The Power and Perils of Influencer Marketing: Recent Developments, Competition Considerations and Best Practices

| 25 minutes

In a move to address concerns related to misleading influencer marketing, the Competition Bureau announced late last year that it had sent letters to nearly 100 brands and agencies across Canada, advising them to take a close look at their social media marketing practices.  This followed in the wake of a similar campaign initiated by the U.S. Federal Trade Commission in 2017.

This is the first part of a two-part series. Next week, we will look at what actions the Bureau takes after issuing warnings like these to market participants (spoiler alert: the Bureau took enforcement action, so these letters should not be taken lightly).

The Bureau’s news release highlighted the responsibility of influencers and businesses to clearly disclose any relationship between influencers and the brands, products or services they promote in their digital content. In it, the Bureau emphasizes the need for influencers to post honest reviews and testimonials that are derived from actual experiences with the products or brands they are promoting. The Bureau’s news release also serves as a reminder that businesses share a responsibility with influencers when they post advertisements on social media, and that businesses themselves may be liable for false or misleading content posted by the influencers they hire.

The Bureau’s call for transparency was echoed in a recent speech by Josephine Palumbo (Deputy Commissioner, Deceptive Marketing Practices Directorate of the Competition Bureau). Citing an Ad Standards study, the Deputy Commissioner remarked that “Canadians are spending a lot of money based on the recommendations of influencers”, and that such a “significant impact on the buying habits of Canadian consumers” makes influencer marketing a “key consideration for the Bureau”.

In light of these recent developments, we have addressed a number of key considerations related to using influencers for marketing purposes:

What risk does misleading influencer marketing pose to consumers?

Influencers have established themselves as powerful marketers. While it may be difficult to trust a brand, consumers can readily relate to influencers as individuals who share their specific tastes and niche interests.

Perceived authenticity leads followers to rely on influencer choices as trustworthy proxies for their own preferences when making purchasing decisions in the digital marketplace. The risk of deception arises when influencers’ choices or opinions are not independent – that is, when the influencer has a relevant brand relationship that is not made clear in posted content.   

What risk does misleading influencer marketing pose to businesses and influencers?

Legally, influencer advertising is treated like any other form of advertising under the Competition Act. This means that businesses and influencers can each face significant civil and criminal penalties for failing to comply with provisions against misleading and deceptive marketing practices. The Competition Bureau has already taken enforcement action for the related practice of “astroturfing” (i.e., posting fake reviews). In a recent U.S. example, the Federal Trade Commission entered into a settlement with Sunday Riley, a popular skincare company. The allegation was that Sunday Riley directed its employees to post positive online reviews without disclosing their connection to the company. It is likely only a matter of time before the Competition Bureau takes enforcement action in respect of influencers.  

From a reputational standpoint, businesses risk losing consumer trust – and influencers risk losing credibility among their followers – for posting content designed to look genuine and independent when in reality it is a paid promotion of a product or service.

How can businesses and influencers mitigate the Competition Act risk?

The frenzied rush to leverage influencer platforms has shifted towards a more wary approach from consumers and brands alike. The lack of transparency, along with concerns about follower fraud and the proliferation of click farms (i.e., paying people to click on advertising links), have to some degree eroded trust on both sides of the equation. That said, steps can be taken to curb legal risks.

Clearly disclosing the relationship influencers have with the business, product or service they promote is the most effective way to minimize legal and reputational risks. Any influencer reviews must also be honest and based on actual experience.

As discussed in our previous post on the subject, a “relationship” exists in a variety of situations, including when the influencer receives any type of payment, free product, service, trip, discount or tickets, or if the influencer has a business or family connection with the brand.[1] In other words, a relationship exists whenever an influencer has a connection to a brand that might affect the consumer’s perception of the influencer’s independence.[2]

To help ensure effective disclosure, the Competition Bureau provides a quick-reference checklist.[3] All disclosures (including hashtags like #ad or #sponsored) should be as visible as possible and proximate to the related sponsored content/post.

Ineffective disclosures use ambiguous words like #ambassador, #partner or #spon, or are displayed in minimized text, buried in the middle of a blog (or vlog), comment or string of other hashtags, or otherwise fail to make the relevant relationship clearly apparent to viewers. 

What are other best practices for successful influencer marketing relationships?

Beyond compliance considerations, when it comes to ensuring your brand is adequately protected and your valuable marketing dollars are generating the customer engagement you are paying for, there are a number of practical measures you can take to reduce your exposure. 

First, choose an influencer who closely aligns with your brand message and identity – this may be a “microinfluencer” (having between 1,000 and 10,000 followers) or a major social media personality. Either way, ensure they understand your product and the image you want to present. 

Second, consider making compensation conditional upon reaching certain measurable thresholds, whether they are click-throughs or some other verifiable impression – anything more than simple views or likes. 

Third, consider including penalties for the use of paid followers in your contract to avoid your sponsored post being disseminated to thousands of robo-accounts rather than real consumers. 

Fourth, when drafting your termination provisions, consider including a right to compel the influencer to delete or remove any posts related to your brand in the event of a breach of contract. This will provide you with a means of “scrubbing” your relationship with the influencer should the influencer fail to comply with their contractual obligations. 

Finally, institute audit initiatives and measurement metrics in your influencer agreement to give you greater visibility into the effectiveness of the influencer’s posts. This will also ensure that your influencer partner remains on track and on-message.

Influencer marketing can be a great way to boost brand recognition and sales, and professional guidance can help structure strategic partnerships that protect your brand while satisfying your compliance obligations.

 

[1] Competition Bureau Canada, “Influencer marketing: businesses and influencers must be transparent when advertising on social media” 19 Dec 2019 (online: https://www.canada.ca/en/competition-bureau/news/2019/12/influencer-marketing-businesses-and-influencers-must-be-transparent-when-advertising-on-social-media.html).

[2] Competition Bureau Canada, “The Deceptive Marketing Practices Digest – Volume 4” (2018) (online: https://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/04372.html).

[3] The U.S. Federal Trade Commission has also recently released an easy-to-use guide: “Disclosures 101 for Social Media Influencers” 5 Nov 2019 (online: https://www.ftc.gov/system/files/documents/plain-language/1001a-influencer-guide-508_1.pdf)

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