The FTC said what?!

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Here’s a new and somewhat troubling development to start off the year 2007.

On December 11, 2006 a FTC Staff Opinion was released that has the potential to affect Internet marketers in a number of ways.

The basic thrust of the opinion is aimed at "Buzz marketing" or what in the past has been known as "Word of mouth" marketing.

Historically this type of marketing was something that occurred naturally and was not cause for concern.

Now, marketers have latched on to the various ways of creating "Buzz" and are exploiting and manipulating it.

I’m not saying this sort of marketing is a bad thing (that would be the pot calling the kettle black ).  I myself use a variety of marketing techniques that fall under the "Buzz" or "Viral" label.

The aspect the FTC has issue with is the potential for deception.  Their concern seems to be that consumers will act upon what appears to be independent opinion or advice on the part of the writer when their is actually a paid relationship between the writer and the product/service owner.

Now, I am far from an attorney and will be the first one to admit that.  In light of that I recommend two things here.

1 – Download and read the paper yourself (it is only 5 pages long).  You can get it here.

2 – Read more about it.  Here are a few articles from attorneys (No, I do not know them personally) who have written on the subject: Mike Young & Brian Clark

As I see it, on the surface this does not affect all affiliate marketers.  It has the potential to though which means we need to pay attention.

I urge you to read the opinion letter yourself.

This is important food for thought.

Sam Knoll

Comments on The FTC said what?! Leave a Comment

December 14, 2006

Scott Thompson @ 3:35 pm #

I appreciate you suppling me with this information. It does lend itself to improving the open expression of what the relationship is to the client and product.

SamTheEagle @ 3:43 pm #

The fine line between honesty and deception seems to be skirted quite often in the marketing world. As marketers, our job is to pull people in via our words and actions and then move them to take the desired action.

If flat out deception is used in this process then neither the promoter, prospect nor the merchant benefits in the long run.

That said, there is a lot of “grey area” around what pages, articles, reviews, ads etc. require disclosure and furthermore what exactly constitutes an ad, review etc. It seems, as can often be the case, that there could be a lot related to this opinion that would be open for pretty liberal interpretation.

That is ONE of the worrisome aspects.

Thanks for you comments Scott

Jac @ 4:12 pm #

Keith Laggos
His publishing company produces Network Marketing Business Journal, formerly Money Maker?s Monthly. These articles come from NMBJ online..
Food for thought…..

By Jonathan W. Emord – On Sept. 15, 2006, Congressman Ron Paul sent the Government Accountability Office (GAO) a letter requesting that the GAO investigate the Federal Trade Commission?s (FTC?s) business opportunity rule [at the request of Network Marketing Business Journal (NMBJ)]. In particular, Congressman Paul asked the GAO to determine if the FTC had a sound empirical basis for its conclusion that fraud is widespread in the business opportunity marketplace.

He also asked the GAO to determine if the FTC underestimated the number of people who would be subject to the rule and the economic impact of the rule. A fair inquiry should yield answers that confirm that the FTC has no sound empirical basis for its widespread fraud conclusion and that it has grossly underestimated the number of people subject to the rule and the cost of the rule. Few realize this, but Congressman Ron Paul?s letter is a brilliant Trojan horse that could bring down the business opportunity rule.

ALSO:
But you may not be aware that this proposed rule is so broad that its very burdensome requirements would even apply to those who simply sell books or other publications concerning business opportunities, or who otherwise provide education or advice to those who want to start a new business.

It?s not much of an exaggeration to say that the author of a cookbook (or teacher of a cooking class) might be subject to the proposed rule because his or her readers (or students) could use what they learn to open a new restaurant or start a catering business. So if you sell publications or offer educational or coaching services, you should be very, very afraid of this FTC proposal.

MORE:
In its present form, the FTC?s proposed regulation would be devastating, if not fatal, to the direct sales industry. The stated objective of the proposed FTC regulation is to help the FTC prevent and regulate against fraud and deceptive practices. Of course NMBJ and the industry associations also champion that endeavor. However, the FTC already has all of the legislation and regulations required to accomplish that. In fact, the FTC cannot keep up with known or suspected violators now. Perhaps, the FTC hopes this regulation will provide a tool that allows them to close down suspected perpetrators of fraud or deceptive practices without having to prove their cases. This is wrong. It violates the constitutional philosophy and the right of a fair trial. We have a right to conduct commerce under the U.S. Constitution. I believe the proposed regulation will impede that right. It will have the effect of closing legitimate businesses without due course. The proposed regulation, as written, uses a nuclear bomb to kill a mosquito. In essence, the proposed regulation will greatly harm the society that the FTC is claiming to protect.

The agency that is trying to pass such damaging regulation, the FTC, is also the agency that has worked so hard in creating the do-not-call list and other regulations to protect our privacy. However, the FTC?s proposed regulation completely ignores such concerns. In fact, it creates ?do-call? lists and forces people to be on them if they desire to earn income.
Find that article http://www.NMBJ.com.

The DSA believed that the FTC author of the proposed regulation came from the FTC?s franchise department and did not understand direct sales.
Although it is obviously true, there are a few problems with this scenario. First, the FTC knew his background and expertise when they assigned him. Second, the proposal committee had the DSA?s input and still published the proposal as is. Most troubling, government agencies tend not to want to admit that they are wrong. They felt the requirement of having a prospect provided full disclosure of every lawsuit, whether civil or criminal, with substance or frivolous, won, lost or dropped, lodged against or from the company, its owners, its executives or the representative during the last 10 years would only generate about 35,000 pieces of paper. This full disclosure would have to include full income disclosures. The disclosure would also have to include a list with name and phone numbers of the nearest 10 representatives to the prospect?s home address from the past three years, whether those 10 representatives are active or not. The prospect would have to sign a receipt of that disclosure and wait seven days to join. For a minute, forget how impossible it would be to administer such a ridiculous and overbearing requirement. So, why does the FTC want this overbearing and devastating regulation? It will provide a means for the FTC to easily fine and levy technicalities against a company without having to find or prove any real wrongdoing. The motive of the FTC proposed regulation to give the FTC a means to extensively and legally extort money from more companies and distributors. The proposed regulation if it does pass substantially as now written. Distributors will probably sign everyone up initially as preferred customers for seven days and then allow them to submit their recruits. There may be some predating or postdating of applications and disclosures. This will make the stated objectives of the FTC futile. In fact, the scam artists will not comply and the legitimate companies will be put out of business. And most prospects probably won?t read or understand the disclosures anyway.
However, it will not lower the damage to direct selling significantly. The added administration and logistics burden will be horrendous. The amount of paper work will tear down many forests. Storage and administration costs will bankrupt most companies and deter entrepreneurship in the United States. Privacy rights will be ignored and trampled. The distributor list is one of the most valuable proprietary assets of any direct sales company. Under this regulation, companies will be forced to divulge who their distributors are by geographic location, 10 distributors at a time. If you want to know whom the people local in direct sales are, just go to your local competitors and ask for a disclosure statement. How many people would be reluctant to join a direct sales opportunity if they knew they are opening themselves up to such harassments?
Remember, direct sales opportunities do not usually require investments of tens or hundreds of thousands of dollars such as franchises or vending distributorships. They usually only require a sales kit for under $100. The rest of the purchases are for personal consumption and the company usually fulfills customer orders for the distributor. The burden and damage of the proposed FTC regulation is simply not justified. This is especially true when you consider the stated objectives are probably going to be bypassed, making them futile. The only outcome will probably be to initially line the FTC budgets and then devastate the direct sales and other opportunity income industries along with the economy.

The line between honesty and deception can seem murky at times, but in my experience, when this happens all you need to do in order to make the right decision is to put your self inthe shoes of the “other guy” (i.e., your prospect or visitor) and ask what would you like to have happen if you were that person. In other words, practice the “golden rule”, and you’ll usually come up with the right course of action.

Vitaman

SamTheEagle @ 9:04 pm #

Jac,

Thank you for sharing that article.

Outstanding food for thought.

One of my greatest concerns (I know I am not alone) is how sweeping changes like this can be. It is all too easy for legislation to take place that requires further interpretation in its implimentation. That is generally where things can run amock as the whole thing becomes very hazy.

Thanks again Jac

Vitaman,

Your comment is also right on.

Frankly, if more people controled their interactions with the world around them via the “Golden Rule” we would all be in much better shape.

Than you.

Sam

December 15, 2006

Jac @ 4:06 pm #

The FTC will kill all direct marketing especially Affiliate Programs and all Network Marketing….. The biz opportunity will be dead. I have re-thought the concept and it requires a new approach. No earnings, no biz-op, no compensation plans, only hype a product that would fullfill a customers needs with a 1 year money back guarantee.

90 days after the sale award the customer a cash distribution. The customer then creates buzz about the product that not only providing benefits but also the award, all after the fact. No hyping. No distributors. No earnings. No mention of business. No mention of an Opportunity…. Yet the customer is now excited about telling others about the product and the companies customer awards…

Would that work under this FTC?

SamTheEagle @ 4:23 pm #

Interesting take on it Jac.

If compensation is based on the customers actions then I would think it will be a problem.

If however, you over deliver in your offering and follow-up and then encourage word of mouth, after you have built a relationship with your clients, then it should work.

The idea of a cash distribution could work on the first round but after that people would know it is coming and that could affect their actions, which puts things right back where the FTC feels there is a problem.

This is not a cut and dry issue and it does require more thought and fresh ideas.

Thanks again for your insightful feedback Jac.

Sam Knoll

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