Disclosure in the New Age of Alternative Marketing

By Linda A. Goldstein and Angela C. Hurdle

It is Friday afternoon and you open an e-mail forwarded to you from your co-worker. You click on the link inside and a new window opens on your computer screen. You find yourself on www.AllIWantForXmasIsaPSP.com, a website on which two kids engage in a variety of shenanigans in an attempt to persuade their parents to buy them a Sony PSP for Christmas. According to Charlie and J, the kids who started the website, they did it to give J’s parents a not-so-subtle hint that they should purchase their son a PSP.

The following week, you read an article that tells you that Charlie and J aren’t real kids after all, but actors. Further, their website is actually part of an alternative marketing campaign created by Sony’s ad agency-a point of information that was not made clear on the website. Problematic?

Many say there is no harm in a little creative marketing, especially in a time when the value of a 30-second spot is declining.

Marketers are seeking new avenues and channels to reach audiences with shortening attention spans. As a result, buzz marketing and other forms of alternative marketing, such as guerrilla marketing and branded entertainment, have emerged.

IS BUZZ MARKETING DECEPTIVE?
Buzz marketing (often referred to as viral marketing) refers to a marketing technique in which a company engages in certain activities to generate favorable word of mouth publicity regarding its products and services. In the Internet age, buzz marketing campaigns are taking several forms-they are being initiated in chat rooms, on blogs and through instant messaging. In many cases, marketing representatives assume the identity of their target audience and pitch the product to those who will listen.

Advocates of this form of marketing proclaim its benefits, stating that it has been shown to be more efficient than traditional marketing, per dollar spent. They also note that people like useful, fun information that they can spread the word on, and that buzz marketing is often more memorable than traditional advertising messages.

Some word-of-mouth marketers also suggest that the technique comes with its own checks and balances, because a buzz marketing campaign will not thrive unless the quality of the product or services lives up to the expectations set by the marketing.

Consumer watchdog groups, however, strongly oppose buzz-marketing techniques in which sponsorship of the message is not clearly disclosed. Commercial Alert argues that some companies that conduct buzz marketing campaigns “are perpetrating large-scale deception upon consumers by deploying buzz marketers who fail to disclose that they have been enlisted to promote products.” According to Commercial Alert, the specific practice of paying consumers to distribute a message to other consumers without disclosing the nature of the consumer’s relationship with the marketer could even violate the Federal Trade Commission (FTC) Act’s prohibition on unfair or deceptive acts or practices.

Section 5 of the FTC Act states that an act or practice is deceptive if (1) there is a representation or omission of information that is likely to mislead consumers acting reasonably under the circumstances; and (2) the representation or omission is material to consumers. The Commission considers a representation or omission to be material if it is likely to affect consumers’ choice of a product or their conduct regarding a product.

Therefore, the central question is whether it is material to consumers that the sponsor paid the creator of a Website or the writer of a blog to make friendly comments about their product. In other words, is failing to disclose that these are essentially paid advertisements likely to affect a consumer’s decision to purchase the product? Many argue yes. In fact, Commercial Alert takes the position that it is not only material, but also that buzz marketing is deceptive, intrusive, takes advantage of people and “erod[es] bonds of trust.”

Putting trust aside, the more critical inquiry is whether a company is required to disclose that it is behind an alternative marketing campaign. Is the company legally required to do so?

FTC INVOLVEMENT
For any company seeking legal guidance on advertising or marketing, the first place to turn is the Federal Trade Commission. And that is precisely what Commercial Alert did-it voiced its concerns about buzz marketing in a letter to the FTC in which it petitioned the Commission to investigate companies that engage in buzz marketing and encouraged the Commission to issue guidelines to govern the practice.

On December 7, 2006, the FTC responded in a letter acknowledging that “the failure to disclose the relationship between the marketer and the consumer would be deceptive unless the relationship were otherwise clear from the context.” However, the Commission ultimately concluded that it was not necessary to issue guidelines for buzz marketing, and it will determine on a case-by-case basis whether law enforcement action is appropriate.

Unfortunately, the FTC’s case-by-case approach does not provide much comfort to marketers seeking bright-line rules to apply to this constantly expanding marketing channel. Nonetheless, there are a few sources that can provide marketers additional guidance.

First, the FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising (currently under revision by the FTC), provides that when a connection exists between the endorser and the seller of an advertised product, and such connection may materially affect the weight or credibility of the endorsement (i.e., the connection is not reasonably expected by the audience), then the connection must be fully disclosed. This is essentially the position that the Commission articulates in its response to Commercial Alert, further signaling that marketers would be well advised to comply.

Second, the Word of Mouth Marketing Association (“WOMMA”) has established ethics guidelines that appear to have been successful in staving off regulation. Thomas B. Pahl, assistant director of the FTC Bureau of Consumer Protection’s Division of Advertising Practices, stated in a speech at a WOMMA conference that the “main remedy sought” by Commercial Alert, disclosure of word of mouth campaign affiliation, “is already mandated by WOMMA’s ethics code.” Although not an official position of the Commission, Pahl’s statement surely lends credibility to the WOMMA guidelines as a model for marketers.

The WOMMA guidelines identify “disclosure of sponsorship” as an essential element to word of mouth marketing. They state, “We encourage word of mouth advocates to disclose their relationship with marketers in their communications with other consumers. We don’t tell them specifically what to say, but we do instruct them to be open and honest about any relationship with a marketer and about any products or incentives that they may have received.” Significantly, the guidelines note that WOMMA stands “against shill and undercover marketing, whereby people are paid to make recommendations without disclosing their relationship with the marketer.” The underlying rule here is the same as that expressed by the FTC-disclosure is key.

BEST PRACTICES
As a marketer in a constantly evolving landscape, there are certain best practices to consider when conducting a buzz marketing campaign:

• The FTC has made itself clear. Remember, the FTC can apply its deceptive advertising standards to any marketing campaign, and the Commission has stated that failure to disclose the relationship between the marketer and the endorser is deceptive, unless the relationship is otherwise clear from the context.
• Don’t forget the states. This broad authority is not limited to the federal level. Most states have “little FTC Acts” by which they can go after marketers for any unfair or deceptive acts or practices.
• When in doubt, follow the leader. WOMMA is the leading representative for the word of mouth marketing industry, and it has also taken the stance that disclosure of sponsorship is essential.
• The bottom line. If your campaign makes it appear that the message is coming from a consumer rather than the sponsor, or your blog gives the impression that it is created by a third party rather than the sponsor, then you must disclose the relationship.

The FTC has not brought any cases against companies for buzz marketing thus far, and no specific laws have been enacted. This is good news for marketers. However, from all vantage points, it appears that the current state of regulation in this area is merely on-hold, as the FTC has encouraged Commercial Alert and other members of the public to submit information about any word of mouth marketing practices that may cause consumer injury.

As buzz marketing and other alternative marketing techniques continue to become more popular, as consumer watchdogs become more insistent, and as regulators become more aggressive, it is likely that this is not the end of the story. Any company engaging in a buzz marketing campaign should work with its lawyers to ensure that it is taking the appropriate steps to obtain the benefits of this new revolution of marketing, while reducing its risk of becoming an example for the rest of the industry on what not to do.

Linda A. Goldstein is a partner and chair of advertising, marketing and media division at Manatt Phelps & Phillips LLP. She can be reached at (212) 790-4544. Angela C. Hurdle is an associate at Manatt. She can be reached at (212) 790-4534.