Following a debacle over payola online positive product reviews involving IT peripherals maker Belkin, the US is considering imposing tight viral/blog marketing controls. Andy James reports from Osborne Clarke’s Silicon Valley office.
Topic: On-line advertising
Who: The Federal Trade Commission
Where: Washington DC, USA
When: Proposals currently under public consultation, guidelines likely during Summer 2009
Law stated as at: 31 May 2009
The FTC has released new proposals for guidelines to regulate word-of-mouth and viral marketing on the internet. Word of Mouth marketing is a term used to describe any activities that companies undertake to generate personal recommendations as well as referrals for brand names, products and services.
The proposals cover any bloggers and other online commentators who are paid to review the products/websites by marketing agents or owners themselves. The key proposal is to make the word-of-mouth marketer and/or bloggers liable for any false or misleading statements which they make about a product they are being paid to promote. Such viral marketers, including those commenting on social networking sites, would need to clearly identify themselves as being paid by the marketer.
Why this matters:
The importance of consumer-led marketing, through product/website reviews and through blogs, social network sites, or others such as Twitter, has increased enormously over the past few years and it is only forecast to increase (PQ Media projects that marketers will spend $3.7 billion on word of mouth marketing in 2011). A new set of companies has emerged to assist manufacturers and distributors engage bloggers and reviewers in relationships by offering rewards or direct payment for positive reviews, or even just to mention their products.
At present, such word of mouth marketing is regulated by the existing FTC rules on commercial endorsements, but the fact that comments and reviews online are normally assumed by consumers to be a genuine report from an uninterested third party consumer means that the FTC feels there is a greater opportunity for misleading and deceptive marketing.
Although the FTC originally raised a flag on this issue in December 2006, occasions have been surfacing recently which have shown that the trust that consumers place in the reviews of their apparent peers is being abused. A perfect example of this was in January where Belkin were forced to issue an apology for an advert offering cash for positive reviews of their products (full details at http://www.marketinglaw.co.uk/articles/2009/11658.asp?).
This emerging trend has meant that the FTC has seen the need to provide updated and specific guidelines for word-of-mouth marketing. The proposals are open to public comment at present and there are arguments on both sides, with the WOMMA (Word of Mouth Marketing Association) tentatively welcoming the proposals (the Association's internal guidelines already promote compliance with the standards proposed by the FTC), whilst the American Association of Advertising Agencies has, rather predictably, proved to be much more sceptical of any further regulations.
The FTC needs to strike a balance between the underlying requirement to protect consumers relying on the blogs and comments posted online, whilst avoiding unnecessary hindrance to the still relatively nascent market for word-of-mouth marketing. The answer to this balancing act may well fall in the emphasis on transparency of marketing practices increasing consumer trust, and therefore benefiting businesses as well as consumers. Where the FTC's guidelines come out on this issue is likely to drive the development of regulation in this new type of marketing elsewhere in the world.