Yesterday the FTC issued its “Guides Concerning the Use of Endorsements and Testimonials in Advertising“. This is the new regulation that covers social media and word of mouth marketing.
As you know, I have been a leading advocate for ethics in word of mouth. After a detailed read of the document, I can say: I’m thrilled with the result.
It is important to note that many members of the social media community have treated this issue as a matter of opinion or intellectual debate. We can all now be clear that proper social media ethics are a matter of law, not personal preference.
Here is my analysis of the regulations:
Introductory Notes
- I am not a lawyer, and this is not legal advice.
- I am CEO of the Social Media Business Council. These statements do not reflect the opinions of the group or its members. The Council is not a policy organization and does not issue positions on legal or policy issues. I am proud of the work our members have done on this topic, particularly our Disclosure Best Practices Toolkit.
- This is a quick analysis of a complex document, and it may contain errors. I’ll update it as further information becomes available.
- Quotes were taken from the official FTC statement (link), and were shortened and summarized considerably. Please refer to the original text.
1. Three Guides for Safe Social Media Outreach
The FTC makes it clear that there are three things you need to do to limit your liability:
- Require disclosure and truthfulness in social media outreach.
- Monitor the conversation and correct misstatements.
- Create social media policies and training programs.
These are exactly the same steps that I have been advising for several years. The Social Media Business Council (http://socialmedia.org) published similar guidance in July 2008.
2. Social media posts are considered sponsored advertising messages and are regulated by the FTC if they meet certain conditions.
When deciding if a post should be considered an advertising message (an “endorsement”), the FTC will look at whether the writer:
- is compensated (cash or in-kind) by the marketer or a third party
- has an ongoing relationship with the marketer
- participates in a word of mouth marketing program that provides products to review publicly
- receives similar products or services regularly, or expects to in the future
3. You must require disclosure and truthfulness from anyone who participates in your social media programs and train them how to do it.
“Advertisers are subject to liability for false or unsubstantiated statements made through endorsements, or for failing to disclose material connections between themselves and their endorsers.”
You can protect yourself by insisting that participants in your social media programs comply with the law and training them how to do it. The FTC specifically says this step may limit potential liability and will be considered in any prosecution.
Your must require disclosure: “Advertisers who sponsor these endorsers (either by providing free products – directly or through a middleman – or otherwise) in order to generate positive word of mouth and spur sales should establish procedures to advise endorsers that they should make the necessary disclosures and to monitor the conduct of those endorsers.”
You are responsible for truthful, substantiated posts: When working with bloggers, “advertisers should provide guidance and training to bloggers concerning the need to ensure that statements they make are truthful and substantiated.”
4. Disclosure must be meaningful.
Disclosure must be “clear and conspicuous” — understandable to the “average consumer.” This has always been the FTC standard.
That means that hidden or unclear disclosure doesn’t count, and may even be interpreted as an attempt to evade the rules.
Carefully investigate any vendor who is instigating blog posts on your behalf and audit the resulting posts for full compliance.
5. Endorsements must be based on real experiences.
Many marketers miss a key concept in staying safe: “Endorsements must reflect the honest opinions, findings, beliefs, or experience of the endorser” (emphasis added).
This means that you should never ask bloggers to write a post about a product they have not actually used. In fact, you are required to stop an endorsement that is being run if an endorser stops using your product:
“When the advertisement represents that the endorser uses the endorsed product, the endorser must have been a bona fide user of it at the time the endorsement was given. Additionally, the advertiser may continue to run the advertisement only so long as it has good reason to believe that the endorser remains a bona fide user of the product.”
Using a service that pays for blog posts without providing a product or experience to the blogger appears to be entirely illegal and should not be done.
6. Monitor the conversation and correct misstatements.
The FTC says that if you start a campaign to encourage endorsements in social media, you are responsible for monitoring and cleaning up any problems.
“A marketer presumably would not have initiated the process that led to endorsements being made in these new media had it not concluded that a financial benefit would accrue from doing so. Therefore, it is responsible for taking the appropriate measures to prevent those endorsements from deceiving consumers.”
A. Fix problems: Marketers are clearly being held responsible for follow-through. You must make a good-faith attempt to correct any deceptive statements: “The advertiser should also monitor bloggers who are being paid to promote its products and take steps necessary to halt the continued publication of deceptive representations when they are discovered.”
B. Claiming that “bloggers can write whatever they want” is not a protection: The FTC specifically rejected this argument: “An advertiser’s lack of control over the specific statement made via these new forms of consumer-generated media would not automatically disqualify that statement from being deemed an endorsement.”
7. When is disclosure required?
The FTC identifies several specific scenarios that mandate disclosure:
Test 1. Is the average consumer likely to understand the relationship?
If there is any chance of confusion, you are obligated to disclose the relationship. The FTC says that there is an increased obligation for disclosure in social media.
“When the connection is not reasonably expected by the audience, such connection must be fully disclosed.” A blog post or a review is not expected to be advertising, so disclosure is required.
Test 2. Are employees making statements?
The FTC makes clear that employees should “clearly and conspicuously” disclose any relationship to the business they represent.
Test 3. Are you giving samples or compensation?
“The threshold issue is whether the speaker’s statement qualifies as an endorsement.” If it meets that criteria, disclosure is warranted, regardless of monetary value.
The FTC specifically states that any blogger who frequently receives samples (or an especially valuable sample) must disclose their connection as a sponsored endorser.
Test 4. Are your endorsers participating in word of mouth marketing programs?
The FTC specifically states that anyone participating in a word of mouth marketing or viral marketing program with the purpose of spreading the word about a product must disclose their relationship. Any mentions are considered sponsored endorsements.
8. Using an agency or service does not protect you.
If you hire a service to get bloggers to endorse you — YOU are responsible. If that service can’t guarantee compliance, watch out, especially if they are offering a mass-posting service with limited monitoring. Their mistake is your brand’s scandal.
“When the advertiser hires a blog advertising agency for the purpose of promoting its products the Commission believes it is reasonable to hold the advertiser responsible.”
You must insist that all parties disclose: You are responsible for the actions of your staff, your vendors, and anyone else working with you to encourage social media endorsements. Insist that all parties meet or exceed your disclosure standards. Get a written commitment from vendors.
9. Policies protect you from prosecution.
Protect your company by establishing clear disclosure policies for your staff, agencies, and subcontractors.
“The Commission agrees that the establishment of appropriate procedures would warrant consideration in its decision as to whether law enforcement action would be an appropriate use of agency resources. The Commission is not aware of any instance in which an enforcement action was brought against a company for the actions of a single ‘rogue’ employee who violated established company policy that adequately covered the conduct in question.”
For more information
Use the Social Media Business Council’s Disclosure Best Practices Toolkit to create policies and understand disclosure issues. You can download it at http://socialmedia.org.
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Wow, this is a great summary! I think these rules can only be good and the only people panicking about them, aren’t following them
Thanks for the wrap up!
I’m so grateful that you invested the time to read that 81 page document and post this summary. You have provided an incredible service to your readers/subscribers. I also agree with Maria’s assessment of people panicking about these rules. Thank you so much!
Good summary Andy. Did you glean much on the penalties?
Gavin Baker
@gavinbaker
I was thinking the same thing as Gavin. When working with folks who may not understand the actual guidelines, they may better understand an itemized list of penalties.
It looks as if we are all converging at the same place. The FTC rules codify that.
The false distinction between payment in cash and other compensation is gone. You take compensation in any form, you have to play by the rules (both the blogger and the marketer). This is as it should be.
Andy – many thanks for publishing this synopsis. It’s a great intro to prep communicators before we dig into the full FTC document.
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