FTC Offers Glimpse into Review Direction at WOMMA Conference

ORLANDO, Fla. – The jury’s still out on what impact the Federal Trade Commission (FTC) has on word-of-mouth marketing. But a visit from an FTC official to this week’s Word Of Mouth Marketing Association Basic Training conference in Orlando, Florida, offered an indication.

In a speech strewn with praise for the trade association’s self-regulatory actions, Thomas B. Pahl, assistant director of FTC Bureau of Consumer Protection’s Division of Advertising Practices, discussed current FTC review prompted by consumer watchdog group Commercial Alert. In an October, 2005 letter to the FTC, Commercial Alert requested that, given the appearance word-of-mouth marketers (deemed “buzz marketers” by Commercial Alert) “are deceiving consumers by failing to disclose that they are paid endorsers, the Commission should investigate to determine whether buzz marketers are engaging in deceptive practices….”

Although Pahl refrained from commenting on the non-public review, he told ClickZ News the FTC would respond to the petition, “in the next few months, probably.” He elaborated, “the claim being made is essentially the failure to make disclosure is deceptive to consumers. We’re trying to figure out if that’s true and in part, are there some types of word-of-mouth marketing that might raise these issues and other types that might not.”

Pahl did, however, shed a speck of light on the direction the FTC might take by noting, “the main remedy sought” by Commercial Alert, i.e. disclosure of word-of-mouth campaign affiliation, is already mandated by WOMMA’s ethics code.” He added, “This would appear responsive.”

Taking a cue from damage the spam scourge has afflicted on the email marketing industry, WOMMA has made the development and promotion of its ethical standards a top priority. Indeed, WOMMA’s ethics code states, “We comply with FTC regulations that state: ‘When there exists a connection between the endorser and the seller of the advertised product which might materially affect the weight or credibility of the endorsement…such connection must be fully disclosed.'”

BzzAgent, a word-of-mouth marketing firm that’s also cited in Commercial Alert’s letter as a developer of what it deems “stealth” campaigns, had earlier adjusted its code of conduct to require those spreading word-of-mouth in conjunction with BzzAgent campaigns to disclose their relationship with the company.

Contrary to previous assumption, disclosure of word-of-mouth campaign affiliation can actually improve the positive outcome of the campaigns. According to a study released yesterday by Walter J. Carl, Ph.D., assistant professor, Department of Communication Studies at Northeastern University, “the pass-along/relay rate (the number of people a person told after speaking with a word-of-mouth marketing agent) actually increased when the conversational partner was aware they were talking with a participant in an organized word-of-mouth marketing program.”

In his speech at the Disney convention center, Pahl alluded to newly-released guidelines from the Anti-Spyware Coalition suggesting self-policing activities such as these allow the FTC to use its own resources more efficiently. Much anti-spyware legislation has been enacted and proposed both statewide and federally of late. Pahl noted when asked by ClickZ about the potential for word-of-mouth related lawmaking, “I’m not aware of any proposed legislation that’s out there.”

Pahl commented, “Since we received the [Commercial Alert] petition, we’ve been trying to learn as much as we can about the techniques. We’ve been talking to various professors, trade groups, companies, consumer groups, etc., but we don’t have any other [word-of-mouth related] pending petitions or requests that we take law enforcement action.”

Such reviews are typically initiated as a result of a consumer complaint. Pahl clarified that in response to a complaint about an alleged advertiser violation, the FTC investigates the message in question in all its media iterations, which may include word-of-mouth. Yet, “the FTC wouldn’t target word-of-mouth, per se,” he explained.

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