her to re-characterize BzzAgent in the article itself, in light of the fact that we never pay our volunteers. Instead, she posted my email to this site and added a second update to the foot of the article.
In our verbal discussion Ms. Zimmermann declined to change the post’s language regarding BzzAgent’s business model. I then permitted my email to remain live in the comments field as it was the only option available to ensure the facts were made public.
Kind regards,
Joe Chernov
Director of Communications
BzzAgent