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Is Buzz Marketing Illegal?
Lawyers Warn of Advertising Law Disclosure Requirements

The good buzz on the nascent business of word-of-mouth marketing holds that it offers a low-cost, highly effective way to drum up positive chatter around a brand. The bad is that some of its more insidious practices could lead marketers to run afoul of longstanding advertising law.

Disclosure issue

As marketers more frequently look to recruit consumers brand agents to spread goodwill for brands, industry attorneys view buzz marketing as a likely area of regulatory involvement, especially around the issue of compensating people to participate in buzz programs when they fail to disclose their connections to marketers and agencies. While there is no legal precedent specific to word-of-mouth marketing, there are Federal Trade Commission guidelines for ads that are likely to apply.

“If the motivation for [an endorser] is to profit from his or her endorsement, that connection probably needs to be disclosed,” said Douglas Wood, chairman of advertising and marketing law at Reed Smith. “But since disclosure undermines the value of buzz marketing, advertisers are in a Catch-22.”

Misleading consumers?

An FTC official said while word-of-mouth isn’t something that the agency is looking at, disclosing commercial relationships is crucial to avoid violating the law. “The real question is whether consumers are being misled someway,” said Rich Cleland, an assistant director of advertising practices for the FTC.

$60 million business

Most big marketers have at least dabbled with ways of getting the most credible of spokespeople -- ordinary, everyday folks -- to speak to other ordinary, everyday folks about how great their products are. No firm data exist on how much spending on word-of-mouth marketing programs has increased, but some estimates put it at $40 million to $60 million business that grew at a rate of 100% in the last year.

The Word of Mouth Marketing Association has posted a working ethics code on its Web site, stating that the organization complies with the Federal Communication Commission‘s regulations on endorsements. The code also has a section titled “Honest ROI: Honesty of Relationship, Opinion and Identity.”

BzzAgent policy change

Not everyone agrees that disclosure hurts the buzz marketing process. BzzAgent, one of the best-known players in the space, found that its campaigns were more effective when workers revealed whom they were working for. That caused the Boston company to change its policy a year and a half ago.

“When we started the business in 2001, everything we read told us that in stealth and anonymity there is power,” said founder-President Dave Balter, whose client list includes IBM, Penguin USA and Monster.com. “Are there cases where if people didn’t disclose they would influence somebody else? Yes. But it’s not appropriate and disclosing doesn’t hurt the process.“


Matthew Creamer, Advertising Age. October 4, 2005

Copyright © 2004, Crain Communications Inc.. All rights reserved.