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Tips & Bits #31: Truth in Advertising

A Common Sense Guide for Your Business

The Ninth Commandment insists that we tell the truth. And as ordinary citizens we try our best to do so. But what happens when we put on our marketing hats? In recent years, it seems as if the rules have been tossed out the window.

However, the Federal Trade Commission is on the job helping protect the innocent consumer from advertisers and marketers who would attempt to take advantage of them. Here are a few of the major topics covered in the rules set forth by the FTC. If you have a more detailed situation, you probably will be able to find guidance at the FTC website.

Meanwhile, let the following help guide you to a campaign that will allow you to sleep peacefully at night and keep your business out of the courtroom!

An overview of the FTC rules that apply to advertisers:

  • Advertising must be truthful and non-deceptive
  • Advertisers must have evidence to back up their claims
  • Advertisements cannot be unfair

Additional laws apply to ads for specialized products including consumer leases, offers of credit, 900 telephone numbers, and products sold through mail order or telephone sales. Plus, every state has consumer protection laws that govern ads running within that state.

An advertisement can be considered to be deceptive when:
it contains a statement – or omits information – that

  • Is likely to mislead consumers to act reasonably under the circumstances
  • Is "material" – or, essential to a consumer’s decision to buy or use the product

An advertisement can be considered to be unfair when:
it causes, or is likely to cause, significant injury which a consumer could not reasonably avoid, and it is not outweighed by the benefit to the consumer.

How the FTC determines if an ad is deceptive:
The FTC views an ad from the perspective of the "reasonable consumer" – the average person seeing at the ad. Rather than focusing on specific words, the FTC looks at the ad in context – words, phrases, and pictures as a whole – to determine what message it communicates.

The FTC takes into account both "express" and "implied" claims.  

For example, "Magic Mouthwash Prevents Colds" is an express claim that the product will prevent colds. "Magic Mouthwash Kills the Germs that Cause Colds" contains an implied claim that the product will prevent colds.

Although the second phrase doesn’t literally state that the product prevents colds, it would be reasonable for a consumer to believe that the product will prevent colds. Under the law, advertisers must have proof to back up both express and implied claims that consumers interpret from an ad.

The FTC also considers what the ad does not say – that is, if failure to include information causes consumers to be mislead about the product. For example, if a company advertised a collection of books, the ad would be deceptive if it did not disclose that consumers actually would receive abridged versions of the books.

The FTC examines whether the claim is "material" – or, essential to a consumer’s decision to buy or use the product. Examples of material claims are descriptions about a product’s performance, benefits, safety, value, or effectiveness.

The FTC evaluates whether the advertiser has sufficient evidence to support the claims in the ad. The law requires that advertisers have proof before the ad runs.

What kind of evidence does the FTC require?
Before a company runs an ad, it must have a "reasonable basis" for the claims.  In other words — objective evidence to support the claim.

For example, the statement "Two Out of Three Doctors Recommend Purple Pain Reliever" must be supported by a reliable survey to that effect.

If the ad isn’t specific, the FTC weighs several factors to determine what level of proof is necessary, including what experts in the field think is needed to support the claim. In most cases, ads that make health or safety claims must be supported by "competent and reliable scientific evidence" – laboratory tests, clinical studies, or other scientific evidence that has been evaluated by people qualified to review it. In addition, any tests or studies must be conducted using methods that experts in the field accept as accurate and appropriate.

Statements from satisfied customers are not sufficient to support a health or safety claim or any other claim that requires objective evaluation. Also, offering a money-back guarantee is not a substitute for substantiation.

What happens when a company runs a false or deceptive ad?
The FTC or the courts have imposed a wide range of penalties and actions including:

Cease and desist orders. A legally-binding order that requires a company to stop running the deceptive ad or engaging in the deceptive business practice. The company must also provide substantiation for claims in future ads and to report to FTC staff about the substantiation they have for claims in new ads. A fine of $16,000 per day per ad will also be assessed if the company violates the law in the future.

Civil penalties and monetary remedies. Civil penalties range from thousands to millions of dollars. Sometimes advertisers have been ordered to give full or partial refunds to all consumers who bought a product.

Corrective advertising, disclosures and other solutions. Advertisers have been required to take out new ads to correct the unlawful information communicated in the original ad, notify purchasers about deceptive claims in ads, and include specific disclosures in future ads.

While the FTC staff cannot approve your ads in advance, check out what the FTC has had to say about products or advertising claims similar to yours. The FTC website is an excellent resource in this and many other areas.

Marketers are often tempted to “stretch the truth” in order to gain a competitive edge over the competition. This lure must be avoided. The short term gains will never be worth the price – both in possible penalties imposed by the FTC and in the damage to your company’s reputation.

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