April 15th, 2006

Lies, Damn Lies, and Word of Mouth

By Mike Hofman
Inc. magazine

The hottest marketers in the country face their biggest challenge yet: marketing themselves.

When some 450 attendees gathered at the Word of Mouth Marketing Association’s conference in Orlando recently, they had many reasons to celebrate and a few to be fearful. Word-of-mouth marketing--by which companies encourage consumers to recommend products to one another--is currently among the brightest stars in the advertising firmament. But some practitioners worry that too many of their peers run campaigns that dupe consumers. The fear is that such abuses could undermine the credibility of a field that many marketers consider invaluable.

People have always recommended stuff to friends, of course, but the notion that companies can manage such exchanges has gained currency in the past few years. Techniques are still evolving as different companies experiment with wildly different strategies. Typically, though, marketers try to get samples of new products into the hands of individual consumers--often the connectors and mavens Malcolm Gladwell wrote about in The Tipping Point. The marketer encourages those individuals to talk up its products to friends, acquaintances, and total strangers.

How common are word-of-mouth programs? Very. Most major brands have one in the works. Dell, Hershey, Intuit, and Kraft belong to WOMMA, the year-and-a-half-old trade group. Entrepreneurial companies are also embracing word of mouth because it can be done cheaply and has an outsider appeal. Numerous start-up marketing firms and ad agencies specialize in it. Some of those have already sold to major agencies; others have raised serious money. David Balter, founder of Boston-based BzzAgent, one of the best known firms, arrived at the WOMMA conference triumphant, having just secured $13.75 million in venture capital.

In short, buzz has buzz. Word of mouth is among the very few techniques to infiltrate the no-marketing zones people have built around their lives. Many marketers believe that informal, unmediated communication through blogs, social networking sites, or chats in the girls’ bathroom is hands down more effective than even the most polished ads. Of course, that informal, unmediated communication is effective only so long as people trust it. Unfortunately, conventional wisdom these days is that everybody lies, from auditors to Oprah authors. Consumers are aware that advertisers buy words on search engines, and that even some bloggers are on the take. If word of mouth becomes suspect, what’s left for marketers?
Evangelists or Shills?

Marketers engage people to join word-of-mouth campaigns in several different ways. BzzAgent, for example, distributes rewards points to consumers in its network for every interaction they have in which they mention a product. Those points can be redeemed for prizes supplied by BzzAgent’s customers.

Compensation schemes are uncontroversial in the industry. Transparency is another story. Outsiders often assume people enlisted in these campaigns hide their involvement to appear more credible. It’s sometimes true. Some companies have employees write slanted reviews of products online, while others hire actors to pretend to recommend products.

Industry insiders say they view these tactics with alarm. In their perfect world, all word-of-mouth marketers would tell people what they were up to, says David Binkowski, of Hass MS&L, an agency in Ann Arbor, Michigan, that runs campaigns for General Motors, Procter & Gamble, and others. When he sends a sample product to a blogger, for example, he always asks her to say in her post that she received the item as part of a marketing campaign. Most boutique firms know enough to disclose, Binkowski adds. He says it’s the large ad agencies that are jumping into this hot field that make clumsy mistakes like posting fake reviews online. (Big agency folks dismiss the charge.)

Whatever the source of abuse, duping not only sows suspicion in consumers’ minds, it also raises the specter of government scrutiny. In October, an industry watchdog group called Commercial Alert, based in Portland, Oregon, sent a letter to the Federal Trade Commission, arguing that anybody who promotes a product without mentioning that he or she has been compensated is basically committing fraud. “There is evidence that some of these companies are perpetrating large-scale deception upon consumers by deploying buzz marketers who fail to disclose that they have been enlisted to promote products,” wrote Gary Ruskin, Commercial Alert’s executive director. The FTC should investigate word-of-mouth marketers, Ruskin continued, and create rules governing their conduct.

Though Ruskin’s group is tiny, marketers take it seriously. In 2001, Commercial Alert petitioned the FTC to require search engines to disclose whether advertiser payments influenced their rankings. “The FTC came back a year later and did exactly what we wanted,” Ruskin says.
Lessons From the Spam Wars

To convince the world that their industry is under control, WOMMA has spent the past year developing its own rules, which it says obviate the need for government intervention. Never far from members’ thoughts is the fate of e-mail marketers. It was lack of self-regulation among early practitioners that “led to the rise of spam and that gave e-mail marketing a bad name,” says Jamie Tedford, who oversees the word-of-mouth practice at Arnold Worldwide, an ad agency based in Boston. E-mail marketers failed to draw distinctions between good marketing and spam, the story goes. The response was technology that blocked marketing messages indiscriminately, and federal antispam legislation.

The word-of-mouth crowd is determined not to make the same mistake. “Every industry has sleazy players, and that’s why word-of-mouth marketers have banded together to set rules and set the example,” says Andy Sernovitz, WOMMA’s Chicago-based president and founder. “Everything they asked for,” he says, referring to Commercial Alert, “is something [we] already support.”

Among other things, the code requires marketers to persuade recommenders to disclose what they are doing. As further inducement for full disclosure, WOMMA is touting a study by a professor at Northeastern University suggesting that people aren’t turned off when told they are the subjects of a word-of-mouth campaign. In fact, they are more likely to mention the experience to someone else, creating a pleasant multiplier effect.

WOMMA’s code also grapples with the charge that word of mouth often targets kids. “We stand against the inclusion of children under the age of 13 in any word-of-mouth marketing program,” the code states. Teenagers are also a matter of concern. Tremor, a division of Procter & Gamble that helps companies promote products online to 250,000 teens, has drawn fire from Ruskin and even some WOMMA members for enrolling teens in a marketing service in return for free products. Robyn Schroeder, a P&G spokesperson, says that Tremor was contacted by the FTC to discuss its practices and “provided them with the information they were looking for.” Though not a member of WOMMA, she adds, P&G “understands what they are trying to achieve.”

The problem with any industry’s code of conduct, of course, is enforcement. In theory, WOMMA could expel members who habitually violate its rules. But how the group would uncover transgressions and adjudicate complaints is unclear. Also, the idea of regulating informal conversations seems absurd on its face.

The good news for marketers is that the FTC seems willing to let the industry deal with these questions on its own. Speaking in Orlando, FTC official Thomas B. Pahl would not comment on whether the commission would pursue Ruskin’s investigation request. But Pahl said he was impressed by WOMMA’s efforts, and noted that the FTC prefers industries such as advertising and marketing to police themselves. “Self-regulation can be especially effective in making sure that most companies in an industry stay on the straight and narrow,” Pahl said. That “permits the government to focus our resources and attention on those companies that are causing the most problems to consumers and competition.”


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