Social Media Endorsements: Where Will Marketers Draw the Line?

What if advertisers found a stealthy new way to get their pitch across — a form of messaging perceived more as a friendly recommendation than hard sell? In an over-crowded media environment, marketers would surely flick to such an innovation.

And they have. In the nascent realm of social media influencing, paid endorsements are burgeoning. Celebrities and other influencers present their taste and choices in the marketplace as nothing more than the act of sharing tips with fans and the public — even while failing to make clear that, often, they are being paid to do so.

The only hitch, of course, is that failing to publicly disclose compensation for promoting a product or service is illegal. The practice falls under the category of deceptive advertising, and the problem has become widespread enough to capture the attention of the Federal Trade Commission, which recently sent a shot across the bow of the industry. In a letter to 90 influencers and marketers, the FTC reminded them of the obligation to “clearly and conspicuously disclose their relationships … when promoting or endorsing products through social media.”

There is nothing about social-media technology itself that makes identifying paid messages difficult, points out Wharton marketing professor Jonah Berger, author of Contagious: Why Things Catch On. “Native advertising can note that it is an ad, and tweets can include hashtags that note someone was paid.”

But though there is a way, it is less clear that there is always a will.“One reason word of mouth is ten times more effective than advertising is that people trust it more. Knowing someone got paid to talk about something makes us much less likely to trust that message.”–Jonah Berger“Companies don’t want to adopt these tactics,” says Berger, “because it will reduce the effectiveness of their message. One reason word of mouth is 10 times more effective than advertising is that people trust it more. Knowing someone got paid to talk about something makes us much less likely to trust that message.”

In one respect, the proliferation of this kind of practice is just one more skirmish in the ageless game of cat and mouse between advertiser and consumer. But right now, the stakes are particularly high.

“First, consumers are getting desensitized to ads. In fact, the install rate of ad blockers among millennials is very high,” says Wharton professor of operations, information and decisions Kartik Hosanagar. “Advertisers are looking for new ways of getting their messages through, and native advertising where ads are built into the content are more commonplace. Second, and a related point, is that media influence is becoming increasingly decentralized with bloggers and social media influencers taking over. This makes it harder for the FTC to regulate. This is not going away, and so it makes the FTC’s job extremely hard going forward.”

The Rise of the Influencer
Influencer marketing is growing rapidly. Mediamix, a major influencer marketing firm, notes that some key demographic groups now receive media content solely through social media channels, apps and platforms, and that the total ad spend of the influencer market will rise from $500 million in 2015 to between $5 billion and $10 billion by 2020.

“The issue now is that so many companies, large and small, have the opportunity to advertise on Snapchat, Twitter and Instagram – it’s a relatively cost-effective way to reach a global audience,” says Erin E. Rhinehart, a partner at Faruki Ireland & Cox in Dayton, Ohio, who leads the firm’s media and communications practice. “What we are seeing are a lot of traditional marketers forgetting the fundamentals of the need to disclose, and a lot of smaller and mid-size companies are not paying attention to the fact that regulations still apply to them.”

Rhinehart notes that regulations have been in place for decades governing false and deceptive ads, as well as the requirement for disclosure when the “fan” of a product is being paid, through a patchwork of state and federal laws. Additionally, the FTC issued a set of guidelines in 2015 designed to instruct social-media influencers, making it clear that the same obligations that apply to traditional media apply to them.

The agency says it does not generally monitor bloggers, but that “if concerns about possible violations … come to our attention, we’ll evaluate them case by case. If law enforcement becomes necessary, our focus usually will be on advertisers or their ad agencies and public relations firms. Action against an individual endorser, however, might be appropriate in certain circumstances.”

This is exactly what led the FTC to send its recent warning letter to 90 influencers and marketers. Public Citizen, the consumer-rights advocacy group founded by Ralph Nader in 1971, filed a petition with the FTC, and the agency investigated.

The FTC did not initially disclose the names of the recipients. But according to the National Law Journal, which filed a Freedom of Information Act request with the FTC, recipients included Jennifer Lopez, who posted an Instagram photo with Beluga brand vodka in the background, and Jersey Shore star Nicole Polizzi touting Flat Tummy Tea with an Instagram photo captioned with: “There’s just NO WAY I’m doing summer without a flat tummy.”Lines between advertising and editorial content have been blurring for years, but more so recently. On The New York Times website, for instance, while the company clearly labels certain ads with the line “sponsored content,” the online placement of these ads in the middle of the page, with a graphic treatment similar to that of articles, makes the distinction less clear than traditional pop-up ads or ads that are boxed off.

Still, the distinction eludes many. In a recent study of 1,212 adults who regularly access the internet, Contently and the Tow-Knight Center for Entrepreneurial Journalism at the City University of New York found that the majority of readers, 77%, didn’t interpret native ads as advertising.

Small wonder that native advertising is expected to zoom. By 2021, native display ad revenue in the U.S., which includes native in-feed ads on publisher properties as well as social media platforms, will make up 74% of total U.S. display ad revenue, up from a 56% share in 2016, according to one report from Business Insider.

The FTC’s recent warning marks a change, says Rhinehart. For the most part, it has gone after companies it felt violated consumer trust; in 2016, the FTC and Lord & Taylor settled over charges after the store had paid 50 influencers to wear certain dresses and post about them while failing to disclose that they had been paid between $1,000 and $4,000 each. But the recent warning letters, she says, are “the first time they have been going after individual influencers. The Kardashians, for instance, can’t keep posting [paid endorsements without disclosing them as such] on Instagram and then claim it’s the company’s fault. The FTC is now watching you.”

Technically, even much smaller fish are violating FTC guidelines when they fail to disclose — teens who have been sent a free pair of pants who then post favorable comments to social media feeds, or any individual being paid to post on the comments page of a retailer’s website. “There are a lot of companies that pay folks to put comments out there,” notes Rhinehart, adding that they risk the wrath of the FTC on a sliding scale. “If you have one person who is being paid five bucks and they put a comment on [a website] to get comments going … the FTC is not going to come knocking on your door. But if that is pervasive, and that is the way you do business, it tips the scale at a certain point, and you are perpetrating fraud.”

The key is for influencers to clearly signal when they are being paid to influence. Just how prominent the label is matters. A single disclosure on one’s website or social media account is not adequate disclosure, the FTC says. “What matters is effective communication, not legalese,” state agency guidelines. “A disclosure like ‘Company X sent me [name of product] to try, and I think it’s great’ gives your readers the information they need. Or, at the start of a short video, you might say, ‘Some of the products I’m going to use in this video were sent to me by their manufacturers.’ That gives the necessary heads-up to your viewers.”

Can the Influencer Market Police Itself?
Part of the new need for disclosure comes from the melding of personal and professional lives on social media, points out Wharton marketing professor Americus Reed. “One of the things social media has done is to create perhaps a kind of unseen and maybe unwanted transparency by nature of the fact that you have multiple channels to which you can broadcast to various audiences,” he says. “And as you engage in this social media activity it may not be obvious that these multiple audiences might be overlapping. That introduces an interesting public impression management exercise — how am I going to manage my identities across all these different platforms?”

Reed says he believes any social media user absolutely has an obligation to disclose whether gifts or favors have influenced a recommendation or opinion – whether or not that user thinks of him or herself as an influencer in a formal sense. “You have a network that you took a long time to build up and that network has value, and if you are smart the last thing you want to do is compromise that network’s perception of you as changing to selling stuff rather than recommending something.”

Is the influencer market capable of policing itself? In a 2016 survey of 347 influencers by influencer platform SheSpeaks, one out of four influencers said he or she had been asked not to disclose commercial arrangements with a brand.

At some point, a self-correction mechanism in the marketplace will probably kick in, says Reed. “The true influencer is someone who likes to share because the act of sharing gives them utility. They enjoy sharing stuff – the friend who is a movie buff, or the foodie who will share a restaurant recommendation. The true influencers are not looking to get paid. They get something from the act of sharing, and marketers are trying to intervene between the influencer and their markets. There is a social influencer market and it is constantly in flux, because you have marketers trying to influence the influencers.”

Some influencers won’t accept compensation, and others will but will be up front about it, he says — essentially putting a premium on credibility.

The current lack of disclosure on the part of influencers being paid is sometimes less about a deficit of scruples than a lack of awareness, says Rhinehart. “I think there are some bad actors out there that, quote, ‘forget,’” she notes. “But for the most part I think it’s really just a lack of structure and policy internally relating to the PR department, marketing and advertising, and a lot of times social media and traditional marketing departments aren’t talking to each other. The left hand does not know what the right hand is doing.”

Social media firms that want to protect their credibility might have to take action themselves. Michael Sinkinson, Wharton professor of business economics and public policy, suspects that Instagram will have to start “self-policing and giving users a way to disclose whether their posts include a paid endorsement — and if they violate that, [Instagram will] have to take punitive action against those users.”

What lies ahead as marketing and advertising look for ways to get the message across on evolving platforms and technology? “Let’s not forget Google and Facebook are advertising companies, and they have a lot of data on us, and that’s how they make advertising money,” notes Sinkinson. “I would not be surprised if we saw more innovations of this sort. Facebook now has videos with ads in the middle of videos that you’re watching — that’s an example of an innovation. But you can see these firms have to find ways to make money off of the services they offer their users. As to what they will be, the sky’s the limit.”