NEW YORK (MainStreet) — Back in 2006, Legacy Learning Systems, a Tennessee-based company that sells guitar instruction DVDs, had a novel idea for how to promote its products: just hire people to write positive reviews of its guitar courses on websites and online publications. Sure enough, the method helped the company earn more than $5 million in sales to date, but the strategy struck the wrong chord with the U.S. government.
The Federal Trade Commission announced this week that Legacy Learning must pay $250,000 to settle charges that its marketing method constitutes deceptive advertising, since paid affiliates of the company effectively pretended to be ordinary consumers in order to influence customer shopping decisions.
“Whether they advertise directly or through affiliates, companies have an obligation to ensure that the advertising for their products is not deceptive,” said David Vladeck, director of the FTC’s Bureau of Consumer Protection. “Advertisers using affiliate marketers to promote their products would be wise to put in place a reasonable monitoring program to verify that those affiliates follow the principles of truth in advertising.”
The FTC’s decision builds on the agency’s guidelines on endorsements, which were updated in 2009 for the first time in nearly three decades to adapt to the growing role the Internet plays in marketing, and states in part that any person writing a positive review of a company must disclose their relationship to the seller if they are in business together.
This standard has been applied a handful of times since being updated, but rarely has the agency done so to regulate online reviews. In one similar case last year, the agency went after a public relations firm whose employees posted reviews of iPhone apps that were manufactured by their clients, on the grounds that this too constituted deceptive advertising because the employees were paid to work on behalf of the developers.
Each of the recent cases could have a significant impact on the way companies market themselves online. More and more consumers now find businesses of all kinds on review sites like Yelp and ConsumerSearch, which are based on customer feedback, not to mention reviews found on e-commerce sites like Amazon.
Legacy Learning, for example, focused on posting short, positive reviews to music sites like Guitarlessoninsider and ReviewsNest. On the latter site, an affiliate wrote of the company’s guitar DVDs that they “emerged from our test as the King of ‘learn guitar home’ courses.”
The degree of anonymity afforded by the Internet has made it that much easier for companies like Legacy Learning to game the system and flood review sites with fake positive reviews, not to mention the fact that some sites like Yelp have been accused of accepting money in exchange for burying negative reviews, further complicating the system. But if the FTC begins to take a more aggressive stance against these practices, it could eventually provide enough of a disincentive for companies to scale back their deceptive advertising online.
That said, it is still vitally important for business owners to monitor popular review sites and web forums to get a sense of customer opinions and occasionally respond personally to their complaints. They just need to be sure they are clear about their identities.
For more tips on how businesses can protect and improve their reputations online, check out these tips from MainStreet.
—For a comprehensive credit report, visit the BankingMyWay.com Credit Center.