revised FTC endorsement guidelines require bloggers to disclose "freebies"

On Oct 5 the Federal Trade Commission announced revisions to the guidance it gives advertisers on how to keep their endorsement and testimonial ads in line with the FTC Act. The changes affect testimonial advertisements, celebrity endorsements and bloggers.

The revised Guides include examples to illustrate the principle that “material connections” (payments or free products) between advertisers and endorsers – connections that consumers would not expect – must be disclosed. The examples address what constitutes an endorsement when the message is conveyed by bloggers or other “word-of-mouth” marketers. The revised Guides specify that while decisions will be reached on a case-by-case basis, the post of a blogger who receives cash or in-kind payment to review a product is considered an endorsement. Thus, bloggers who make an endorsement must disclose the material connections they share with the seller of the product or service.

The Guides are administrative interpretations of the law intended to help advertisers comply with the FTC Act; they are not binding law themselves. In any law enforcement action challenging the allegedly deceptive use of testimonials or endorsements, the Commission would have the burden of proving that the challenged conduct violates the FTC Act.

Here are examples citing bloggers related to endorsements and disclosure of material connections

Expert endorsements.
Example 8: A consumer who regularly purchases a particular brand of dog food decides one day to purchase a new, more expensive brand made by the same manufacturer. She writes in her personal blog that the change in diet has made her dog’s fur noticeably softer and shinier, and that in her opinion, the new food definitely is worth the extra money. This posting would not be deemed an endorsement under the Guides.

Assume that rather than purchase the dog food with her own money, the consumer gets it for free because the store routinely tracks her purchases and its computer has generated a coupon for a free trial bag of this new brand. Again, her posting would not be deemed an endorsement under the Guides.

Assume now that the consumer joins a network marketing program under which she periodically receives various products about which she can write reviews if she wants to do so. If she receives a free bag of the new dog food through this program, her positive review would be considered an endorsement under the Guides.

Disclosure of material connections.
Example 7: A college student who has earned a reputation as a video game expert maintains a personal weblog or “blog” where he posts entries about his gaming experiences. Readers of his blog frequently seek his opinions about video game hardware and software. As it has done in the past, the manufacturer of a newly released video game system sends the student a free copy of the system and asks him to write about it on his blog. He tests the new gaming system and writes a favorable review. Because his review is disseminated via a form of consumer-generated media in which his relationship to the advertiser is not inherently obvious, readers are unlikely to know that he has received the video game system free of charge in exchange for his review of the product, and given the value of the video game system, this fact likely would materially affect the credibility they attach to his endorsement. Accordingly, the blogger should clearly and conspicuously disclose that he received the gaming system free of charge. The manufacturer should advise him at the time it provides the gaming system that this connection should be
disclosed, and it should have procedures in place to try to monitor his postings for compliance.

Example 8: An online message board designated for discussions of new music download technology is frequented by MP3 player enthusiasts. They exchange information about new products, utilities, and the functionality of numerous playback devices. Unbeknownst to the message board community, an employee of a leading playback device manufacturer has been posting messages on the discussion board promoting the manufacturer’s product. Knowledge of this poster’s employment likely would affect the weight or credibility of her endorsement. Therefore, the poster should clearly and conspicuously disclose her relationship to the manufacturer to members and readers of the message board.

Example 9: A young man signs up to be part of a “street team” program in which points are awarded each time a team member talks to his or her friends about a particular advertiser’s products. Team members can then exchange their points for prizes, such as concert tickets or electronics. These incentives would materially affect the weight or credibility of the team member’s endorsements. They should be clearly and conspicuously disclosed, and the advertiser should take steps to ensure that these disclosures are being provided.

You can download the new FTC guidelines here. (pdf)

In the interest of full disclosure, last April, I blogged about Pam Slim's book Escape Cubicle Nation, that I received at no cost.

An irresistable upsell - leaves money on the table

I had to refurbish the utility trailer that I use to clean up the autumn leaves from my yard. I stopped in Home Depot to pick up a 1" spade drill bit. I already have a set of spade bits, but my 1" bit was just worn out. I expected to buy a single bit which was priced at $4.69/EA.

I noticed a 3 piece set adjacent to the individual bits at such a bargain price, I simply couldn't pass it up. The package of 3 bits, which included the 1", a 3/4" and a 1/2 inch, was priced at $5.97.
Those are all sizes that I use and my drills are usually dull, but I wasn't looking to replace them today. I couldn't pass up the opportunity to pick up two new bits for an additional $1.28 . The 1/2" and 3/4" bits were priced at $4.19 and $3.70 each. The cost of the 2 extra bits in the bundle was 16% of the individual pieces.

From a differentiation perspective, the shanks on the set are a little shorter than the individual bits. The shank length makes very little difference to me, this will only affect very rare instances when trying to drill through stock that's more than about 4" thick. In fact when I'm using my drill press, the shorter shanks are often easier to work with.

I have to wonder what Irwin and Home Depot were thinking when they priced this set. Here are some ideas:

• It's definitely cheaper to package and deliver 3 bits on one card than one product per card.
• Manufacturing cost is a very small fraction of the retail price.
• Home Depot also offers Rigid auger bits which are a little more expensive than the spade bits. Home Depot sells the 1" diameter Rigid auger bit for $5.97. The Auger bits are promoted as 6x faster than a spade bit, and re-sharpenable. I'm not sure if Irwin was trying to grab more market share by differentiating from the higher Rigid price point.

I had already decided to buy, but boosted my current purchase due to an irresistible upsell. I don't really want Home Depot or Irwin to know, but I would have gone for the upsell if it had only been one additional bit for an extra $1.28. I would say they left some money on the table.

Best,
Chuck