Capitol Comments: Marketing Techniques Matter

It’s not necessarily what you say but how you say it.

By Todd Harrison

More insight is needed on the relationship between private label distributors (i.e., the marketer) and their manufacturers and suppliers of raw materials, especially as it pertains to the claims a marketer believes it can make for a particular product. It is important for a marketer to independently assess whether a particular claim is a permissible structure/func­tion claim, and therefore properly substantiated. But marketing practices do not simply end with whether a claim is an appropriate structure/function claim or is properly substantiated. Rather, marketing entails all the practices that a company employs to increase revenue. In a down economy, growing a business can be very difficult, if not downright impossible. As a result, companies are more likely to entertain new, more creative marketing campaigns.

The growth of direct-to-consumer (DTC) advertising is becoming an increasingly lucrative area for many companies. And many DTC companies will tell you that when the economy is down their revenues tend to increase. As a lawyer, I am not qualified to give an opinion on the truthfulness of that belief, but what I do know is that DTC marketing, especially on the Internet, appears to be booming as more and more traditional companies enter this world as a means of increasing revenue.

DTC marketing offers a wide array of options for a company, including the development of continuity programs. Now we are also witnessing there-emergence of more “negative option” programs, similar to the popular 1970s programs in which you agreed to buy 13 records for $.99, but then you were obligated to buy “x” amount of records at an inflated price within the next couple of years.

Companies are also making use of “affiliate marketing programs” (“AMPs”). This technique is like multi-level marketing meets the Internet, except the affiliate is paid a commission on the sales it drives to your website. It does not stop there, however. Companies can actually hire bloggers to write about their products. In fact, it is entirely possible that a blogger writing about a product has been hired to do so by a company. The blogger in this instance serves two purposes. One, the blog pushes a company up on the organic search rankings. Two, it provides a testimonial for the product. It is a great way to increase a product’s exposure to potential consumers.

Other options include pay-per click sponsorships and the use of metatags. Keep in mind that FDA and FTC view metatags and pay for click terms to be claims. For example, if you purchase the term “colon cancer” or have it imbedded on a website for a cleanse product, it is quite possible FDA and FTC will view that as an implied claim that your product helps prevent colon cancer.

A prime example of not paying attention to marketing practices is the Berkley Premium Nutraceuticals case. It seems the industry still believes this case was about product claims. Let me you assure you the government is highly unlikely to criminally prosecute you over questionable product claims. If you read the various indictments, guilty pleas and guilty verdicts you will learn that the Berkley case was not about deceptive product claims, but rather deceptive and fraudulent trade practices. If it was merely about claims, there would not have been any criminal prosecutions and it would have been resolved with a civil consent decree.

Regulating These Marketing Techniques

Continuity programs in their simplest form involve a customer agreeing to receive a shipment of a particular supplement, usually on a monthly basis, and to have their credit card or debit card charged every month. The terms of the continuity program must be clearly and conspicuously spelled out. If an e-mail receipt is being sent, it should clearly indicate the terms of the continuity program and how to cancel it. The terms should also appear on the shipment collate that is provided with each shipment of the product. There are additional rules with regard to debit cards, but stated simply, an electronic signature authorizing the use of a debit card, check card, or electronic check is required before a customer can be charged.

Where continuity programs start to become more complex is when they are combined with a negative option component. Typically, the marketer is offering the product for “free” or a significantly reduced price. To receive the product for “free” or at the reduced price, the consumer is opted-in to a continuity program. It is very important, however, that the terms of the offer are spelled out in a manner that is clear and conspicuous. One technique used on the web is to simply place the terms of the offer into the “terms and conditions” box, which the consumer is required to check before moving forward in their purchase. However, this technique is not likely to be considered sufficient to FTC or a state Attorney General. Indeed, the view from the regulator’s perspective is that the consumer is not likely to read the terms and conditions, and will simply check it and move on through the ordering process.

To avoid potential issues, the terms should be disclosed as part of the offer. For example, “Get your free bottle when you sign up for our continuity program.” The order page should specifically explain the terms of the offer, including terms of the continuity program. One last word on these offers, the FTC and the states are heavily scrutinizing them. So if a customer calls and demands their money back, give it to them, even if the offer was executed perfectly and there is no basis for the customer complaint.

As MLM’s must monitor their distributors, an Internet marketer must monitor their AMPs. Why? Because you are ultimately responsible for the traffic the affiliates are driving to your site. If the affiliate is considered an agent for your company and if they are making outlandish claims that cannot be substantiated, you must monitor them. What might help is developing a program that sets out how an affiliate can market your product. Provide a list of claims that may be made for the product so that should an affiliate “go off the reservation,” the marketer can notify them immediately to cease and desist their conduct. If they do not, the marketer must cutoff that affiliate. You have no defense if you claim you had no control over that affiliate.

The Benefits of Blogging

What a great way to increase exposure for your product. Bloggers who have no connection to the company do not pose a regulatory risk unless the marketer is linking directly to that blogger.

As mentioned previously, it is becoming more common, to pay bloggers to write about products. Under this scenario, the blogger is now providing either a paid endorsement or testimonial. What does this mean? Well, most people do not believe bloggers are paid by a company. Accordingly, it must be disclosed that the blogger is being paid by the company.

Moreover, a blogger must have a reasonable basis for the claims, express and implied, he is making about a product. Thus, if he states that he used a product, he truly must have used the product. If he states that the product is backed by science, he should have reviewed the science. In other words, all of the same regulatory rules regarding testimonials and endorsements apply to a paid blogger, as well as an unpaid blogger who a company has decided to link up with on the web.NW