Posted: Marcus Varner | July 25, 2016


Paid Endorsements and Reviews: 3 Critical Questions We Should Be Asking

paid endorsements

Confession time: I pay people to say nice things about my product.

Just to give some context, when I'm not writing for, I'm a marketer. And I will do just about anything to get a customer or someone influential to say something good about my product. Customer testimonials. Celebrity endorsements. Even just getting an influencer to say they agree with something I said about the value of my product. I spend a lot of time and money trying to make this happen.

And why? Because there is no more powerful marketing tool than to hear and see a real person-especially a person who lots of people listen to-say your product changed their life. Nobody trusts what I say as a marketer, but they do believe celebrities, influencers, family, and friends.

This is one of the holy grails of marketing, and you can see evidence of its value everywhere-from the shoes Lebron James wears to the pots the Pioneer Woman uses to prepare dishes to your aunt gushing about her local Thai restaurant on Facebook. Review sites and social media have made it possible for everyone to get in on the act.

But then the Federal Trade Commission just had to show up and shut down the party.

Last year, they discovered that retailer Lord & Taylor had sent the same dress to 50 different influencers, along with $1,000 to $4,000, to post a photo of themselves wearing the dress on Instagram and mention @lordandtaylor. The company was also found to be paying for native advertisements (ads that are made to look like objective articles) in publications.

fake reviews

This was enough to bring down the wrath of the FTC, which charged that Lord & Taylor was purposely deceiving consumers into thinking that their paid ads were just objective articles and opinions from unrelated third parties.

"Lord & Taylor needs to be straight with consumers in its online marketing campaigns," said Jessica Rich, Director of the FTC's Bureau of Consumer Protection, about the charges. "Consumers have the right to know when they're looking at paid advertising."

Lord & Taylor settled with the FTC and is now required to disclose explicitly on reviews, ads, and endorsements when they've paid for it.

This wasn't an isolated incident. A year earlier, the FTC went after gamemaker Warner Bros. Entertainment for paying gaming influencers tens of thousands of dollars to post positive reviews about their game "Middle Earth: Shadow of Mordor" on YouTube. Although the company had included disclaimers on the videos, the FTC claimed that the disclaimers weren't prominent enough. Warner Bros. Entertainment went along with the order, taking action to make the disclaimers easier to see.

paid endorsements

Again, full of righteous indignation, an FTC representative said:

"A lot of consumers watch these videos by the YouTube influencers to decide whether to buy a game. A consumer looking at these videos would not have the necessary information to weigh what was being said."

With this context, let's pause for a second. Most people seeing this news story will side with the FTC's interpretation of what constitutes deceitful marketing, but is it true?

Do people look at pharmaceutical commercials and actually think that the person talking is not an actor? Do they see several dozen influencers wearing the same dress on Instagram with the same mention and not figure out that something is up? Are consumer really that naive?

Or is the FTC's stance an oversimplification of what paid endorsements, reviews, and advertisements really are and how they work?

For sure, the issue is not as clear as the FTC would make it out to be. Hanging over the whole affair are these three critical questions:

Why exactly are paid endorsements and reviews bad?

paid review

By now, we've all heard about how Amazon has made it their life's mission to seek out and sue the pants off of fake reviewers on their site. In this case, fake reviewers would offer to post fake positive reviews for Amazon vendors in exchange for payment. These reviews have little to no chance of being authentic. This has made them poisonous to the whole Amazon review system. Yes, Amazon paid reviews are obviously bad.

But is this true about reviews from actual customers where incentives are involved? Are paid reviews inherently dishonest or less credible than other reviews?

paid endorsements

Here is how the FTC sees it:

"Suppose you meet someone who tells you about a great new product. She tells you it performs wonderfully and offers fantastic new features that nobody else has. Would that recommendation factor into your decision to buy the product? Probably. Now suppose the person works for the company that sells the product - or has been paid by the company to tout the product. Would you want to know that when you're evaluating the endorser's glowing recommendation? You bet."

Certainly, when you add financial or other incentives into the mix, it increases the likelihood of bias. But bias exists in all forms in the realm of reviews and endorsements.

Company employees posting negative reviews about a competitor is one example of this.

A proud mom might post a review about a restaurant where her son just got hired, even if she's never actually eaten at the establishment.

At the same restaurant, a woman might find that her waiter is an ex-boyfriend and then leave a lackluster review on Yelp that has nothing to do with the food, service, or atmosphere at the restaurant.

Clearly, people can produce false-even misleading-reviews and endorsements without any kind of financial incentive.

So are paid endorsements and reviews inherently untrustworthy? Lebron James might be paid to wear his own signature Nike basketball shoes and say that they help him play better, but he might actually mean every word of that endorsement.

2. How does a review/endorsement qualify as "paid"?

paid endorsements

Things get really fuzzy when you start trying to draw the line where normal give-and-take between a company and its customers becomes an official paid review or endorsement.

Take movie critics, for instance, who receive a movie ticket, concessions, and other goodies for free to review a film. Of course, film distributors provide these benefits in hopes of receiving a positive review. They don't demand it, but they do expect it.

Or how about customers who give a testimonial and then, after the fact, receive a bouquet of flowers or a gift card for their help? Many companies have already created policies restricting how much their employees can accept in gifts from vendors, just to avoid the appearance of impropriety.

On this subject, the FTC recommends this "err-on-the-side-of-caution" approach:

"The question you need to ask is whether knowing about that gift or incentive would affect the weight or credibility your readers give to your recommendation. If it could, then it should be disclosed. For example, being entered into a sweepstakes or a contest for a chance to win a thousand dollars in exchange for an endorsement could very well affect how people view that endorsement. Determining whether a small gift would affect the weight or credibility of an endorsement could be difficult. It's always safer to disclose that information."

This is fine guidance for consumers faced with an offer to do a paid/incentivized review, but it doesn't address the bigger question of what separates a paid review from an unpaid one.

If it's all about the result the review has on other consumers, then how do you know if the review was actually the result of the incentive? How many of those Lord & Taylor influencers would've posted pictures on their own, with or without the financial incentives?

When product endorsements can happen on review sites or casual social media posts or on the red carpet, this linkage between an incentive, a review, and the perception of the consumer reading the review gets even more difficult to pin down.

Efforts to do so quickly become absurd.

3. Does knowing that an endorsement is paid for cause damage to reviews in general?

Of all the question posited in this post, this one matters the most to us here at After all, like Amazon, we realize that if our reviews don't reflect the authentic, unvarnished experience of a real customer, then we will fail to give our user the information they need to make educated purchasing decisions.

If Kim Kardashian swore, for example, that a new health supplement helped her lose 50 pounds in stubborn baby weight when, in fact, that supplement caused her to break out in hives and become manic depressive, this would be just as destructive to the review system as Amazon's paid fake reviews.

paid endorsement

If customers of Chipotle were invited to rate the chain on Yelp in exchange for a sweet discount on their next meal, the resulting reviews would be just as valid as any un-incentivized reviews.

Perhaps the critical point here is that, if a company requires a positive review or endorsement before they will grant gifts to the reviewer or endorser, then the resulting reviews have a higher likelihood of being tainted.

"[E]ndorsements must be honest and not misleading," says the FTC. "An endorsement must reflect the honest opinion of the endorser and can't be used to make a claim that the product's marketer couldn't legally make."

Setting a Precedent

Currently, the reason for the FTC's sudden passionate interest in endorsements and reviews is unclear. Thankfully, for the time being, their pressure is resulting in little more than slaps on the wrist and being forced to put up labels that let consumers know reviews and endorsements have been paid for or otherwise incentivized. And they are playing a vital role as enforcer in keeping marketers from abusing the review and endorsement system.

The keepers of the review system, however, will have to keep a close eye on the FTC to make sure they don't take their influence to the opposite extreme and shut down the openness, and even chaos, that are so vital to the continued value of reviews and endorsements.


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Written by Marcus Varner

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