How the FTC’s New Disclosure Ruling Affects Social Media Marketers & Influencer Marketing Strategies

Editor’s Note: Updated July 2015 to link to the FTC’s revised guidelines.

Reaching out to influencers is a public relations tactic as old as time. But a whole boutique marketing industry has cropped up in the last few years as more people gain niche Internet celebrity status, opening opportunities for agencies and brands to get endorsements from online social influencers. Who is and isn’t an advertiser used to be pretty black and white, but these days, understanding who is compensated for their endorsements requires an eye for shades of gray. The FTC wants to remove that ambiguity.

As reported on Marketing Land last week, the Federal Trade Commission settled charges against ad agency Deutsch LA for Twitter use that violated disclosure-in-advertising rules. It’s the first such case the FTC has settled, so it’s groundbreaking news for social media marketers.

Here’s a summary: An account manager at Deutsch LA sent an email encouraging employees to tweet about a client’s product, the Sony PlayStation Vita; employees did so, and the FTC found this to be a misleading promotion of that product. In the settlement, the FTC barred the agency from misrepresenting the endorser of a product as an ordinary consumer.

Moral of the story: If there’s some financial arrangement compensating the person posting an ad, whether that’s a paycheck from an employer or specific payment for the endorsement, the FTC wants it disclosed. And they’re willing to enforce it.

The FTC’s guidelines revised as of March 2013 require marketers to follow the same rules for short-form ads in social media as they do in traditional media advertising. And we’re talking regular posts, not sponsored ads here. In Twitter, this means that even within the limited 140-character space of a tweet, your ad must disclose in a “clear and conspicuous” way a financial relationship with what you’re endorsing. Failing to do so might result in prosecution and penalties for your company.

UPDATE: In June 2015, the Federal Trade Commission put all marketers on notice by publishing a new version of the FTC’s Endorsement Guides: What People Are Asking page. To address social media situations as specifically as possible, the new FAQs are organized into sections like “Social Media Contests,” “Product Placements,” and “What Are an Advertiser’s Responsibilities for What Others Say in Social Media?” The agency has tried to clearly spell out the rules; can enforcement actions be far behind?

Effect on Influencer Marketing

Even before the FTC started flashing its sheriff’s badge, companies could get in PR hot water for failing to disclose a financial deal behind a promotion. A famous example of an influencer marketing campaign soiled by non-disclosure was Wal-Marting Across America. Ordinary couple Jim and Laura planned to take an RV trip, staying for free in Wal-Mart parking lots. When the company’s PR firm heard about it, Wal-Mart offered to sponsor their trip. So the couple extended the trip across the country and blogged upbeat stories about loyal store employees they met along the way. However, nowhere on their highly promotional blog was it disclosed that the company had paid for the gas, the RV, and the blog. This campaign created more negative than positive PR when the truth came out.

In the purest form of influencer marketing, a well-known person happens to discover a product and then talks about it to their vast audience — just because they like it, not because they’re compensated. A modern example is Oprah’s Book Club, which talk show host Oprah Winfrey began in 1996 simply to share her love of good books. Book publishers soon learned that being selected meant massively increased print runs and sales.

With such a potential jackpot available, it’s no wonder that companies try to manufacture the influencer marketing effect. Before the FTC’s recent crackdown, the difference between sharing and promoting was pretty blurred in social media. After all, how significant could a single tweet be, a mere 140 characters in a sea of Twitter streams? Social media platforms in general seem a lot looser than traditional media; people converse quickly, casually, and without much thought to rules. Marketers’ concern lies far more with what will work than with following rules. But that may have to change in light of the FTC’s disclosure enforcement.

How should marketers react?

A few in the Internet marketing community have already started meaningful conversations about how to apply the FTC ruling.

• In Google+, Eli Fennell observed: “This no doubt casts many social media marketing strategies revolving around social ‘influencers’ in doubt, especially in cases where the influencer is hired by the marketing company on a theory akin to the darkest form of Native Advertising: where the content effectively serves as an advertisement but makes no indication of such.”
• Eric Schwartzman took it further in his article for Convince and Convert: “Basically, if you have received anything of value from a person or organization and then you post about them on a social network, you’re required to disclose your relationship or anything of value you received.”

What about using personal accounts to promote your employer’s client?

The particular offense cited in the Deutsch LA ruling was employees tweeting about a product on behalf of a client of their employer. So it’s pretty clear that having employees promote a client’s products as if they were just a non-interested consumer violates the FTC guidelines. To avoid this, the tweet or post has to mention the connection.

What about using your personal account to promote your own employer?

A grayer area involves employees posting on behalf of their employer. For example, I tweeted and posted on Facebook about the new SEO Tutorial released last week — partly because I think it’s excellent, partly because I helped create it and feel a sense of pride in sharing it with the world. In this case, I didn’t hide the fact that Bruce Clay, Inc. is my employer.

That seems to be the crux of the issue: Do not hide the fact that you work for or get compensated by the company you’re promoting. But the FTC probably would not come down as hard on employees talking about their own brand. Here’s what others had to say (emphasis mine).

• Fennell: “… using your own employees to promote the brand on social media may be more complex than some marketing strategists believe. Promoting their own employers may be fine, and it may even be acceptable to promote brands you carry or serve, unless those brands are paying your company to do so. Even the most harmlessly intended promotion of the client by employees, in fact, may be grounds for a fine.”
• Schwartzman: “… the FTC wants to make sure people know if you’re affiliated with an organization or product you may be tweeting about. And your affiliation can be professional or personal.”

How to Disclose the Financial Relationships

The FTC guidelines say it must be “clear and conspicuous” at the location where someone reads the ad — so having your affiliation only on your Twitter profile page probably isn’t enough. They recommend using a hashtag such as #client or #sponsored, or prefixing your tweet with “Ad:” or some other clarifier. Common sense should be applied, though; consider the context and append those tweets that truly advertise a product or would lead someone to be misled into making a purchase based on your promotion.

Last Thoughts

Transparency is an often-stated goal in today’s marketing environment. Social media enables both individuals and brands to be known more than ever before. It’s now a marketing best practice to allow employees to represent a brand by posting as themselves on Twitter and elsewhere — humanizing a brand with actual names and faces builds customer relationships and brand trust. Companies are embracing this idea more and more, as they should. The FTC ruling should not throw a wrench in that progress; nevertheless, it should serve as a caution to disclose the employer-employee relationship. Of course, employers cannot and should not expect employees to endorse products as if they were actual consumers or to hide their affiliation.

The ruling also serves as a wake-up call that social media is not the Wild West it once was. There are rules and there are sheriffs to enforce them.

Paula Allen started at Bruce Clay Inc. in 2008 as a senior technical writer and now manages the company's content and documentation. An English lover at heart, Paula enjoys working in a team where grammar is frequently discussed and in an industry where there's always more to learn.

See Paula's author page for links to connect on social media.