By Paul Weber
Living Essentials, maker of 5-Hour Energy, alleged its energy drink shot contained a synergistic combination of ingredients that made it superior to drinking coffee and that doctors recommended it. A Washington state court ruled these claims, among others, were misleading and ordered the maker to pay $4.3 million in penalties and fees.
Lumos Labs, creators of Lumosity, claimed its brain-stimulating app would help prevent Alzheimer’s disease, though no research as proof was ever presented. The company settled the charges brought by the Federal Trade Commission (FTC) for $2 million.
And the list of companies making false claims goes on and on.
Is it only a matter of time before a grocery store or seafood marketers tout the benefits of free-range sushi because free-range sushi is better sushi? Of course, the idea that freely swimming fish produce a better sushi is absurd, but it’s no less ridiculous than the claims made by some small businesses on a daily basis.
Let the buyer beware
Who, if anyone, is regulating small businesses’ advertising claims? The FTC doesn’t possess the resources or investigative power to monitor the vast small business landscape and regulate false or misleading claims, nor should they. The invisible hand of capitalism does a fine job regulating small business advertising claims.
The invisible hand of capitalism is a term used by Adam Smith in 1776 to describe the unintended social benefits of an individual’s self-interest. Simply put, if you lie to us, we won’t buy what you are selling and your business will fail.
In an era of declining regulation, capitalism controls the marketplace. For small businesses, the mistake of misleading customers can be devastating. We have all heard the saying caveat emptor (let the buyer beware), but for business owners who want to embellish their marketing message, the real message should be “seller beware.” Some marketers fail to heed capitalism’s invisible hand when it comes to embellishing product features and benefits in their advertising.
iSpring Water Systems of Alpharetta, Ga., claimed its water filtration systems were made in America, but many were either largely or entirely manufactured overseas. The FTC intervened, but the damage to iSpring could have gone well beyond fees and penalties. Customers might have turned away, and a major distributor like Amazon could have chosen to disassociate with a brand that had misled consumers.
In essence, any marketing claim is a promise to the customer. Break that promise and risk alienating a customer for life. Break that promise in grand fashion and risk accompanying FTC fines and failure.
Even a small business owner’s seemingly innocuous claim can cause irrevocable harm to a brand or business. A Kansas City car dealership touted its customer service superiority with the tag line “You couldn’t buy from a nicer bunch of guys.” Unfortunately, the dealership was notorious for its bait-and-switch selling and atrocious customer service. As one former customer said, “You couldn’t buy from a bigger bunch of jerks.” A claim of superiority, when not matched with a superior product or service, is worse than not making the claim at all.