The Federal Trade Commission and retailer Lord & Taylor have reached a settlement over the FTC’s claims that Lord & Taylor engaged in a campaign of deceptive advertising. The case is one of the first to address the practice of “native advertising.” The question now remains how this case will impact the growing practice moving forward.
The case began in the fall of 2014 when Lord &Taylor launched its new “Design Lab Collection” – a private label clothing line aimed at women 18-35. As part of its social media campaign for the collection, Lord & Taylor gave a Design Label Paisley Asymmetrical Dress to 50 select fashion influencers who were paid, in amounts ranging from $1,000 to $4,000, to post on Instagram one photo of themselves wearing the Design Lab dress during a specified timeframe during the weekend of March 27-28, 2015.
According to the FTC, while the influencers were given the freedom to style the dress in any way they saw fit, Lord & Taylor contractually obligated them to exclusively mention the company using the “@lordandtaylor” Instagram user designation and the campaign hashtag “#DesignLab” in the photo caption. The influencers also were required to tag their photos of the dress using the “@lordandtaylor” Instagram designation.
But in all the detailed instructions, Lord & Taylor left out one important item – it neglected to tell the influencers to disclose that they had been compensated for their efforts. And that’s what ultimately led to the FTC action.
“Native advertising” is an effort to promote goods and services in a less disruptive and more entertaining fashion than traditional advertising. Traditional advertising is “disruptive” in the sense that it interrupts the consumer’s consumption of content. That is a fancy way of saying that TV shows stop mid-stream for commercials. Anyone who watches basketball knows the term “TV timeout.” It is literally a disruption in the game so commercials can run. And traditional print is no different. It’s typically easy to spot advertising content from editorial content. And when you turn a page and initially see an ad, your reading process has been disrupted.
Native advertising, on the other hand, looks like editorial content by design. The idea is to get the commercial message across without disrupting the flow. So in the Lord & Taylor case, the Instagram post with the Design Lab dress looks like the other social media content on that influencer’s site. But in the FTC’s view, there is a difference between an uncompensated recommendation and a paid recommendation. Consumers are likely to be more skeptical of the latter than the former. And for that reason, the FTC is adamant that the consumer get all the facts.
Lord & Taylor’s settlement requires not only that it sin no more, but that it put in place procedures to ensure that it does not. Among those procedures, Lord & Taylor must:
Provide each endorser with a clear statement of his or her responsibility to disclose the endorser’s material connection to Lord & Taylor, and obtain from each such endorser a signed and dated statement acknowledging receipt of that statement and expressly agreeing to comply with it;
Establish and maintaining a system to monitor and review the representations and disclosures of endorsers. The system shall include, at a minimum, monitoring and reviewing its endorsers’ print, radio, television, online, or digital advertisements or communications made as part of an Influencer Campaign;
Immediately terminate any endorser with a material connection to Respondent who has misrepresented, in any manner, his or her independence and impartiality; or has failed to disclose, clearly and conspicuously a material connection between such endorser and Lord & Taylor.
As part of the deal, the FTC gets to monitor Lord & Taylor for five years to make sure it is complying. So it looks like the FTC is going to be pretty much of an influencer itself. And advertisers who want to go native had better make sure they are transparent.