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Advertorials and social media campaigns: Disclosure is key, says US regulator

Home Insights Advertorials and social media campaigns: Disclosure is key, says US regulator

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Contributed by: Sarah Keene, Troy Pilkington, Joe Edwards, Elisha Kemp

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Published on: April 05, 2016

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A recent case settled in the US highlights potential implications for New Zealand businesses that use paid-for social media promotions and advertorials in their marketing, and could have significant impact on how a lot of well known brands promote their products.

The US Federal Trade Commission’s case

Lord & Taylor, the oldest luxury department store in North America, launched a comprehensive social media campaign to promote a new women’s private-label Design Lab clothing line with seemingly objective (but actually paid-for) coverage including:1

  • a Lord & Taylor-edited paid article in Nylon, a pop culture and fashion publication;
  • a photo of one of Lord & Taylor's new dresses (the ‘Paisley Asymmetrical Dress’) posted on Nylon’s Instagram site, along with a caption reviewed and approved by Lord & Taylor; and
  • Lord & Taylor giving 50 ‘fashion influencers’ a free Paisley Asymmetrical Dress, and payments of between US$1,000 and US$4,000 each, to post a photo of themselves wearing the dress on social media along with the Instagram handle ‘@lordandtaylor’ and specified hashtag ‘#DesignLab’.

The campaign was highly successful with the influencers’ posts reaching 11.4 million individual Instagram users over just two days leading to 328,000 brand engagements with Lord & Taylor’s own Instagram handle, and the dress quickly selling out.

The Federal Trade Commission (FTC) was concerned that neither the Nylon article nor Instagram post indicated to consumers they were paid advertising placed by Lord & Taylor, and similarly Lord & Taylor did not contractually require the influencers to disclose that the company had compensated them to post the photo (and, as a result, none of the posts included such a disclosure). The FTC alleged that the failure to disclose these facts was a ‘deceptive practice’ under s 5 of the FTC Act as Lord & Taylor had:

  • falsely represented that the 50 Instagram images and captions reflected the independent statements of impartial fashion influencers;
  • failed to disclose that the influencers were the company’s paid endorsers – a connection that would have been material to consumers; and
  • falsely represented that the Nylon article and Instagram post reflected Nylon’s independent opinion about the Design Lab line, when they were really paid advertorials.

While Lord & Taylor did not admit any wrongdoing, the FTC and Lord & Taylor reached a settlement in which Lord & Taylor agreed: (a) that it will not misrepresent any paid commercial advertising as being from an independent or objective source, and (b) to be subject to a monitoring programme for its endorsement campaigns.

Implications

US commentators said the decision, “may change native ads [i.e. advertorials] and influencer-driven social media marketing as we know it,”2 and a similar position could be taken in New Zealand, in particular given the FTC Act's s 5 prohibition on “unfair or deceptive acts or practices affecting commerce” is similar in substance to the Fair Trading Act’s s 9 prohibition on “misleading or deceptive conduct in trade” and provisions in the Advertising Standard Authority’s (ASA) Code of Ethics. 

Further, Rule 1 in the ASA’s Code of Ethics requires that “advertisements should be clearly distinguishable as such, whatever their form and whatever medium is used”. The ASA notes in its social media guidance that if brands are using paid-for Twitter endorsements then the hashtag ‘#ad’ is required.3

Guidance for New Zealand businesses

New Zealand businesses should bear in mind the guidance issued by the FTC following this case:4

  • If you use native advertising, consider the context. “The watchword is transparency. An advertisement or promotional message shouldn’t suggest or imply to consumers that it’s anything other than an ad.”
  • If there is a material connection between your company and an endorser, disclose it, as a connection between the endorser and the seller might materially affect the weight or credibility a consumer gives the endorsement.
  • Disclosures of material connection must be clear and conspicuous. Businesses should put the disclosure in a location where consumers will see it and read it rather than in an obscure footnote or hyperlink.
  • Train your affiliates and monitor what they’re doing on your behalf. Instruct them about their responsibilities for disclosing their connection to you, periodically search their advertising and social media posts to make sure they’re following your instructions, and follow up if you uncover questionable practices.

This guidance could have significant impact on how a lot of well known brands promote their products, including the use of subtle celebrity endorsements.

Next steps

If you have any questions about the potential implications of this decision on your business’s marketing practices, please contact one of the contributors below.

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FOOTNOTES
  1. https://www.ftc.gov/news-events/press-releases/2016/03/lord-taylor-settles-ftc-charges-it-deceived-consumers-through
  2. http://www.adweek.com/news/advertising-branding/ftc-slams-lord-taylor-deceiving-customers-not-disclosing-its-native-ads-170229
  3. Available at http://www.asa.co.nz/codes/code-guidance-notes/social-media/
  4. https://www.ftc.gov/news-events/blogs/business-blog/2016/03/ftcs-lord-taylor-case-native-advertising-clear-disclosure

This publication is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice.

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