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Big Changes for FTC Endorsement Guidelines & Rule for FTC Incentivized Reviews

FTC endorsement guidelines & FTC rule for incentivized reviews intro

Last Updated: October 4, 2024

The Value of Endorsements and Customer Reviews for Digital Marketers

Endorsements in the form of testimonials and customer reviews are extremely valuable to digital marketers because they provide social proof that can influence potential customers' purchasing decisions. Some ways testimonials and reviews can benefit digital marketing efforts are listed below.

    *  Build Trust: Testimonials and customer reviews can help build trust with potential customers by providing real-world evidence of the benefits of a product or service. People are more likely to trust the opinions of their peers than marketing messages from brands.

    *  Boost Credibility: Positive testimonials and customer reviews can boost a brand's credibility by demonstrating that it delivers its promises and provides high-quality products or services.

    *  Increase Conversions: Testimonials and customer reviews can help increase conversions by giving potential customers the information they need to make an informed decision. Seeing positive reviews can give customers the confidence they need to complete a purchase.

    *  Improve SEO: User-generated content, such as customer reviews, can help improve a website's search engine rankings by providing fresh and relevant content.

    *  Provide Feedback: Testimonials and customer reviews can provide valuable feedback to marketers about their products and services. This feedback can be used to make improvements and address customer concerns.

The FTC Revised Endorsement Guidelines Were Final on June 29, 2023

Is There a Difference Between Testimonials and Endorsements?

According to the 2023 FTC Guides on Endorsement, there is no difference between testimonials and endorsements.

For purposes of FTC guidelines, testimonials and endorsements are essentially the same.

What's the Legal Definition of a Testimonial/Endorsement?

The Guides define a testimonial/endorsement as:

    *  Any advertising message,

    *  Of a party other than the sponsoring advertiser,

   *  That consumers are likely to believe reflects their opinions, beliefs, findings, or experiences.

Paraphrasing Testimonials (Curated Testimonials) Is Permitted, Subject to Two Guidelines

Marketers and advertisers are permitted to paraphrase a testimonial/endorsement, subject to compliance with these two FTC guidelines:

    *  “Advertisers should not alter endorsements in ways that change their message or context”, and

    *  Paraphrasing is acceptable only if the resulting message remains truthful and non-deceptive.”

Paraphrasing Testimonials Marketing Strategy Using Curated Testimonials

It's using curated testimonials to tell a story.

Anyone can tell a story, but few can engage in effective “storytelling.”

Storytelling is an art, involving flair, color, creative language, and most important from a marketing perspectie: emotion.

"Storytelling" Example in Email Marketing

Recently, I received an effective marketing email that contained the following elements in the order presented below.

    *  Story title with a “hook.”

    *  Curated testimonial (paraphrased) that that described her client's “hero journey.”

    *  Quoted testimonial from her client (no paraphrasing).

    *  Video interview with client that further described and verified the client's “hero journey.”

    *  Call to action. The new Rule actually has six parts.

The 2023 Revised Endorsement Guides Now Regulate Atypical Opinion Testimonials

Prior to the 2023 revised Endorsement Guides, the FTC assumed that consumers believe that advertised opinions only necessarily represent the opinions of the people expressing the opinions, not the typical consumer opinion regarding the product/service.

The new 2023 revised Endorsement Guides require a typicality disclosure for an opinion testimonial that conveys a "typicality message."

Example #1 in the 2023 Guides:

    *  Three guys are leaving a movie theater sharing opinions about the movie;

  *  The FTC states that these opinions should be:

        -  “Understood to be subjective opinions, “ and

        -  “Not likely to convey a typicality message.”

Example #2 in the 2023 Guides:

    *  Home fitness opinion testimonial: “The most effective and easy-to-use home exercise machine that I've ever tried.”

    *  The FTC stated that a typicality disclosure would be required if the opinion testimonial misleads the machine's "effectiveness or ease of use."

The New FTC Fake Review Rule Becomes Effective October 4, 2024

On August 14, 2024, the FTC announced its Final Trade Regulation Rule on the Use of Consumer Reviews and Testimonials, effective on October 21, 2024.

The new Rule actually has six parts.

1.      Fake or false reviews.

2.      Incentivized reviews.

3.      Insider reviews.

4.      Company-controlled websites.

5.      Fake social media indicators.

6.      Review suppression.

1.   Fake or False Reviews

It's helpful to consider these rules as having a subject matter and a related activity.

The activity: trafficking in (buying, selling, or procuring) consumer or celebrity reviews or testimonials that are “fake” (subject matter).

A review is “fake” if the reviewer:

·        Doesn't actually exist (e.g. via AI);

·        Didn't actually use or otherwise have experience with the product, service, or business, or

·        The review materially misrepresents the reviewer's actual experience.

Comment:

The first two “fake” bullet points are relatively specific.

There shouldn't be an opinion regarding whether the reviewer actually existed or didn't use or have experience with the product/service.

The third bullet point is more problematic because there can be shades of grey and honest opinion whether there was a “material misrepresentation.”

2.   Incentivized Reviews

Activity: acquisition.

Subject matter: compensated incentivized reviews that express a “particular sentiment.”

Example:

·        A gift card or free product (as an incentive),

·        For a positive review.

Exclusion: an incentivized review that's not conditioned on a positive review.

·        Example: A gift card for a review with no condition for any “particular sentiment.”

Comment:

Incentivized reviews are allowed, provided that there is no underlying condition for any type of sentiment.

However, when you receive a legal incentivized review, you aren't allowed to suppress it (as you'll see in the following newsletter).

3.  Insider Reviews

Activity: facilitating.

Subject matter:

·       An “insider review” from officers, employees, or family members

·       That doesn't contain –

o   A disclosure of the relationship (“material connection”)

o   That's “clear and conspicuous” (“unavoidable).

Duty to manage: officers and managers aren't allowed to turn a blind eye to employee conduct.

Comment: Insider reviews are allowed, provided the required disclosure is displayed conspicuously (with the likely result that the review won't be worth much).

4.   Company-Controlled Websites

It's helpful to consider these rules as having a subject matter and a related activity.

The activity: creation of company-controlled websites (subject matter).

A website is company-controlled if:

·        It's controlled by the advertiser, and

·        The advertiser's products or services are reviewed.

There is a violation only if the website appears to be independent with that the result is that consumers reasonably believe that the reviews reflect independent sentiments.

Comment:

Both the FTC and NAD (National Advertising Division of the Better Business Bureau) have been active in ruling on company-controlled websites.

5.   Fake Social Media Indicators

Activity: trafficking, distributing, or misusing.

Subject matter: fake social media indicators.

What are three examples of a fake social media indicator?

·        Accounts not associated with a real person (AI creation),

·        Using personal information without consent,

·        Using hijacked accounts.

The Key requirement: knowingly trafficking, distributing, or misusing fake social indicators.

6.  Review Suppression

Activity: excluding (picking and choosing).

Two Types:

·       Suppressing any review by threats or intimidation.

o   Example: Notice on website to the effect that visitors are “required” to contact customer support before posting a negative review, and if a failure to contact customer support, then the visitor will not be eligible for special promotions and sales events.

·       Suppressing reviews that are negative or express unfavorable sentiments

Exclusions: suppression is allowed IF:

·        Organizing reviews “alone” provided not feedback distortion;

·        Only suppressing false reviews, OR;

·        Reviews that are harassing in nature, abusive, obscene, vulgar, or sexually explicit.

Conclusion

Earnings claim marketers, advertisers and agencies (as well as other online marketers) should review and update their review compliance practices before the deadline of October 24, 2024.

Strict compliance with the new FTC Rule on Fake Reviews is essential to avoid FTC fines.

Legal Concerns and Challenges for Digital Marketers With Social Media Marketing

The Federal Trade Commission's (FTC) initiatives to revise the Endorsement Guides and the Rulemaking process for Fake Reviews have important legal implications for digital marketers.

The Endorsement Guides provide guidance for businesses and influencers on how to disclose material connections between endorsers and the promoted products or services, such as financial incentives or free products. The guides also cover the use of testimonials and endorsements in advertising, including endorsements made through social media.

The FTC's proposed revisions to the Endorsement Guides aim to address emerging advertising practices and technologies, including new forms of influencer marketing, such as TikTok videos, and the use of artificial intelligence to generate endorsements.

The FTC's rulemaking process for Fake Reviews indicates the FTC's concerns regarding the deceptive manipulation of customer reviews resulting in significant harm to consumers.

The proposed revisions to the Endorsement Guides and the FTC's Rulemaking process for Fake Reviews reflect the FTC's increased focus on online advertising and the importance of transparency in advertising practices.

In summary, digital marketers should stay informed about the changes to the FTC Endorsement Guides and the Rulemaking process for Fake Reviews and take steps to ensure their advertising practices are transparent and compliant with FTC endorsement guidelines and the FTC Fake Review Rule, assuming it passes.

How I Can Help You

The legal risk of an FTC enforcement action with social media marketing is in increasing exponentially.

I help digital marketers navigate complex FTC Endorsement Guidelines and FTC Fake Reviews requirements so they can be compliant and competitive.

How to Get Started

The recommended way to get started is to scroll to the bottom of this page, click on the "Book a Call" button, then schedule a call.

We'll discuss your requirements and concerns and answer any questions you may have.

There may be key legal issues you're not aware of.

At the same time, sign Up for my complimentary 2-Minute Marketing Compliance Email.

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Every week or so, you'll get compliance tips, insights, strategies, tactics, and alerts you can digest quickly and use,

written in a simple, conversational way to help you grow your business with confidence.

Best wishes for your online business success.

Chip Cooper, Esq., eCommerce Attorney

My Background

  • Juris Doctor Degree, Wake Forest University School of Law
  • Adjunct Professor of Law, Wake Forest University School of Law (20 years)
  • Martindale-Hubbell Highest Attorney Peer Rating – AV® PREEMINENT™
  • Co-Founder & CEO, FTCGuardian.com, #1 in FTC Compliance Training

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