FTC Revises Guidelines Affecting Online Word-of-Mouth

Official guidelines on product endorsements from the Federal Trade Commission released yesterday came as little surprise to savvy word-of-mouth and social media marketers. However, while legitimate WOM marketing agencies and services already follow the FTC’s disclosure guidelines, some worry the restrictions could scare away bloggers and other consumers from participating in such campaigns.

The voluntary guidelines, made official yesterday after a long comment period, will have an impact on advertisers, marketing agencies, and individual endorsers — be they celebrities or average Joes. The guidelines call for endorsements made through blog posts or in other social media environments to disclose any “material connections” between advertiser and endorser, including direct payments and free samples of the product being discussed.

According to the FTC’s guide revisions, factors determining whether an endorsement should carry a disclaimer include “whether the speaker is compensated by the advertiser or its agent; whether the product or service in question was provided for free by the advertiser; the terms of any agreement; the length of the relationship; the previous receipt of products or services from the same or similar advertisers, or the likelihood of future receipt of such products or services; and the value of the items or services received.”

For example, Mommy bloggers or tech and gadget bloggers who regularly are given products because their core readership represents a key demographic group targeted by the advertiser would most likely be considered endorsers under the revised guidelines. “Similarly, consumers who join word-of-mouth marketing programs that periodically provide them products to review publicly (as opposed to simply giving feedback to the advertiser) will also likely be viewed as giving sponsored messages,” stated the 81-page guide.

Not only are advertisers potentially liable for misleading statements about their products, the guidelines also put endorsers themselves, as well third parties such as WOM marketing agencies on guard. “[T]he Commission believes that the endorser is the party primarily responsible for disclosing material connections with the advertiser,” notes the guide. “However, advertisers who sponsor these endorsers (either by providing free products — directly or through a middleman — or otherwise) in order to generate positive word of mouth and spur sales should establish procedures to advise endorsers that they should make the necessary disclosures and to monitor the conduct of those endorsers.”

Contrary to some reports, violators of the guidelines would not face any civil penalties. According to an FTC spokesperson, “Civil Penalties only could come into play if an advertiser violates the Act, and if the FTC investigates, and if the advertiser then violates a court order.” The new guidelines go into effect December 1, 2009.

Joe Chernov, VP of communications and associate VP of marketing for WOM agency BzzAgent praised the guidelines, suggesting they “very clearly establish what’s right and what’s wrong [which has] been one of the hurdles in the industry’s race for growth.”

Though Chernov said BzzAgent has required its WOM campaign participants to disclose their affiliation with advertisers for the past five years, he suggested the FTC guidelines will give the firm a reason to remind its campaign “agents” of the requirements. “They’re told about them when they join…but this is a good reminder,” he said.

Yet, Chernov wonders whether the disclosure guidelines could give pause to potential WOM campaign participants. “I think some of them may get spooked by this,” he told ClickZ News. He also suggested that the company’s current agents — there are over 600,000 — might change their current approach to discussing products online. “My bigger concern is that they somehow try to manipulate their behavior and make it unnatural,” he said.

The Word of Mouth Marketing Association has yet to offer in-depth guidance regarding the FTC provisions. WOMMA blogger John Moore, however, wrote yesterday that the FTC guide “protects both consumers and advertisers because it assures consumers that product testimonials are truthful and trustworthy, and it offers marketers and advertisers a viable way to reach consumers with credible information.”

Not everyone will be happy with the guidelines. The Interactive Advertising Bureau, for example, asked the FTC to hold off on the revisions. “Due to the evolving nature of the marketing industry in response to developing technologies, and the need for further inquiry on this complex topic, we believe that there has not been sufficient discussion to revise the Guides explicitly to address new media at this time. We therefore urge the Commission to refrain from adopting the proposed examples pertaining to new media,” stated the IAB in a March letter to the FTC.

The FTC responded to these concerns in its revision, stating,”although industry self regulation certainly can play an important role in protecting consumers as these new forms of marketing continue to evolve and new ones are developed, self-regulation works best when it is backed up by a strong law enforcement presence.”