Transparency, Compliance, and Self-Regulation: DR’s Engines of Growth


Transparency, Compliance, and Self-Regulation: DR’s Engines of Growth

We live in a world that’s governed by complex regulations. But the rapidly growing range of marketing platforms includes everything from mass-market print advertising to highly targeted, location-based ads that are delivered directly to handheld electronic devices. The “average” consumer is getting more sophisticated, making research-based, considered purchase decisions via smartphone as opposed to impulse buys.

Each new channel carries with it the same rules governing truth in advertising, however, making it difficult to keep track of an ad that might cross the line of what’s permissible. So how does a marketer stay relevant and profitable in today’s marketplace without running afoul of the law? The answer, I believe, requires attention to three principles: transparency, compliance, and self-regulation.

Regarding transparency, ERA’s Marketing Guidelines for Electronic Retailers dictates that “no ERA member shall produce or disseminate or assist any person in the production or dissemination of any advertisement that has a deceptive format (i.e., that appears to be a bona fide information or entertainment program created by a disinterested party solely for the purpose of providing information or entertainment) or that otherwise purports to be something other than an advertisement.”

Transparency Builds Brands

The relationships customers build with a brand are paramount to its success. Lack of focus on the customer experience can often result in damage to the brand’s reputation, high refund request rates, and complaints to government regulators and the Better Business Bureau (BBB). But if customers have a positive experience with a brand, the likelihood is that they will become repeat customers and bring in new referral business.

A recent marketing study conducted by the University of Southern California indicates that trust in a brand is now more closely related to transparency than ever. “What we’re really seeing are issues when it comes to [brand] trust,” marketing expert Jeetendr Sehdev said. “The key finding for us is that transparency is the cost of doing business now for most organizations, especially among millennials.”

Furthermore, today’s consumers have nearly limitless access to information in the palms of their hands. Many consumers conduct a online queries from their smartphones before making a purchase, looking for more information about the company, product, or service. If what the customer finds on the Internet is bad, the marketer could lose the sale.

Disclosure Brings Transparency

In the United States, a marketer is legally responsible for all marketing claims made in its advertisements—and not just for the words in the advertisement, but also for what the ad shows or implies. This aggregate view of an ad’s message is sometimes referred to as its “net impression,” and this is the basis of the FTC’s standard of review.

Aside from good business practices, state and federal regulations require full disclosure of the material terms related to a product or service in its advertising. The disclosure must be “clear and conspicuous,” meaning placed in a manner in which it will be noticed, read, and understood, not obscured by other elements in the advertisement.

Full disclosure is essential under continuity billing structures (or “negative option” offers), and can also be important to upsells and bundled offers. If you use such a billing structure, you should provide full disclosure to customers about the continuity aspect, all costs associated with the product or service, and how to cancel.

A Culture of Compliance

Beyond depending on a chief compliance officer, it is important for all owners and C-level executives to maintain what I call “a culture of compliance” by paying as much attention to compliance in corporate board meetings as one does strategic, operational, financial, and legal matters.

However, it’s not enough simply to have a corporate compliance policy in place. There must be active compliance monitoring and real penalties associated with breaching the policy for employees, contractors, and vendors.

It is also advisable to have an independent, third-party law firm review all marketing materials and compliance procedures on an annual basis or more frequently—perhaps whenever you kick off a new advertising campaign or enter a new advertising channel. A third-party firm can make recommendations on the best ways to structure new offers.

ERSP Aids Compliance

The Electronic Retailing Self-Regulation Program (ERSP) can help, too. Established in 2004 with the mission of enhancing consumer confidence in DR by providing a quick, effective mechanism for resolving inquiries regarding the truthfulness and accuracy of claims made in direct response advertising, ERSP has the full support of ERA.

According to the ERA Rules and Policies Regarding ERSP, “If an ERA member fails to participate in an ERSP review of its marketing or fails to comply with an ERSP determination relating to its marketing, then the ERA membership of that ERA member will be subject to immediate termination by ERA.”

The future of the industry is bright. But as ERA members forge innovative paths forward, they need to anchor themselves to the growth engines of transparency, compliance, and self-regulation. It’s not just the law; it’s also good business.

William R. Knowlton, Esq. is an attorney in the Lindon, Utah, office of Invictus Law. His practice includes regulatory compliance, corporate and employment law, and real estate.

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