19 min read
| February 2, 2021
Influencer marketing on social platforms is a newer kid on the block, compared to the more traditional advertising strategies. It is being mainstreamed in the online advertising and marketing field at a fast rate. However, the novelty of this approach means that it is also riddled with issues relating to transparency and influencer fraud. Data from CampaignDeus says that at least 12% of UK influencers buy fake followers. Professionals are not always aware of such issues as they adjust to the newer influencer technology.
This brings us to why it is important that specialists monitor influencer marketing. Brands invest heavily in this medium of online advertising because an influencer’s followers have faith in the person’s recommendations. Hidden advertising by a content creator poses a problem for most of the target audience. When an influencer does not divulge if their content is paid for, they are breaching consumer protection laws. The brand and influencer’s reputations may also take a hit if they face backlash from the public.
A company’s sales are built on customer trust. When brands build transparent and valuable relationships in the marketing business, they are seen as being more honest. And since it is important for brands to maintain authenticity with their customers, disclosing partnerships is a key move.
Why is it Important to Regulate Influencer Advertising?
More and more people across the world use social media as the years pass by. According to the Social Media Benchmark Report, 2021, 53% of the world’s population uses social networks, and two million users do so on a daily basis. This trend is only growing as new generations join the Internet.
Measurements in this field are more accurate than in traditional advertising. In fact, 91% of 16-24 year olds say that influencers are their purchase motivation.
With the younger audiences flocking to social media, brands have shifted their focus too. Many social media influencers have a large fan following. Their posts are seen and shared by a big audience. This means that influencers have a steady and reliable marketing platform to promote brand content. Digital marketing professionals are aware of this and want to leverage the power of social media through influencer technology.
1. Transparency towards the User
As the industry grows, so does the conversation around transparency in advertising, be it lawful or ethical in nature. According to the Federal Trade Commission (FTC) Endorsement Guides, any “material” implication between endorsers and advertisers should be clearly disclosed. This material consideration could either be monetary in nature, or in kind (such as gifts).
Influencers are free to advertise products and services if they make it clear to their audience that it is an advertisement. They should not show it as if it is their own personal recommendation. All digital content or mentions made by them of an advertising nature should be identifiable as such to their followers.
FTC also released “Disclosures 101 for Social Media Influencers” in 2019 to reiterate consumer protection. It guides influencers as to how to disclose their advertisements in posts and livestreams. A simple signposting of “#ad” in the caption should suffice. It is good for a brand’s interests to ensure that their affiliate influencers adhere to these guidelines.
The following are a few examples of posts by influencers across different countries that are labelled as advertising and disclose their brand endorsements:
In contrast, here are a couple of examples of poorly labelled or unlabelled posts that sell a product:
A post from a Mexico profile without advertisement labelling or mention of the brand’s social media handle.
This post from a UK profile mentions the brand handle but does not label the post as an advertisement.
2. Tax and Labour Implications
When an influencer tags a post as an advertisement, they disclose that they are being paid. This payment is subject to tax. Clearly labelled posts make it easier to identify which transactions will be clubbed under cash income and which under gifts in kind. All such income must be a part of their tax returns.
Depending on the influencer’s contract with a brand, the influencer may even be considered their employee. This has consequences on the tax returns as well. For example, in the UK, when an influencer receives a gift from a brand in lieu of their employment relationship, it will be taxed under the Income Tax (Earnings and Pensions) Act 2003. However, if the gift is merely in exchange for endorsement, the tax implications may be different.
The era of transparency in digital advertising
Labelling or signposting their content with #ad and tagging the brand’s handle is one way that influencers today are being upfront about their paid collaborations. The disclosure made by them must be clear to their followers and hard to miss.
In countries like the USA, the UK, and Latin American countries, transparency in advertising is heavily regulated. Failure to comply with the law is considered a breach in consumer protection.
In the UK, there are laws governing influencer marketing. The Competitions and Markets Authority (CMA) has laid down strict guidelines that the influencers of the country must follow in case they receive payment from brands. They must include labels upfront such as “ad”, “advert”, “advertisement”, etc and avoid unclear terms in labelling.
Spain’s advertising regulation organization has recently released a “Code of conduct” for influencer advertising, that has come into effect from January 2021. Influencers in Spain are required to clearly label content that is identified as advertisement. A “payment” to an influencer means any direct or indirect payment, gifts, trips, etc.
In the USA, the FTC has laid down guidelines for influencer endorsements. Influencers are required to strictly comply with the law. In case of failure to do so, are either to discontinue or include disclosures in all their paid posts.
When brands approach an influencer for an advertisement, it is important to make sure that they are held accountable about disclosing their partnerships.
Still, the onus of being transparent finally lies in the hands of the influencer.
The FTC guidelines describe disclosure of paid content as the “responsibility” of an influencer, so that they do not engage in deceptive advertisement. This also helps their followers identify between genuine recommendations and endorsements.
There is always a possibility that influencers who engage in hidden advertising, especially ones with many followers, come under fire because of non-compliance with the law. For the sake of their own and the associated brand’s protection and public image, monitoring of influencer marketing on online platforms is highly advisable.