How Marketers Can Avoid Charges of Deceptive Marketing

 

Marketers who are careless about their product claims could face charges from the Federal Trade Commission (FTC) for deceptive advertising.

Just this past March, an FTC complaint charged Allstar Marketing Group with deceptive advertising over its “as-seen-on-TV” type products such as Snuggies and the Magic Mesh door cover.

The telemarketing company led consumers to believe they could get two $19.95 products for less than $10 each. The cost was really $35.85 after including the undisclosed processing and handling fees.

The FTC also charged the direct marketing company with:

• billing consumers without their express informed consent,

• failing to make adequate disclosures about the total number and cost of products before billing consumers and

• failing to disclose material information about the total cost of the products and that the purpose of the call is to sell goods or services.

The company agreed to pay the FTC $7.5 million in consumer restitution, and $500,000 to the New York State Attorney General’s office.

The case highlights the importance of being clear and forthright in advertising and other marketing claims. The Federal Trade Commission Act forbids deceptive advertising and requires advertisers and marketers to be able to substantiate their claims. In addition, most states enforce their own laws on consumer fraud and deceptive marketing practices.

Compliance Best Practices for Marketers

Experts recommend these marketing best practices to avoid the FTC’s wrath.

Substantiate claims. The FTC requires marketers to substantiate their claims with objective evidence. The type of evidence needed varies depending on the products and claims. Best practices entail being able to substantiate claims with expert testimony, extrinsic evidence, studies or tests. Anecdotal evidence is inadequate.

Describe products accurately. Factually correct marketing statements that inform and don’t mislead enable marketers to steer clear of regulatory problems. Photos should portray the product version being described in the text. Beware of word meanings and connotations. Water resistant is not the same as waterproof.

Assume responsibility. The FTC may hold advertising agencies or website designers responsible for reviewing the information used to substantiate claims. Agencies cannot rely on an advertiser’s assurance that the claims are substantiated. The FTC considers the agency’s participation in the preparation of the ad and if it knew or should have known that it included false or deceptive claims.

Disclose all costs. The FTC requires businesses to disclose all costs, including processing fees, handling fees and any other fees. It mandates clearly readable and visible disclosures that enable viewers to read the entire disclaimer.

Maintain adequate supplies. Regulators expect businesses to keep enough supply of advertised products on hand to meet reasonably expected consumer demand. If you expect a possible shortfall, state in your ad that quantities are limited. You can also state the number of units on hand.

Know state laws. Understanding state laws is critical for avoiding regulatory difficulties as many states enforce their own marketing and advertising regulations, which often differ. For instance, some states, such as California, require businesses to stock enough merchandise meet reasonably expected demand, unless the ad states that supplies are limited. Other states require sellers to give customers a rain check.

Beware of free offers. Claims that merchandise is being sold for “free” or “without charge” can cause regulatory dangers for marketers. For instance, if customers buying a product receive a free second product, potential pitfalls include:

• The first product is more expensive than normal.

• The first product has lesser quality than usual.

• Services (such as free delivery) are reduced or eliminated.

In any of these situations, the second product is not actually free. If there are any qualifications, disclose them clearly and conspicuously.

Be careful of price comparisons. If you compare your prices to those of competitors, compare identical products. Comparing isolated or unrepresentative prices can lead to complaints.

Bottom Line: Marketers face a real and grave danger of being accused of deceptive advertising. Understanding the federal and state laws and following recommended best practices are the keys to steer clear of compliance pitfalls.

Resources

6 Pitfalls That Can Make Your Marketing Illegal
Target Marketing

Avoid Unlawful Advertising: 7 Rules for Your Business
Nolo, Law for All

Advertising and Marketing on the Internet: Rules of the Road
FTC