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May 2, 2016

Can you get in trouble for what your customer says about you?

Henry Baskerville, an attorney with Armstrong Teasdale, LLP, warns that 2016 may bring increased government scrutiny of digital advertising and marketing, particularly in areas like social media and customer testimonials.

Customer Endorsements: Why should you care?

I’ll let the Federal Trade Commission explain this one in their Endorsement Guide: “If an endorser is acting on behalf of an advertiser, what she or he is saying is usually going to be commercial speech – and commercial speech violates the FTC Act if it’s deceptive. The FTC conducts investigations and brings cases involving endorsements under Section 5 of the FTC Act, which generally prohibits deceptive advertising.”

Every business needs referrals from happy customers. In this era of online research, potential customers are increasingly looking for testimonials and online reviews to make choices about how they spend their money, but the law is very clear about the importance of following the rules when it comes to endorsements and testimonials.

Customer Endorsement Rules for the Blogger

Essentially, the rules are very simple: If you received something of value in exchange for your endorsement, you must disclose that to your readers. This applies for videos, social media posts, blog posts, emails (like newsletters), and reviews on review sites. For bloggers, you can (and should!) read the entire FTC Endorsement Guide – it’s written in surprisingly common sense and down-to-earth language and answers a lot of common questions.

Customer Endorsement Guidelines for the Sponsor

The FTC says that they don’t normally go after bloggers, but they will investigate if a complaint is brought to their attention. “If law enforcement becomes necessary, our focus usually will be on advertisers or their ad agencies and public relations firms.” For this reason, the sponsor (the advertiser) bears the majority of responsibility (and liability) for customer endorsements.

Scenario: I need better reviews.

I had a client once who hired me for some SEO work. When I looked him up and took a look at his SEO, I found something that was concerning: There were several first-page negative reviews of his company from sites like Yelp. I explained to him that I can’t really make a positive impact on his SEO if he doesn’t take care of his online reputation management, and I gave him some suggestions for how to improve it. Basically, if you get enough positive reviews, you can “bury” the negative reviews. However, I explained to my client that the positive reviews needed to meet certain guidelines.

In his case, he simply called up some of his longtime customers and asked them if they would put an honest review on Yelp for him. This is a perfect way to handle the situation.

What you CAN’T do is you can’t offer an incentive (something of value) in exchange for a positive review. For example, in my business, LinkedIn endorsements are very valuable, because reviews on an external site always hold more weight than cherry-picked testimonials on your own site. So upon finishing a project for a new client, I can say, “If you’re happy with how everything turned out, I would really appreciate a review on LinkedIn. If there’s anything you’re not happy with, I hope that you’ll let me know so that I can fix it.” With this type of solicitation, I’m not offering anything of value – I’m simply asking that they share their experiences on LinkedIn.

I can’t say, “If you give me a positive review on LinkedIn, I’ll take 25% off your next project with me.” That would be offering something of value, and I can’t do that without disclosing that to the readers of the testimonial.

Scenario: I just hire someone else to deal with that.

Beware of hiring a public relations or advertising firm and ignoring the process! The FTC says, “Your company is ultimately responsible for what others do on your behalf.” Here, we have a universal principle, whether we’re talking about customer endorsements or about any other form of advertising or marketing. Remember that your company is responsible for any content produced by someone else when that is done for you or solicited by you. You have to monitor the actions of your employees, your freelancers, and your contracted agencies.

Are heavily regulated industries impacted differently?

Yes. The FTC says, “The scope of the program depends on the risk that deceptive practices by network participants could cause consumer harm – either physical injury or financial loss. For example, a network devoted to the sale of health products may require more supervision than a network promoting, say, a new fashion line.”

Since most heavily regulated industries deal with areas that could potentially cause physical injury or financial loss, it’s important for companies in these fields to exercise greater caution about customer endorsements than companies outside of the heavily regulated industries.

How does this rule impact advertisements?

This rule doesn’t impose anything new on advertisements – it just clarifies existing FTC regulations. When featuring customer testimonials or customer results in your advertisements, you have to be careful to show “typical” results – not the best results. An example would be in a weight loss supplement. If one customer contacts you claiming that they’ve lost 50 pounds in the past six months, you have to be careful using that customer in your ad unless those results are typical for all your users, and you must be able to back up your claims as typical or common results.

If you want to show off your star user, you have to disclose what the typical results are in your ad, and this disclosure must be “conspicuous” – it’s not enough to put a fine print disclosure at the bottom of the commercial. For example, you can have your customer tell about her experience losing 50 pounds, but you would add a conspicuous disclaimer that says, “Results are not typical. Typical users lose 15 pounds in six months.” It’s not enough to say, “Results not typical.” You also have to disclose what the typical results are.

Lesson for the Marketer

On the surface, the lesson is that you need to pay as much attention to customer endorsements as you do to any other form of copy you’re publicizing. But beneath the surface, these rules highlight the importance of honesty and transparency in your marketing efforts.

Let’s look at the weight loss example and how those examples work from a sales perspective. What do we know about sales that applies here?

  • We know that it costs more to attract a new customer than to keep an existing customer.
  • We know that a happy customer will lead to referrals, and referrals are more valuable and loyal customers than those who came to you without referrals.

What we’re weighing here is short-term gain versus long-term gain, and the companies I work with wisely choose to maximize their long-term gain.

Managing expectations

Let’s assume that when you study your weight loss product, you get the following results from a survey of 100 participants who use your product for six months:

chart

If you market your product as something that helps people lose “up to 50 pounds in six months”, 99% of your buyers are going to be disappointed, because only 1% will achieve those results. If you market your product as something that helps people lose “an average of 19 pounds in six months” (the average is 18.9 pounds), you’re going to please 46% of your customers (that’s how many will lose more than 19 pounds). If you market your product by saying, “most people will lose 15 pounds or more in six months”, you’ll please 76% of your customers.

Now there is a possibility that this kind of transparency will reduce the number of original customers. But I would posit that in most cases, the long-term gain will exceed any short-term loss.

Let’s assume that your product is a weight loss supplement, and you charge $50 for a one-month supply.

1% 46% 76%
Views 10000 10000 10000
Initial Sales 500 300 200
Repeat Rates 1% 46% 76%
Repeat Sales (11 additional months) 55 1518 1672
Referral Rates 0.25% 11.50% 19.00%
Referral Sales (12 months) 15 414 456
Total Profit  $ 28,500.00  $ 111,600.00  $ 116,400.00

So even though you earn less money with the initial sale by being more transparent, you gain more than enough in repeat business and referral sales to make it more profitable to be honest.

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