Now almost 20 months into operation, what do the original program creators think about the success of ERA’s Electronic Retailing Self-Regulation Program? Are they surprised? Encouraged? Uncertain of the future?

By Molly Alton Mullins

In August 2004, the Electronic Retailing Association (ERA) unveiled to the world the Electronic Retailing Self-Regulation Program (ERSP). This program, which is administered in partnership with the National Advertising Review Council (NARC), seeks to self-police the direct response industry in an effort to remove the most unsubstantiated advertising claims from the airwaves as quickly as possible. As many ERA members can attest, this program’s concept has been in the works for many years, with some experts stating the start of self-regulation goes back to the inception of the association in 1990. However, in early 2003, Linda Goldstein, Jim Lehrburger, Barbara Tulipane and a host of other ERA leaders and industry experts put the pedal to the medal to launch ERSP as a viable and applicable form of industry self-regulation.

CREATING A PROGRAM FROM THE GROUND UP
“The concept of self-regulation really grew out of ERA’s existing self-certification program, which wasn’t doing an adequate enough job in preventing deceptive advertising,” says Linda Goldstein, partner with Manatt, Phelps & Phillips, LLP, in New York City and the chairperson of ERA at the time. “We knew that we needed something with more teeth that was administered independently of ERA, but that also was going to be fast in the review process. It took us a while to fully outline what this program was going to look like, and how it should be structured. And I still think the program is a work in progress, as we constantly are revisiting its criteria to determine if more tweaks need to be made.”

In essence, ERSP strives to review the most egregious DR advertising claims and render a case decision within 60 days. Marketers are given the opportunity to work with the program, provide substantiation for their claims or face an immediate referral to the Federal Trade Commission (FTC) for noncompliance. The program is fast and without an appeals process, and to date has reviewed over 2,400 DR advertisements (see side bar on page 40). Its creators looked to establish a program that worked as quickly as the industry does, and just as effectively.

While Goldstein estimates that she personally devoted 200 to 300 hours to creating ERSP, she is the first to acknowledge that she wasn’t alone in her efforts. Jim Lehrburger, an industry consultant who was the in-house counsel for HSN at the time, also devoted significant resources and energy to getting the program off the ground. “Within ERA, there was always an impetus to create self-regulation, but in my opinion, fear had been holding it back,” he says. “Fear that if we built it [ERSP], it would restrain the very way in which we do business. But I think everyone noticed that the FTC was cracking down on DR and this program seemed like a much better alternative.”

Goldstein is quick to agree to that premise as well. “We wanted the program to ultimately result in fewer FTC inquires. I think that within this industry, [marketers] were frustrated with bad shows driving up media costs, which in turn made it difficult for reputable marketers to keep up. Basically, it became a win-win for both the FTC and the industry,” she adds.

However, overcoming the cost of such a program was difficult for a non-profit trade association, especially one with limited resources like ERA. Through a dues restructuring and donations from members, ERA was able to forge ahead and partner with NARC, which greatly added to the credibility of the program. According to Lehrburger, “The NARC partnership helped us out a lot. Through NARC, (which also sets policies for the National Advertising Division, the National Advertising Review Board and the Children’s Advertising Review Unit) we were able to see models of self-regulation programs that worked for traditional advertising. Through this learning experience, we were able to figure out a way to augment their policies and generate a program all our own.”

According to Goldstein, “The success of a self-regulation program is determined by its compliance rates. NAD has a 99 percent compliance rate-that is why this program is so successful. By creating a program of similar structure, I believe it greatly enhanced our credibility from the very beginning.”

ERA AND NARC: THE INITIAL MEETING
So what did NARC first think when ERA approached them about a self-regulation program? Well, according to Peter Marinello, an attorney with NAD who now is ERSP’s program administrator, his first thoughts were favorable. “I had worked with a lot of DR marketers and for the most part, found them completely committed to doing the right thing, which is to communicate their messages to consumers in an accurate and non-misleading way. The direct response industry is one filled with creative people and it is hardly a surprise that sometimes marketers simply get a little too overzealous with the claims they make for their products. I will say that the high level of participation in the program initially surprised me a bit but, again, the fact that so many companies have chosen to participate only means that they want this program to be successful.”

ERSP has experienced a 94 percent participation rate for the almost 90 cases it has announced at press time. This surprises not just Marinello, but Lehrburger and Goldstein as well. “Well, I won’t say I’m entirely surprised, but this participation rate has exceeded even my most optimistic observations. More than anything, I attribute this success to Peter’s [Marinello] direction; his experience really helped ERSP hit the ground running,” acknowledges Lehrburger.

HAS ERSP LIVED UP TO ITS PROMISES?
While the Federal Trade Commission looks favorably on the concept of self-regulation, a few were skeptical of how successful the program would be for the DR industry. “Well, we thought it [self-regulation] was a great idea, but we understood that there would be significant challenges. An effective self-regulatory program requires resources and commitment. We also understood that there was likely to be a high degree of mistrust within the industry. However, ERA has done an admirable job meeting these challenges,” says Rich Cleland, assistant director of the FTC’s Division of Advertising Practices Bureau of Consumer Protection.

Furthermore, Timothy Muris, former chairman of the FTC and current professor of law at George Mason University, also had his reservations; however he appreciated ERA approaching the Commission for guidance. “I was pleased that this industry was trying to help regulate itself. Moreover, I was put at ease once ERA asked for the FTC’s guidance, as they designed their program complete with clear standards, independent judgment, transparency and meaningful consequences for violators-all of the elements necessary for an effective self-regulatory program,” Muris recalls. “The FTC wants to work with industries, as meaningful self-regulation provides an important complement to the Commission’s law enforcement efforts. I believe that the partnership the FTC had with ERA during this planning process illustrates the benefits of working together.”

For the nine cases that ERSP has referred to the FTC for noncompliance, the Commission’s response to these cases has been impressive. “Referrals from self-regulatory programs are reviewed carefully to determine if action is warranted and if the matters fit current priorities. In several instances, we have followed up on ERSP referrals. Two referrals actually involved related companies that later signed an FTC consent decree. In at least one other case, the company decided to pull an advertisement after being contacted by FTC staff,” reports Cleland. In fact, one of ERSP’s case referrals resulted in a $20 million consumer redress settlement, which was the largest health fraud judgment in FTC history.

THE ROLE OF THE CABLE AND BROADCAST COMMUNITY
Despite the number of ERSP reviews, the program cannot be a success if potentially fraudulent shows still hit the airwaves. That is why ERSP has made it a point to inform cable and broadcast stations of its case reviews, and hosts seminars to educate the broadcast community on self-regulation and the importance of partnering to protect consumers. To this point, both Cleland and Muris agree.

“The broadcast community has an important role to play in the success of self-regulatory programs,” states Cleland. “Broadcasters have a responsibility not to disseminate advertisements that they know or should know contain claims that are deceptive or misleading. At a minimum, an ERSP alert should put broadcasters on notice that they must make additional inquiries into the suspect claims before they disseminate them to their audiences.”

According to Muris, “Because the media have a shared economic interest in the credibility of all advertising, they should support ERA’s goals. If ERSP informs cable and broadcast stations of egregious marketers, then I believe these stations should support these efforts and refrain from airing suspect programs.”

And some members of the broadcast community couldn’t agree more. Ken Kolb, vice president of direct response advertising for 20th Television/DIRECTV, extends his support. “To us, it’s about protecting our viewers. At 20th, we have our own airing policies and monitoring services, as we don’t want to offend our subscribers. So when we have a program like ERSP inform us of a potentially bad show, it sends up a big red flag. The DR industry often gets painted with the same brush, and I’m very supportive of a program that helps our credibility,” he says.
However Kolb is quick to point out that there shouldn’t be “witch hunts” and that this industry has a lot of great programming on the air. “If you had asked me four or five years ago if I thought self-reg would work, I might have told you that I wasn’t sure. Now, there is so much quality DR on the air that anyone who is a reputable marketer wants to get the bad shows off as quickly as possible. While this industry is changing a lot, we need to maintain ways of doing business that works. Self-regulation ultimately helps our profitability,” he states.

WHAT DOES THE FUTURE HOLD FOR ERSP?
According to Marinello, the future looks very promising. “While I can’t be too specific, I can promise you that this program will continue to grow and to improve. There’s an old saying that ‘familiarity breeds success’ and as the direct response industry becomes more acquainted and confident in the program, it will only get better,” he says. “To be candid, one of the current challenges that maybe was unforeseen when the procedures were drafted was the broad nature of DR advertising and all of its different components. Like any start-up program, we continue to be a work in progress and it is my job to help navigate ERSP through some previously uncharted territory.”

Goldstein also believes that ERSP stands to mature and evolve as time goes on. “When we launched this program, we didn’t want to be overly ambitious,” reflects Goldstein. “We wanted to ensure our resources were adequate and [we] have done pretty well with that. Evolution is anticipated for any new program. We knew that and hopefully we prepared well for the future.”

Molly Alton Mullins serves as ERA’s director of communications and executive editor of Electronic Retailer. We would appreciate your feedback. To submit comments, point your browser to erspmar06.marketing-era.com.