Jeff Neuburger

What is "word of mouth marketing" and what do I need to know about it?
March 13, 2007

The popularity of social networking sites like MySpace has prompted marketers to focus on social relationships to get the word out about their products. One of the hottest current trends in marketing is "word of mouth" marketing, or "buzz" marketing, in which marketers encourage and facilitate consumer sharing of opinions and experiences about the products that they are promoting.

The Federal Trade Commission is the federal consumer protection authority; it has the power to regulate trade practices, including advertising, by making rules and instituting actions against companies that violate federal consumer protection laws that prohibit unfair or deceptive acts or practices. In response to a request by consumer activists to take action on buzz marketing, the FTC recently stated that buzz marketing may violate FTC advertising guidelines under certain circumstances.

The sponsored consumer

A consumer who agrees to "buzz" on behalf of a product is called a "sponsored consumer." Buzz marketing campaigns may involve messages communicated person to person, in public places, or online, on blogs, and in chatrooms, or via instant messages, for example. The sponsored consumer may get free product samples or other merchandise or in some cases, paid compensation. Occasionally, professional actors are paid to pose as a consumers.

The consumer activists complained to the FTC that buzz marketing should really be called "stealth marketing." They pointed to examples such as paid actors standing in long lines talking up the great sale at the store around the corner, and efforts by a major consumer brand to enlist teenagers as sponsored consumers to buzz market products, without telling their friends about their existing relationship with the brand.

The example of paid product endorsements

The Federal Trade Commission decided not to issue rules specifically regulating word of mouth marketing, but responded to the consumer complaint by referring to its existing guidelines and prior enforcement actions with respect to paid product endorsements: if there is "a connection between the endorser and the seller of the advertised product which might materially affect the weight or credibility of the endorsement…., such connection must be fully disclosed." Thus, if the target of a word of mouth marketing campaign would be more skeptical about the "buzz" from a "sponsored consumer" if the target knew about the sponsored consumer’s relationship with the marketer, then the relationship must be disclosed, unless it is "otherwise clear from the context."

"Otherwise clear from the context"

Based upon the examples given in the FTC response, companies should be cautious about marketing campaigns that involve "buzz" generated by people who are business associates or family members, or others who are receiving cash payments or free products or services, or have some other significant relationship with the company, without disclosing or making obvious the nature of the relationship.

What’s "obvious"? The FTC gives the example of paid celebrity endorsements and experts appearing in advertisements as examples of situations in which consumers would expect that the endorsers had been paid.

Buzz marketing and children

The FTC position it that teenagers and children may be more vulnerable to marketing messages than adults. Therefore, in evaluating whether a child or teenager would "reasonably expect" that a "sponsored consumer" had a relationship with a marketer, the standpoint of an ordinary child or teenager must be taken into account. This suggests that children and teens are less likely to be skeptical when they are the targets of buzz marketing, and therefore that relationship disclosure must be made more often, and more obviously, than in marketing to adults.

The WOMMA ethics code

So where does this leave you in planning your next marketing campaign?

The FTC said that it would evaluate complaints about "word of mouth" marketing on a case-by-case basis, using the general principles outlined above. This means that companies thinking about a "word of mouth" component to their marketing efforts must keep these admittedly general principles in mind.

Companies may also consider taking a look at the ethical code adopted by the Word of Mouth Marketing Association, a non-profit trade group. The WOMMA ethics code, which was referred to favorably in the FTC response to the buzz marketing complaint, puts a bit more flesh on the bones of the FTC’s general principles. In particular, the FTC referred to the WOMMA stance against "shill" or "undercover" marketing.

Keep in mind, however, that the WOMMA ethics code is not a binding law or regulation, and there are other groups that take a stricter view of what is acceptable buzz marketing.

The posts on this blog reflect the personal views of Jeffrey D. Neuburger, in his individual capacity, and do not necessarily represent the views of his law firm or his clients, and are not sponsored or endorsed by them. The information contained in this blog is provided only as general information for educational purposes, and no warranty or representation is made about the accuracy of the information provided. Blog topics may or may not be updated subsequent to their initial posting. This information is not provided in the course of an attorney-client relationship and is not intended to constitute legal advice. This blog should not be used as a substitute for competent legal advice from a licensed attorney in your state.

Posted by Jeff Neuburger on March 13, 2007 | Comments (1)