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CONSUMERS' RIGHT TO KNOW WHEN LOOKING AT PAID ADVERTISING
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In a first of its kind, the US Federal Trade Commission (FTC) brought a case against Lord & Taylor (the oldest luxury department store in North America) claiming its advertising campaign was deceptive. The case highlights what New Zealand businesses should also keep in mind when using paid-for advertorials and social media influencers’ marketing.

Lord & Taylor’s advertorial and Instagram campaign

Lord & Taylor ran an extensive social media campaign to push the launch of Design Lab, its own private label aimed at women between 18 and 35. Their strategy targeted one particular item of clothing – the Paisley Asymmetrical Dress.

The strategy was successful as the campaign reached 11.4 million Instagram users in just two days and resulted in 328,000 brand engagements that included shares, likes and comments. And yes, the dress sold out.

The advertising campaign included:

  1. a paid-for advertorial by Lord & Taylor in Nylon, an online fashion magazine, featuring the dress which was not clearly identified as an advertorial;
  2. gifting the dress to 50 select fashion influencers who were paid (between US$1,000 and US$4,000) to contractually post a photo of themselves wearing the dress (styled as they pleased) on Instagram with the handle ‘@lordandtaylor’ and hashtag ‘#DesignLab’; and
  3. a paid-for photo of the dress on Nylon’s Instagram account.

In each of these instances Lord & Taylor had a contract with the other parties involved so that it could review, edit and pre-approve the content before it was published. However, the contracts did not require Nylon and the fashion influencers to disclose these commercial agreements with Lord & Taylor to the public. Lord & Taylor also did not add any kind of disclosure when they pre-approved the content.

The FTC charges against Lord & Taylor

The FTC was primarily concerned with the lack of disclosure of the commercial agreements which misled consumers. The FTC claimed that Lord & Taylor’s media campaign was ‘unfair or deceptive practice’ under the Federal Trade Commission Act (FTCA) in three particular ways:

  1. The posts by the 50 fashion influencers were false and misleading because they were not the independent statements of impartial influencers that they were made out to be.
  2. Failing to disclose that the fashion influencers were paid endorsers was deceptive practice because the fact that the fashion influencers were paid to endorse the dress would have been material to consumers in their decision to purchase the dress.
  3. It was misleading to represent the dress in Nylon magazine and Nylon’s Instagram post as an independent statement because they were both paid commercial advertising.

 

Effect on New Zealand businesses Fair Trading Act 1986

New Zealand’s Fair Trading Act 1986 (FTA) has some similar prohibitions to the FTCA. The FTA generally prohibits ‘misleading or deceptive conduct’ under section 9. Additionally, section 13(e) provides that no person should make false or misleading representations that goods or services have any sponsorship, approval or endorsement. The latter gives rise to an offence, as well as civil liability.

The FTC’s view that Lord & Taylor’s conduct was unfair or deceptive may similarly be adopted by the New Zealand Commerce Commission and courts in relation to New Zealand legislation as ‘misleading or deceptive’ or ‘false or misleading’ under the FTA.

 

Existing Advertising Standards Authority Codes of Practice and Guidance Notes

The Advertising Standards Authority’s (ASA) Codes of Practice outline standards that apply to advertising that its members publish or broadcast in New Zealand – the Codes work alongside New Zealand’s laws that regulate advertising such as the FTA.

Rule 1 in the ASA’s Code of Ethics sets out that ‘advertisements should be clearly distinguishable as such, whatever their form and whatever medium is used’. Also the ASA’s guidance note on social media requires that paid-for Twitter endorsements have the hashtag ‘#ad’. Advertisements must be withdrawn or modified by members if found to be in breach of the Code by the ASA Complaints Board.

 

Four things New Zealand businesses can do

There are four things New Zealand businesses should keep in mind when using paid-for social media advertising and advertorials:

  1. Use ‘#ad’ in paid advertising on social media. This is in line with the ASA’s guidance for paid-for advertising on Twitter. After the FTC case the 50 fashion influencers have now added the hashtags ‘#ad’ or ‘#ad!’ on their Instagram posts.
  2. Be transparent and consider the context when using native advertising. Disclosure should occur where the consumer might not recognise the promotion as an advertisement. The context of the advertisement and the perspective of an ordinary consumer should be considered, and where an endorsement arrangement is not clear, disclosure is likely to be necessary.
  3. Clear and visible disclosure of a material connection between your business and an endorser. Anything that can materially affect the weight or credibility a consumer gives to your product or service needs to be disclosed. Disclosure should be placed where consumers will see and read it – not in a footnote, obscure hyperlink, or in a general ‘About Me’ or ‘Information’ page. As the terms of the Lord & Taylor settlement set out, a good rule of thumb is to have the disclosure ‘in close proximity’ to the advertisement.
  4. Monitor and train affiliates. When advertising through a social media campaign, influencers should be given a compliance program to follow that covers things such as: (i) their responsibilities in disclosing their connection to the business; and (ii) an explanation of the representations about the product or service that the business can support. Additionally, the business should periodically monitor the influencer or other affiliate to ensure they are following instructions.

 

This article was written by Elia Kim, Law Graduate, and Hayley Miller, Partner, in our Auckland office. Please contact Hayley if you have any further questions.

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