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On December 1, 2009, new FTC regulations went into effect for all those doing business on the Internet with U.S. consumers. In actuality, they are not technically "regulations," nor are they new. The FTC is saying they are simply clarified interpretations of guidelines that already exist.
Regardless of the terminology used (and we'll use the term "regulations" for simplicity), this issue has been a source of much fear and angst among Internet marketers. What is the issue, exactly? Well, in a nutshell, it has to do with the wording of customer testimonials as well as transparency in your financial relationship with the merchants whose products you are promoting.
Is this good news or bad?
Some feel that this can only be a good thing because it will make it tougher for scammers and other unethical marketers to deceive the public, leaving more room for those who comply. Others are convinced that the only ones who will be hurt are the honest ones, feeling that disclosure will negatively affect their conversion rates. Still others believe that only the high-profile marketers will feel the heat, while the little guys can do business as usual because the FTC will have bigger fish to fry.
Time will tell which scenario comes true and whether the FTC is even able to enforce these regulations to any measurable degree. In the meantime, my advice is to comply to the best of your ability. I feel that the difference between a scam site and an honest one will be even more obvious, and that those who are sincerely trying to do things right will be fine.
But let's get the facts right from the horse's mouth. In a recent interview with Rich Cleland, the assistant director in the FTC’s division of advertising practices, Internet marketer Jim Edwards was able to get some answers that were very helpful to me in understanding the issue.
Let's look at the two main areas discussed in the interview: testimonials and compensation disclosure.
Testimonials
Marketers have long used customer feedback to promote products to potential customers, and this is not likely to change completely. However, the FTC wants to put a stop to misleading and fraudulent testimonials. Certainly we would all be glad to see that type of endorsement gone.
The testimonials they're concerned about are not so much the ones that say, "This is a great product, I've enjoyed using it, and it has made my life easier," but rather the ones that say, "I made X dollars with this product" or "I lost X pounds in just X days using this product."
An advertiser must be able to substantiate claims by endorsers. One way to determine whether a testimonial is likely to wave a red flag in front of the FTC is this: If you can't guarantee that a buyer will "make X money" or "lose X pounds" with your product, you can't have a testimonial from someone saying "I made X money" or "I lost X pounds," unless you have a clearly visible disclaimer with actual numbers, such as "The typical user of this product will only lose X pounds."
But how can you know how many pounds the typical user would lose? Well, that's where the problem lies. It would be a full-time job for someone to track a reasonable percentage of the product's users and keep a running tally of their exact results. Your safest bet would be to simply not use testimonials that give specific, measurable results.
If you're selling a product you've created, you can state the results that you obtained with its use, but you have to word it in such a way that the consumer doesn't think they will get the same results.
In the FTC's view, simply saying "results not typical" or "individual results may vary," as we've all seen in advertisements, is no longer enough to get the idea across that the testimonial giver's results were better than the average person could expect. According to Mr. Cleland, we must now disclose the "generally expected result in the depicted circumstances."
There also has to be reason to believe that testimonials reflect the customer's current opinion of the product. If you can't determine whether someone still stands behind their testimonial, you shouldn't use it. What's the expiration date on testimonials? Unfortunately, there's no definitive answer, but Mr. Cleland did say that if a reasonable effort is made every couple of years to ensure their current accuracy, it would be fine.
If you have questions about what you can or can't say, you can e-mail endorsements@ftc.gov. They will not reply to each e-mail, but they will use the questions submitted this way to create an FAQ on their site, http://ftc.gov.
Compensation disclosure
Internet marketers enjoy a wide variety of mutually beneficial relationships with online merchants. One of the FTC's objectives is to create transparency in these partnerships.
Basically, it boils down to the fact that they want people to be able to distinguish between advertising and non-advertising. The goal is to give consumers the tools to assess the credibility of the information being presented. Can the site visitor reasonably be expected to know that a product review or endorsement is being given in exchange for free products or some other form of monetary compensation? If it's not plainly obvious, we need to make it so.
If a reasonable consumer would understand that you, the marketer, will get a commission if they click on a link and buy a product, additional disclosure is not necessary. However, most people are unaware that affiliate marketing on the Internet even exists, so it seems unlikely to me that they will know you're earning a commission without being told outright, unless what they're clicking on is clearly an advertisement.
Where do you put this disclosure? Unfortunately, the FTC wants consumers to be able to see the disclosure as they are viewing the affiliate link. Does this mean you need to have a statement such as "If you buy this product, I get a commission" next to or under each link? I hope not! And I don't think that's the intent of these regulations.
Exactly how this should be handled is not clear. What I'm doing is creating a page on each of my sites called "Compensation Disclosure" and making sure there's a link to that page close enough to my affiliate links to be seen simultaneously in the smallest likely browser window a visitor might have. Whether this will be sufficient to appease the FTC remains to be seen.
The objection I have to this "regulation" is not that I am unwilling to reveal that I have a financial relationship with my merchants. That's why I create these sites, and I don't care who knows it. The problem is that it makes site design more cluttered and wordy. So I'm starting with the disclaimer page and will adjust my methods if it becomes necessary.
What are the consequences of noncompliance?
In the interview, Mr. Cleland indicated that the FTC is not going to be methodically examining every web site in existence to determine if they're crossing the line. That wouldn't be practical even if they had the necessary resources and manpower at their disposal. He stated that their focus in enforcement will be those who flagrantly ignore the guidelines and whose sites are causing the greatest injury to consumers. (I'm speaking of "injury" in a general sense, but since health products are some of the most profitable for scammers, physical injury is not out of the question.)
For the average questionable claim the FTC discovers, they will give warning and some time to make necessary adjustments, and then they'll come back and check to see if you have done it. They're willing to work with sincere individuals who want to comply but may not know exactly how. When they come upon a major fraudulent scheme, however, they may not warn the individual but rather will immediately open an investigation.
You may have heard there will be an $11,000 fine for those who disregard these guidelines. Fortunately, it's not true. But you could get taken to court and ordered to pay damages to consumers who might have been injured by your outrageous claims.
The bottom line? Be honest and upfront in all your business practices, and do your best to comply with the guidelines. I may be idealistic, but I find it hard to believe that you could go wrong making a good-faith effort along those lines.
More information
Here's the news release on their site about the guidelines: http://www2.ftc.gov/opa/2009/10/endortest.shtm
Here's a link to the actual text of the guidelines, in case you want to read them for yourself: http://www2.ftc.gov/os/2009/10/091005revisedendorsementguides.pdf. They have included quite a few sample scenarios to help you understand the intent of the regulations.
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