Social media celebrities, or “influencers,” play a growing role in how companies market their products and services, and are especially effective with younger consumers who are active on social media. But many influencers, especially newer users with small audiences, create advertising content but do not adequately disclose their relationships with brands, violating the Federal Trade Commission’s (FTC’s) truth-in-advertising requirements. To discourage these new celebrity spokespeople from producing dishonest or misleading ads on social media, the FTC should update its rules on endorsements to address when brands provide free, unsolicited products to influencers and emphasize the role brands should take in disclosing partnerships, as well as partner with social media platforms to establish disclosure best practices.
Influencer marketing is a form of endorsement advertising that uses popular individuals on social media to market to a brand’s audience. Influencer marketing may be paid, where brands contract with influencers to produce specific social media ads with a contract, or unpaid, where brands contract with influencers to create advertising content in exchange for free products. Other common practices include product seeding, where brands provide unsolicited products to influencers in the hopes that they will organically promote the product, without a contract or payment. Influencer popularity and reach vary, from micro-influencers with tens of thousands of followers to mega-influencers with one million or more.
The FTC released “Guides Concerning the Use of Endorsements and Testimonials in Advertising” (the Endorsement Guides) in 1980 to help businesses understand and follow the FTC’s truth-in-advertising requirements when using endorsements. The Endorsement Guides require that endorsement advertising is truthful, properly disclosed, and not misleading. The FTC updated the Endorsement Guides in 2009 to reflect the rise of online advertising and bloggers, and it even released a disclosure summary in 2019 to explain the disclosure obligations for influencer marketing.
Even with the recent updates, the Endorsement Guides no longer captures the rapidly evolving influencer marketing industry. The Guides state that advertisers should disclose “material connections” such as financial, personal, employment, or familial between the product marketer and endorser if the connection would impact consumer evaluation of the endorsement, but do not address practices that do not have an employment or financial connection, such as product seeding and non-contractual opportunities. Yet, these are huge segments of the industry. There are more than 39.2 billion views on TikTok of videos tagged #unboxing of individuals discussing products. While not all of these are endorsements, some are and lack any disclosures, like an additional #ad or #sponsored tag, to indicate if the user purchased the product themselves or received it from a company. Consumers watching undisclosed advertising content from product seeding can’t consider the brand-influencer relationship when evaluating a product recommendation or know if the influencer’s opinion is biased. To correct this, the FTC should expand on material connections and require disclosure any time a product is provided for free, regardless of whether the company solicited the review or the resulting content.
The FTC expects those endorsing products to know when and how to disclose material relationships. This emphasis might have made sense in the past when endorsements were mostly tied to a smaller group of celebrities. But today, the market for endorsements is heavily skewed towards micro-influencers—those with thousands, rather than millions of followers. Last year 91 percent of sponsored content on social media came from micro-influencers, and brands prefer working with them due to low prices, high audience engagement and consumer conversion, and perceived authenticity. But micro-influencers may not understand their disclosure obligations, especially if the brand does not provide this information.
The FTC should update the Endorsement Guides to put more responsibility on brands to disclose endorsement partnerships. For example, brands should include specific disclosure requirements in paid partnership contracts and review sponsored content for compliance before approving posts. They should also include endorsement disclosure requirements when providing influencers with free products. Anecdotal evidence suggests that some brands already have practices to review and approve paid content before influencers post it. Emphasizing the role of brands in disclosure would also clarify the FTC’s enforcement strategy. In 2020, the FTC began issuing penalties to advertisers and brands that repeatedly paid for advertising content while misrepresenting the need to disclose. The FTC could have fined individual influencers for failure to disclose, but chose not to. Putting more disclosure responsibilities on brands would help increase compliance overall and yield more transparency for consumers.
Finally, the FTC should partner with social media platforms to develop voluntary best practices for endorsement disclosures that incorporate platform innovations. For example, best practices might include joint posting between the brand and influencer, reposting sponsored content to brand accounts, and using platform-generated disclosure banners, borders, or labels on endorsements. The FTC should solicit feedback from social media platforms on the implementation and effectiveness of these best practices at least every two years to determine if improvements could be made to encourage more truthful advertising practices. Periodic review with platform input will keep best practices current without disrupting innovations in advertising and promote compliance with practical and platform-relevant examples of proper disclosure. This partnership will also empower social media platforms to encourage effective disclosure of sponsored content and introduce new features to improve influencer disclosure and identify advertising content.
The FTC has shown an interest in updating the Endorsement Guides to more appropriately address the rise of influencer marketing. While some common-sense changes have been implemented already, improving the guidelines and disclosure expectations to match marketing and social media innovations will lead to a more transparent consumer experience. Without changes, improperly disclosed endorsements will continue to flourish on social media and leave audiences under the misleading impression that they are receiving unbiased and unsponsored information from a trusted source.
