FTC Regulates Word-of-Mouth Marketing
Even as many of us gear up for campaigns to create a buzz about our issues and candidates on MySpace and other social networks, the FTC yesterday issued a staff opinion that buzz makers that are being paid to promote products must disclose their relationship to the companies paying them. This will clearly affect industry giants like New Media Strategies, who uses paid staff, though not BzzAgent, who use volunteers to create a buzz about client products on online social networks. (Note, revisions here were made as a result of corrections provided from BzzAgent in the comment below.)
For many of NMS’s clients, though, it will be business as usual, as the clients already insist on such disclosures. But for other campaigns, it will definitely force a change.
The question for us, though, is how does the ruling affect advocacy and political campaigns. Yes, political speech is protected by the First Amendment and not covered by laws such as the CAN-SPAM Act, but there are still cultural expectations that we are advised to follow. It may end up that this is one of them. Even though we would not be marketing products, but rather political viewpoints, if we are using paid buzz makers then we should probably comply to avoid any stigma.
That said, I believe that this ruling only further solidifies our need to approach word-of-mouth campaigns in a true grassroots fashion. Rather than hire buzz makers to spread our messages for us, we should be mobilizing our activists to create the buzz. Remember, our activists are volunteers and they do what they do for us because they want to help promote a political or policy message.
Such an approach does not seem to fall under the disclosure rule. They would neither be promoting a product nor receiving compensation. Campaigns may still need to hire organizers to manage and mentor the volunteer activists as they spread the word, but the word would be spread only by the volunteers. The organizer may manage the campaign’s profile page on the social networks, but such a page would naturally include a full disclosure, anyway.
December 14th, 2006 at 12:15 pm
Dear Dr. DigiPol,
My name is Joe Chernov, and I am the director of communications for BzzAgent. I read your blog post and I admire the thoughtfulness of your application of the recent FTC comments on disclosure to advocacy and political campaigns. I do believe, however, that your post contains several material inaccuracies, which I will now bring to your attention.
The first instance of misinformation is the very foundation of your blog. The FTC did not, as you state, issue a “ruling” on disclosure. No new legislation was passed. The Commission simply made public a Staff Opinion Letter, addressed to watchdog group Commercial Alert. Further, the letter indicates that pre-existing guidance (falling under “material connection” guidelines) already addresses the disclosure issue cited in Commercial Alert’s petition. The Commission indicates in the letter that they are not going to publish new guidelines, nor are they going to investigate the word-of-mouth industry.
The second instance of misinformation applies to your reference to BzzAgent. The FTC Letter will not “clearly affect … BzzAgent” (though I do appreciate your characterization of my employer as an “industry giant). The Letter discusses pecuniary compensation for product endorsement. BzzAgent’s model meets neither component of that two-pronged test. We neither pay cash to our volunteers nor do we require any campaign participant endorse a product. Yet despite the fact that BzzAgent operates outside of the focus of this letter, we remain the only company that not only requires volunteers to disclose brand affiliation, we remain (to the best of my knowledge), the only company that proactively expels volunteers who violate this term of service.
An FTC spokesperson presented on Tuesday at the Word of Mouth Marketing Symposium in Washington, DC. The presenter was asked by an observer if product rewards are considered a form of compensation. The spokesperson stated there is “a difference between being paid cash and being given an incentive.” This comment further distances the BzzAgent business model from the spirit of the petition and the FTC’s response.
I very much hope you consider the facts I have detailed above, and moreover, I very much hope you consider publishing a revised version of your blog post. Written as is, it is not only erroneous, but also potentially damaging to a company that is not only adhering to FTC law, but going well beyond the scope of what has been legislated.
Respectfully,
Joe Chernov
Director of Communications
BzzAgent Inc.
December 14th, 2006 at 12:35 pm
John,
Thank you for your detailed comments and corrections. I have made the revisions to the facts you indicated, namely changing my reference to an FTC ruling to a Staff Opinion, and a correction regarding the nature of BzzAgent volunteers.
While the FTC action was a Staff Opinion, not a Rule change, the Post article characterized it as something marketers “must” do. My question, John, is how enforceable is a Staff Opinion. Are they saying “must” as a Christmas wish? Or does the Opinion indicate how the FTC will enforce the behavior within some range of discretion?
Alan
December 14th, 2006 at 12:47 pm
Alan,
Thank you for the thoughtful reply and amended blog post. It is my understanding that what the FTC may enforce is not the Staff Opinion, but rather the existing legislation to which the Letter refers. Specifically, if a marketer pays a consumer to endorse a product or service, that compensation must be disclose, or else the marketer runs the risk of being penalized for violating FTC Law.
What puzzles me is the idea that some marketers persist in believing that duping customers is a productive business practice. Putting ethics and legality aside for a brief moment, why would any marketer think that duping would-be customers is a good way to build loyalty? Such tactics should not only bring legal action against the marketer, but the person orchestrating such programs should also be charged with gross incompetence.
But returning to your original post, I think fascinating food for thought is how First Amendment rights are affected by this Letter. I suppose, if asked, I would urge cause marketers or political promoters to adhere to the same disclosure guidelines as private sector marketers. Not only is it the ethical way to go, but researchers out of Northeastern University have found that when disclosure occurs, the recipient of the “buzz” is about 70% more likely to tell another person about the subject than if disclosure did not occur.
Joe
December 14th, 2006 at 4:36 pm
I agree… political campaigns should always follow the lead of expectations in the commercial sector. I don’t think any advocacy group wants to be the test case arguing that political speech is not SPAM. Even though they would win, it would be bad press.
Also, full disclosure does increase credibility. Knowing the source is paid to promote a product does not invalidate their comments. The comments stand or fall on their own merits, regardless. But to hide renumeration and get caught is the kiss of death.
I have often argued that the internet has created an emerging “full-disclosure society.” With the ability to use Google and other search tools, hiding identity and conflicts of interest have become increasingly hard to do. And getting caught, as I said above, is worse than disclosure.