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When shopping online, the reviews of a product often play an essential role in decision-making. In a landmark case, the FTC fines company $250,000 for creating false online reviews. Legacy Learning Systems reportedly compensated affiliates for false endorsements that resulted in $5 million in sales.
The advertising rules the Federal Trade Commission released
A set of advertising guidelines were placed by the Federal Trade Commission in 2009. These guidelines require any person advertising online to fully disclose their relationship to the seller. Some use reviews and testimonials. The ruling stated that these counted as advertising. The FTC believes that any review or online testimonial posted could have a direct effect on the sales and income of a particular product, be it installment loans or baby toys. The false reviews, assuming a company creates them or hires someone else to crate them, is called “sock puppet reviews.”
Legacy Learning Systems charged $250,000
There is a company called Legacy Learning Systems. The company creates the “Learn and Master Guitar” program and sells it. Online sellers like the guitar lessons are popular and they cost $249 or more each. The FTC started investigating the company when it discovered that the company made more than $5 million in sales through an online affiliate program. many of these affiliate links weren't attached to a disclosure that revealed the person posting the link or review would make a commission if the product was purchased from that space. Another thing the FTC found was that a service was paid for false online reviews. This was another reason why the company was in trouble.
What this means for wallet
About 87 percent of consumers that look at a review let it impact the purchase. One in every four customers wants a review. Paying an extra 20 percent more is something customers are willing to do if you will find good reviews. There have to be a lot of them though. By 2015, online sales are anticipated to be over $279 billion. These hefty fines and increased oversight by the FTC might be one more step in increasing the real value of what you get for money -- or they could end up just re-directing marketing dollars. You will find many ways to purchase online including through a company website, through an affiliate link or through a display advertisement. No matter what, it makes a difference though. Only purchase through ads you liked since it tells the company that the ad was successful.
Articles cited
Wallet Pop
walletpop.com/2011/03/17/legacy-learning-settles-with-ftc-over-phony-online-reviewers/
UConn.edu
citi.uconn.edu/cist07/1a.pdf
Tech Crunch
techcrunch.com/2011/02/28/forrester-online-retail-industry-in-the-us-will-be-worth-279-billion-in-2015/
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