John Smith: “I Made $1 Million Reading”*

*Results not typical.

Over at Managerial Econ, Luke Froeb highlights a new FTC initiative to crack down on testimonial advertising. Its target? Ads that highlight extreme results (“I lost 100 pounds eating Wonder chocolate”), without revealing what typical results look like. The FTC won’t forbid firms from highlighting extreme results, but if they do, they will also have to report typical results:

Under the revised Guides, advertisements that feature a consumer and convey his or her experience with a product or service as typical when that is not the case will be required to clearly disclose the results that consumers can generally expect. In contrast to the 1980 version of the Guides – which allowed advertisers to describe unusual results in a testimonial as long as they included a disclaimer such as “results not typical” – the revised Guides no longer contain this safe harbor.

The FTC’s goal is to protect consumers from misleading ads, a worthy goal.  But Luke (who was the FTC’s top economist for several years) believes that the new rule may have some side-effects. In particular, he wonders whether this policy will also make life more difficult for firms with legitimate products, since they would have to invest in studies to document the experience of typical consumers before they could highlight the experience of individual successes.

13 thoughts on “John Smith: “I Made $1 Million Reading”*”

  1. Legitimate products may also partially benefit from the regulation. If there’s a large consumer distrust of advertising, they could see themselves grouped with the bad products. Regulation could make them appear legitimate and increase their customer base since their advertising would be more effective. Whether it’s worth the cost of conforming to the regulation or not is questionable, but I think it’s worth considering.

  2. “they would have to invest in studies to document the experience of typical consumers”

    Are we really to get exercised about the undue burden of being able to document the experience of typical consumers?

    Isn’t that up there with flossing and washing your hands after using the toilet[*]? The kind of basic, basic business hygiene that you shouldn’t even have to think about?

    [*] And they even have laws about that one, too. Is that another undue government intrusion into the free market? You tell me.

  3. Geez, how naive does someone have to be to assume that a claim in an ad of one person’s supposed results (e.g., weight loss) is typical, especially when the ad says “Results not typical”?

    1. My guess is that some folks realize that the results aren’t typical, but allow the claim to influence their estimate of what a likely outcome would be. Even if they should realize that there could be no information content in the claim. Hence the desire to show them the typical results as well.

      An analogy would be the classic behavioral economics experiments in which you ask people questions like:

      1. What are the last two digits of your SSN?

      2. How much would you be willing to pay for a new sweater.

      Turns out that people with high answers to 1, give higher answers to 2.

  4. A little anecdote from my brand management days. Back in 1992 we were introducing a hot oil treatment for hair. At the time, aloe was the big thing in hair care products and other personal care products. We wanted to put aloe in the product and claim that the aloe would moisturize hair. Only problem was that, according to R&D, although aloe moisturizes skin, it doesn’t moisturize hair, so Legal would not have approved such a claim (on packaging, in ads, etc.). The “solution”, perfectly cool with Legal, was to say “contains aloe, known for its moisturizing properties”. Never mind that it’s moisturizing properties apply to skin but not to hair.

    Of course I was outraged and “shocked! shocked!” at this unethical (but apparently legal) behavior, and it occurred despite my vigorous protestations as a fresh-out-of-B-school youngin’ eager to selflessly rock the boat and stand up for virtue. (That’s my story and I’m stickin’ to it.)

  5. One of the problems with this of course, is that ANY result is “not typical”. The typical result of someone purchasing a book on how to lose weight is to not actually read the book.

    There were plenty of obviously misleading testimonials before this new FTC guideline was passed. They don’t need this new legislation to go after fraudulent and/or misleading advertising of any kind.

    Those who have been bending/breaking advertising laws and rules will continue to do so.

    The big problem I have with it (and other “truth in advertising” legislation is that it seems like large businesses either get a free pass, or the fines they get in relation to their revenue is very small.

    However, entrepreneurs and smaller businesses seem to get targeted a lot more, and the risk of fines they face could easily put them out of business.

    If anything, shouldn’t larger business carry MORE responsibility for their advertising?

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