Gift Bags and Astroturfing – Perils and Pitfalls of Social Media Marketing

Client Alerts · November 21, 2011

While attempting to catch the wondrous wave of advertising and marketing using social media, a business can inadvertently end up treading water in an ocean of government fines and damage control.

In December 2009, the Federal Trade Commission (FTC) formally released its “Guides Concerning the Use of Endorsements in Advertising” (Guides) (16 C.F.R. Part 255). Almost immediately, the FTC and state regulators served notice to businesses that ignoring the principles of the Guides could be costly to both their reputation and their bottom line.

Gift Bags

What Not to Do: Seeking to harness the power of social media in its advertising, women’s clothing store Ann Taylor invited bloggers to an exclusive preview of the store’s 2010 summer collection. Ann Taylor’s invitation to bloggers contained the following simple language:

“Bloggers who attend will receive a special gift, and those who post coverage of the event will be entered into a mystery gift card drawing where you can win up to $500 at LOFT!”

The solicitation also included fine print requirements that read in part as follows:

“Please note all bloggers must post coverage from our event to their blog within 24 hours in order to be eligible.”

In essence, a small gift for a small post about the preview.

To claim their special gift, a blogger simply submitted an email link of their post to Ann Taylor along with the special code from the back of a gift card they received at the preview. Ann Taylor would then inform each blogger of the amount of their respective gift card (values ranged from $10-$500).

As you might imagine, the blog posts were exceedingly positive. Members of the clothing industry grumbled (perhaps as a result of jealously at the positive reviews). Ann Taylor aggressively defended the practice by indicating that bloggers were not told to write positive posts – the bloggers were free to post as they deemed fit. Not completely convinced, however, the FTC issued a letter echoing an industry concern that certain bloggers “who attended the preview … failed to disclose that they received gifts for posting blog content about that event.”

Consumers, according to the FTC, believe more readily the opinions and experiences of a party other than a sponsoring advertiser. If a consumer is aware of a free gift or some other incentive to participate (such as a free gift card), such a fact will affect a consumer’s assessment of that opinion. The failure to disclose the material fact that bloggers received even the smallest of gifts in exchange for their posts could trigger liability.

FTC Action:  Although the FTC took no action, (for a number of reasons unique to the Ann Taylor situation), they did sound a warning to all businesses to ensure disclosure of any incentives or compensation paid to bloggers or third parties offering opinions on their products and services.

Takeaway:  Even the smallest incentive to a blogger or other third party endorsing your product via social media can trigger an FTC action letter. Disclose, disclose, disclose!

Astroturfing

What Not to Do:  While the world may be rid of the type of Astroturf that turns the knees of sports heroes into a tangled mess, “Astroturfing” has now entered the lexicon of the small business marketing world and tangled marketing ventures. Astroturfing is the newest name assigned to the practice of (i) engaging third parties to provide a positive review of a company’s products/services, (ii) providing fake consumer reviews and/or (iii) creating illusory communities for “customers” that are actually tightly controlled by the company.

Lifestyle Lift, a New York-based cosmetic surgery corporation, has become the poster child for the perils of Astroturfing. After receiving a barrage of negative publicity via social media and online channels, Lifestyle Lift decided to take matters into its own hands. Based on the direction of a company officer, the employees were instructed to “[put] on your wig and skirt and tell them about the great experience you had.” Immediately obeying such a directive, according to documents filed with the New York Attorney General, Lifestyle Lift’s employees posted anonymous product and service reviews through various third-party sites that made the reviews appear to be made by genuine product users. Lifestyle Lift even went so far as to create a website, MyFaceLiftStory.com, which provided positive stories and endorsements of products and services made not by third parties, but by employees of Lifestyle Lift. Never a great idea.

Regulatory Action:  Lifestyle Lift was forced to pay $300,000 to the state of New York and cease all Astroturfing activity.

Takeaway:  There are companies that have created a business model of providing positive reviews for a fee (sometimes a modest fee of $5 per post). Think carefully before working with such companies, or when considering using employees or similarly interested parties to bolster product reviews in your next social media campaign. Being the target of an Astroturfing investigation can cost more than dollars – your reputation could be irreparably harmed in a flash.

If you have any questions about the information presented here, please contact Prince Lobel partner Peter J. Caruso II at 617 456 8034 or pcarusoii@princelobel.com. If you would like to learn more about how Prince Lobel can meet the needs of your closely held business, please contact firm partner Robert P. Maloney. You can reach Bob at 617 456 8008, or rmaloney@princelobel.com.