In the competitive game of online commerce, retailers need to differentiate themselves and their products. However, it’s all too common that retailers are resorting to unethical tactics that temporarily improve their online reputation. However, their efforts to beat the system often come at a high cost.
Some companies praise their products through anonymous or paid reviews. Now, the hip new trend is to offer a refund to all customers in exchange for a positive write-up or to get them to take down a negative review. As traditional advertising is quickly being replaced by online reviews and rating websites, the motivation to develop a positive online reputation is higher than ever.
Amazon, Yelp, Google and other review sites hold strict guidelines that prohibit compensation for consumer reviews. Still, the temptation to inflate ratings or falsify reviews is often too strong due to the large financial impact online reviews can make to a business’s bottom line.
Internet Age Forced FTC to Revise Advertisement Guidelines
The FTC has constantly revised its guidelines on testimonials and endorsements since 2009. Under these guidelines, a positive review posted by an individual connected to the seller – or an individual who receives in-kind payment or cash to review a service or product – must clearly disclose that connection between the seller and the reviewer.
David Vladeck, the director of the FTC’s Bureau of Consumer Protection, said that companies are obligated to ensure that all advertising for their services and products is not deceptive to the consumer. He recommended that advertisers who used affiliate marketers for promotions should institute a monitoring system to verify that these affiliates are truthful in advertising and the FTC is holding companies responsible.
In any event where there is “reason to believe” that this law has been violated, the FTC will file a complaint. The complaint alone is not a ruling that the company has violated the law. The complaint simply marks the beginning of a process in which all allegations are heard – and the respondent has the opportunity to refute the charges.
The FTC works to ensure that consumers do not fall victim to deceptive, fraudulent and unfair business practices. Their mission is to provide information that will help them to recognize these practices. The FTC’s website offers free information on a wide range of consumer topics.
The following three companies felt the consequences of falsely representing their products through online reviews.
A prominent retailer of guitar-lesson DVDs was forced to pay $250,000 to settle Federal Trade Commission charges that the company advertised its products using online affiliate markets who falsely portrayed themselves as independent reviewers.
The FTC filed a complaint against Legacy Learning Systems, a Nashville, Tennessee-based company, along with its owner, Lester Gabriel Smith. The complaint is part of the FTC’s efforts to crack down on advertising to American consumers that is deceptive, whether these advertisements are placed in traditional or newer media channels.
The Learn and Master Guitar program, one of the major products of Legacy Learning and Smith, is sold to customers who want to learn how to play the guitar at home using written materials and DVDs. According to the FTC’s documentation, Legacy Learning and Smith promoted their online affiliate program using “Review Ad” affiliates. These affiliated endorsed the product through blog posts, article and miscellaneous online editorial content. The endorsements appeared on the same page as hyperlinks to the Legacy Learning and Smith website. As a result, affiliates were given substantial commissions on product sales that resulted from their referrals.
The FTC charged Legacy Learning Systems with deceptive advertisements reflecting the opinions of “independent” reviewers or ordinary consumers. The company failed to force their affiliates to disclose that they received payment for each sale they generated. According to the FTC ruling, these endorsements helped the company generate sales of more than $5 million.
Legacy Learning Systems must pay $250,000 and meet a set of standards outlined by the FTC. The company must provide monthly reports about their affiliate marketers – and disclose that they are earning commissions on each sale. The FTC approved the complaint and the proposed agreement by a vote of 5-0.
VIP Deals, which specializes in stun guns and leather cases, offered customers a partial refund on any products they purchased in exchange for glowing reviews. Three different customers told the New York Times that they were mailed a letter along with a Kindle Fire cover valued at nearly $60. Customers were only required to pay $10 plus shipping for this deal.
VIP Deals, which currently doesn’t have a company website, denied the customer claims. Based on these reviews, the tactic was quite effective. Nearly 90% of the online reviews were five stars, while most of the rest were four stars.
Although VIP Deals would never be officially investigated by the FTC, the public backlash to their strategy proved devastating. After the company was allegedly caught bribing, they quickly took down the positive reviews and abandoned the promotion.
The public relations firm Reverb Communications, based in California, was forced to remove fraudulent iTunes reviews that it posted for one of its clients, a gaming app developer. Between November 2008 and May 2009, Reverb and its owner, Tracie Snitker, formed fake iTunes accounts and composed positive reviews about the clients’ apps. They did not disclose that these reviews had been written by employees who worked on behalf of the app developers.
The company wrote a series of simple comments that were generally easy to detect as false and misleading to consumers. Examples included “Really Cool Game,” “Amazing new game,” and “ONE of the BEST.” Reverb claimed that the iTunes comments were from employees who downloaded the gaming apps on their own personal cell phones, with their own money. The companies involved in this marketing ploy were not identified.
Reverb was ordered to erase the false endorsements within seven days. According to the FTC, all companies, including public relations firms with online marketing services, must abide by the organization’s guiding principle of truth in advertising.
In most cases, it’s a smart strategy for business owners and their employees to avoid posting any material in comment threads hosted by online retailers. Any indication that the business is involved in unethical tactics could cause an online reputation nightmare from angry customers.
Bottom line: You can ask your customers for positive reviews and direct them in terms of placement. However, it’s unethical and illegal to incentivize these opportunities without a disclaimer. The FTC is now holding companies responsible for the actions of their affiliates, so companies must monitor this behavior as well.