Influence this: New FTC endorsement guidelines impact brands, creators, marketers

With the growth of social media, influencer marketing has become a core tactic many brands use to reach consumers. But new guidance from the US Federal Trade Commission indicates they should tread carefully when it comes to hiring TikTok stars, Instagram celebrities, and regular folk to promote products.

The updated FTC endorsement guidelines, issued June 29, aim to ensure that businesses make it clear to consumers when they’ve paid influencers or others to review or promote products.

The advertising guides were last revised in 2009 and incorporate public comment the FTC requested a year ago. They don’t have the force of law, but are intended to provide insight into what could be considered illegal advertising.

Influencer marketing is a sprawling market, estimated at $21.1 billion worldwide, more than double what it was in 2019, according to Statista. A study conducted in 2017 found that 93% of the most followed celebrities on Instagram failed to meet FTC endorsement rules.

The updated guides put everyone involved in the influencer environment on notice, a legal expert told The Wall Street Journal.

FTC guidelines: Endorsements must be conspicuous

In its accompanying FAQ document, the agency provides detailed advice for brands and influencers on how to disclose sponsored reviews or endorsements in videos and social media posts. Paid promotions must be clearly labeled as such.

Despite the plethora of influencer marketing, a brand can’t assume that all consumers will understand that someone was paid to promote their products, the FTC said. A social media celebrity well known for being a paid influencer still requires disclosure.

“The existence of financial arrangements between some content creators and advertisers may be apparent to some people, but not to everyone,” the agency said. “Under the law, an act or practice is deceptive if it misleads ‘a significant minority’ of consumers. That’s why disclosure is important.”

According to the FTC, the best disclosures are prominent and simply worded, such as “This is an ad for brand X.”

The FTC isn’t mandating where a disclosure like an #ad hashtag is placed in a post, but it must be easy to see and understand. A disclosure buried at the end of a post or mixed with other hashtags could be easily overlooked.

Putting a disclosure in the text description of a TikTok video won’t cut it since it won’t stand out. “When content creators want viewers to read something, they superimpose much larger text over their videos,” the agency said.

FTC spells out rules for reviews

The updated guidelines also try to rein in brands’ attempts to control product reviews in their favor. For example, new FTC endorsement guidelines note:

1. Businesses need to say if a customer received a free product or discount as an incentive to write a review.
2. Brands can’t use software to suppress negative reviews, or selectively delay posting of negative reviews.
3. Companies can’t ask customers who are more likely to be happy with a product to write reviews
4. No deceptive organization of customer reviews, such as displaying all five-star reviews at the top of a list regardless of date posted.

The FTC also released a proposed rule to ban fake reviews and illicit endorsement practices. In releasing the rule, the agency noted the growing use of generative AI, which it said is likely to make it “easier for bad actors to write fake reviews.”

• Businesses writing or selling reviews by someone who doesn’t exist or doesn’t have experience with a product or service.
• Using or repurposing a review written for one product so that it appears to have been written for a different item.
• Buying positive reviews, or asking someone to write negative reviews about a competitor.
• Selling or buying fake social media influence indicators such as followers.
• Posting reviews written by employees without clear disclosure of the relationship.

Endorsement guidelines: FTC outlines potential liability

In the event the FTC is made aware of a case of deceptive advertising involving endorsements, the agency said enforcement usually focuses on the advertisers or their ad agencies.

However, if an influencer fails to disclose a paid endorsement despite repeated warnings, the agency’s focus would be on that individual.

Penalties could range from orders to follow various requirements, reimbursing consumers, or in cases of continued deceptive endorsement activities despite being notified of violations, civil penalties.

“Trust is the ultimate currency for influencers and their audiences. Whenever an influencer partners with a company, they must disclose the relationship or risk audience pushback due to a lack of authenticity. The FTC guidelines are now in line with consumer expectations,” noted Ursula Ringham, Head of Global Influencer Marketing at SAP.

The risk to a brand’s reputation of FTC enforcement should be enough of a deterrent. Bottom line, consumers aren’t going to trust a company that’s tinkering with reviews or failing to disclose paid endorsements.

Influencer marketing only works if it’s trustworthy.