Stealth marketing

MCM ILLAN B INCH MENDELSOHN

Advertising & Marketing Bulletin
August 2006

STEALTH MARKETING: TO DISCLOSE OR NOT TO DISCLOSE – THAT IS THE (LEGAL) QUESTION
Stealth marketing, a subset of word-of-mouth marketing (« WOMM ») strategies, is marketing that promotes a product without disclosing any direct connection between the advertiser and the message. With the stealth marketing industry valuedat between US$100-150 million and growing at 100% year, stealth marketing is fast becoming the darling of marketers around the world. However, some industry insiders are concerned about the legal issues related to the lack of disclosure of the direct marketing connection. An executive editor of Advertising Age stated that « this is a practice that may be illegal … it’s probably only a matter oftime before someone jumps on it » to stop it.1 Commercial Alert, a U.S. based consumer protection organization, has tried to do exactly that. On October 18, 2005, it requested that the U.S. Federal Trade Commission (FTC) undertake an investigation of companies that conduct stealth marketing. Commercial Alert argued that by failing to disclose that they have been enlisted to promote products/services,stealth marketers are fundamentally fraudulent and misleading.

What exactly is stealth marketing?
Stealth marketing involves a marketer engaging with customers without disclosing that they are in fact paid by the business for which they are marketing a product or service. For example, a business might hire an actor or charismatic person to use a certain product visibly and convincingly inlocations where target consumers of such product are located. While using the product in the location, the actor will also discuss the product with people he or she meets in that location and possibly hand out samples. The actor will often be able to sell consumers on their product without those consumers even realizing it.

Stealth Marketing: Some Legal Issues
False or Misleading Advertising Underthe Competition Act (Canada) (the « Act »), there are civil and criminal sanctions against false or misleading advertising in any medium. The civil prohibition states a person contravenes the Act where such person, for the purpose of promoting, directly or indirectly, the supply or use of a product or for the purpose of promoting, directly or indirectly, any business interest, by any meanswhatever, makes a representation to the public that is false or misleading in a material respect. Whether or not it is « material » can be measured by determining whether the false representation would likely lead the average person to make a decision that they believe would be advantageous to them because of the representation. Also, the general impression of the representations must also be taken intoaccount. The criminal sanction is only triggered when such representations are done knowingly or recklessly. Similar prohibitions exist under the consumer protection legislation of most provinces.

1

USA Today, « P ‘Buzz Marketing’ Unit Hit with Complaint », October 18, 2005, available online: http://www.usatoday.com/money/industries/retail/2005-10-18-buzz-usat_x.htm.

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M CMILLAN BINCHM ENDELSOHN

Whether these prohibitions apply to stealth marketing is an interesting issue but not entirely clear. In the case of stealth marketing where the marketers are making false or misleading representations about the product or service, the prohibitions against false or misleading advertising would certainly apply. However, where the marketers are making accurate representations aboutthe product or service, it is less clear that the prohibitions would apply. On the one hand, stealth marketers argue that since they are not saying anything false or misleading and are letting consumers reach their own conclusions regarding their motives, their activity should be allowed. On the other hand, entities such as Commercial Alert argue that by not disclosing their identity, stealth…