Marta L. Tellado
Anne Hathaway, Stephen Curry, Blake Lively, Cardi B, Niall Horan and Kim Kardashian have at least one thing in common. They’ve all been flagged to the Federal Trade Commission for touting products and services on social media sites like Instagram, potentially swaying their combined hundreds of millions of online followers without clearly saying they were paid to do so.
Shopping this holiday season has plenty of challenges, from shipping delays to inflated prices for hard-to-find items. But another constant problem is the flood of fake, deceptive or secretly compensated reviews, whether from misleading influencers or the thousands of less-famous fraudsters posting online. It’s time for government and companies to crack down on these problematic practices, because consumers shouldn’t have to take on the burden of policing the internet to avoid heartbreak and lost money.
The economic value of a good review
Online reviews have become an everyday part of shopping, with more than 9 in 10 Americans saying they check them before making a purchase.
As for how many are bogus, estimates range from 4% to 39%. The lower figure may seem manageable, but according to the World Economic Forum, it still translates into $152 billion of global purchases every year.
As for influencers, a 2017 survey of the 50 most-followed celebrities on Instagram found that 93% were breaking FTC rules. Even so, 15% of consumers say they’ve made a purchase because of an influencer.
Unfortunately, fraudsters rarely get slapped with civil penalties, let alone criminal prosecution, for engaging in any number of review-related scams, such as paying for positive reviews for their own products or for negative reviews to smear a competitor’s.
The absence of safeguards in such a robust market for manipulation speaks to a bigger issue: A broken marketplace so brazenly prizes profit over people.
It doesn’t have to be this way. Government and business need to go further to make the online retail landscape a place where companies can earn profits without taking advantage of customers.
The FTC has taken some baby steps. In the past three years, the commission has successfully sued about two dozen companies in part for violating endorsement rules.
Many of the cases, however, were part of larger enforcement actions, such as the 2020 Teami detox tea settlement for allegedly inflating product claims or the 2019 punishment handed down to diet-drug maker Cure Encapsulations.
The agency publicized that case as the first time it had cracked down on a company for buying fake reviews, but there was also the issue of an ingredient in the company’s weight-loss product that had the potential to cause acute liver failure.
Truth in advertising should be more than a side issue, and it’s possible the FTC is finally seeing that. In October, the commission sent reminders to more than 700 companies, cautioning them that each legally dubious review posted on their site could cost them nearly $44,000 in fines. It’s a welcomed first step, but one way the FTC can truly dedicate itself to eliminating online sham reviews is by making penalties more meaningful. Companies have financial incentives to plant fake reviews. An extra star on a restaurant’s Yelp rating can increase revenue by as much as 9%, according to a Harvard Business School study.
Legacy Learning Systems, a guitar-lesson company, paid a $250,000 fine to the FTC after phony testimonials helped bring in $5 million of sales.
That’s a pretty good return on investment. We need fines and enforcement that actually cost companies that don’t play by the rules, not let them still come out on top.
Companies, act like you care
Companies, too, have to act more like they care. Amazon, the world’s biggest online seller, has said that it has spent hundreds of millions of dollars to stamp out review abuse and kicked millions of bad actors off its site.
That’s laudable, and necessary, but even so, the United Kingdom’s Competition and Markets Authority opened an investigation in June into whether Amazon and Google were doing enough to “protect shoppers from fake reviews.”
Big online retailers should have to play by the same product liability and seller liability rules as physical stores, because the importance of consumers’ safety doesn’t disappear when they log online. Amazon rules prohibit trading reviews for free goods, but scammers find loopholes.
In 2019, BuzzFeed profiled a woman who in one year was able to acquire 700 items worth more than $15,000. She paid for everything herself, then was reimbursed by the manufacturers in return for giving each of their products 5-star reviews, regardless of what she thought of them.
Who knew it was so easy to sucker robots? Companies need to invest in processes that involve more human moderators who, with the aid of advanced technology, can make the nuanced decisions that machines can’t. Such meaningful investment could go a long way toward kicking scams to the curb and keeping consumers shopping safely.
During the holidays, consumers should be focused on our friends and family, not worrying whether we’re falling for a fraud. It’s time we take fake reviews seriously, so everyone – wherever you are, whatever you celebrate and whomever you follow on Instagram – can shop with peace of mind safely this holiday season.