FTC Rejects Call for Probe Into Word-of-Mouth Practices

Could Lead to Increased Spending in Already Controversial Marketing Tactic

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WASHINGTON (AdAge.com) -- The Federal Trade Commission today rejected a consumer watchdog group's call for a full-scale probe of
The FTC rejected a call from Gary Ruskin of Commercial Alert to look into word-of-mouth marketing practices.
The FTC rejected a call from Gary Ruskin of Commercial Alert to look into word-of-mouth marketing practices.
word-of-mouth marketing, the controversial practice that tries to turn ordinary consumers' affection for products and brands into free advertising.

The ruling could lead to increased spending in an area that's already growing in popularity with marketers, whose audiences are harder to reach in an era of increased media fragmentation. Today's consumers are also less likely to be swayed by traditional ad pitches, especially given the amount of unbiased feedback they can find on the web about any given product or service.

Commercial Alert petition
The FTC's response was to an Oct. 18, 2005, petition from Commercial Alert, which claimed that marketers were "perpetrating large-scale deception" by paying consumers to shill for products but not revealing the financial arrangements. Commercial Alert called word of mouth, or buzz marketing as it's also known, "fundamentally fraudulent and misleading."

The FTC decision means that companies such as Procter & Gamble, Hershey Co. and countless other corporations, agencies and buzz-specialty shops will avoid the specter of a thorough probe of their marketing practices. However, the FTC did leave the door open for the commission to examine issues on a case-by-case basis. In short, marketers could be playing with fire if they pay people to post opinions about products such as movies, cellphones or electronics to websites without making their sponsorship clearly visible.

"If a sponsored consumer raves about how well her dishwasher cleans, such an opinion is likely to be given greater weight or credibility without a disclosure of sponsorship that the marketer is paying the consumer to speak," wrote Mary Engle, FTC associate director for advertising practices. "In such circumstances, it would appear that failure to disclose the relationship between the marketer and the consumer would be deceptive unless the relationship were otherwise clear from the context."

Criteria for opening a case
In an interview Ms. Engle said the FTC examines a number of criteria in deciding whether to bring a case against a marketer but usually looks more closely at actions that lead consumers to make purchase decisions. Some word-of-mouth marketing is focused on getting consumers to visit websites rather than to make immediate purchases.

Commercial Alert Executive Director Gary Ruskin blasted the FTC's decision, saying in a release the FTC gave word-of-mouth marketing a "giant Christmas present."

"Instead of acting like a watchdog, the commission is more like a docile lapdog nestled in the lap of its corporate masters," he said, adding that he was hopeful the FTC's willingness to act on individual cases would send a strong warning.

The ruling comes during the Word of Mouth Marketing Association's annual summit in Washington. WOMMA officials praised the FTC for turning down the request and said they agreed with pursuing case-by-case prosecution, noting that stealth marketing violates the group's guidelines. Ms. Engle is expected to speak at the conference tomorrow.

'Supportive of the industry'
"The FTC has rejected a blanket demand [from Commercial Alert] and have always had the right to call a case," said Andy Sernovitz, WOMMA's CEO. "That is supportive of the industry." Peter Waldheim, senior strategist for the group, said the industry shares concerns about stealth marketing, but added that Commercial Alert's petition wrongly lumped all word-of-mouth marketing together in asking for the FTC probe.

Separately, Mr. Sernovitz today in an e-mail newsletter told members that he will step away from the helm of WOMMA at the end of March to resume a career in consulting and speaking. Susan Tibbitts, WOMMA's executive director, will take over management of the organization.
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