WoM: Word of Mouth Marketing & FTC Advertising Law


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By Mary K. Engle
Federate Trade Commission

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WoM: Word of Mouth Marketing & FTC Advertising Law

  1. 1. Learn more about WOMMA and how we can help you improve your word of mouth marketing program at www.womma.org. (c) 2006 Word of Mouth Marketing Association. You may share this presentation if it is not altered in any way.
  2. 2. Word of Mouth Marketing & FTC Advertising Law Mary K. Engle Associate Director for Advertising Practices Federal Trade Commission
  3. 3. Overview • Disclaimer: The views I express are my own, and not necessarily those of the FTC or any individual Commissioner • FTC jurisdiction & ad law basics • FTC law applied to word of mouth marketing • Commercial Alert complaint • FTC Act deception analysis • Word of mouth and children Slide 3
  4. 4. FTC Basics • Law enforcement agency with broad consumer protection and antitrust authority over most industries • Consumer protection responsibility under Section 5 of the FTC Act, prohibiting “unfair or deceptive acts or practices” in commerce • Includes false or misleading advertising claims • Includes sales and promotional activities Slide 4
  5. 5. FTC Advertising Law • Ads must be truthful and substantiated • Ads are deceptive if they are likely to mislead consumers to their detriment • Express or implied claims can mislead • Ads are evaluated as a whole • Ads are interpreted from standpoint of reasonable consumer • Ad may have more than one reasonable interpretation Slide 5
  6. 6. Word of Mouth Product Claims • Marketers who employ consumers to buzz about their products must comply with the FTC Act • Word of mouth marketers are responsible for their agents’ claims • As with any ad, if word of mouth marketer makes deceptive claims through an agent (e.g., says product can do something it can’t), FTC can bring an action under Section 5 of FTC Act Slide 6
  7. 7. Commercial Alert Petition to FTC • Consumer advocacy group, Commercial Alert, filed petition with FTC • States that it’s deceptive for marketers to pay consumers to buzz about a product without disclosing they’re being paid • Seeks investigation of “buzz marketing” practices • Asks FTC to issue guidelines and bring cases Slide 7
  8. 8. Response to Commercial Alert • FTC staff declined Commercial Alert’s request to issue guidelines specific to word of mouth marketing • Case-by-case investigation and enforcement under Section 5 is adequate to address any deceptive practices • Response letter offers guidance based on existing FTC Guides Slide 8
  9. 9. Response to Commercial Alert • Response letter states that FTC’s Endorsement & Testimonial Guides apply to word of mouth marketing • An endorsement is any advertising message that consumers believe represents the opinions, beliefs, experience, etc. of a person other than the sponsoring advertiser • Paid word of mouth advocacy fits this definition Slide 9
  10. 10. FTC’s Endorsement Guides • Endorsement Guides require disclosure of a connection between a seller and an endorser that might materially affect the weight or credibility of the endorsement • A material connection is one that isn’t reasonably expected by the audience • Examples of such connections include: • Seller is paying endorser • Endorser is related to seller • Endorser is business associate of seller Slide 10
  11. 11. Application of FTC’s Endorsement Guides to Word of Mouth Marketing • Consumers wouldn’t normally expect that another consumer has been paid to talk to them about a product • Consumers may reasonably give more weight to another’s views -- based on assumption that speaker is independent from the seller -- than they would if they knew the speaker was being paid Slide 11
  12. 12. Financial Ties Should Be Disclosed • So: Under the FTC Endorsement Guides, financial tie between seller and paid agent should be disclosed • Examples: • Cell phone company pays college students to buzz about sound quality of speaker phone • Appliance company pays homemakers to buzz about how well its dishwasher cleans without pre- rinsing dishes Slide 12
  13. 13. What If Agents Aren’t Paid? • If word of mouth marketer doesn’t pay its agents, is disclosure necessary? • Depends on whether consumers would give more weight/credibility to endorsement even absent payment • WOMMA’s ethical principles call for disclosure regardless of payment • Good practices and sound ethical principles can go beyond the demands of the law Slide 13
  14. 14. Word of Mouth Marketing and Kids • Commercial Alert also complained about word of mouth marketing by children • Same disclosure principle applies to word of mouth marketers using teens: paid relationships should be disclosed • Whether teen consumers would expect a relationship b/t marketer and agent is considered from ordinary child’s standpoint • There may be situations where kids would find a connection material where adults would not Slide 14
  15. 15. Word of Mouth Marketing and Kids • Commercial Alert complained about kids participating in word of mouth advocacy w/o their parents’ knowledge • If soliciting children under age 13 online, marketers must comply with Children’s Online Privacy Protection Act • Must get parents’ consent to collect personal info • Outside of COPPA, FTC doesn’t enforce any other law that would require parental approval Slide 15
  16. 16. Summary • Word of mouth marketers who pay their agents to talk about their products should require agents to disclose their relationship • With apologies to Andrew Lloyd Webber: “What’s the buzz? Tell me what’s happening… What’s the buzz? Tell me what’s happening… What’s the buzz? Tell me what’s happening…” -- The Apostles, in Jesus Christ Superstar Slide 16