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Rather be safe than sorry? Reputational risk caused by false information in marketing campaigns.

Businesses are experiencing an increased pressure to raise awareness and sales related to their brand. The need to create and publish a lot of content on a very regular basis makes it challenging to ensure all information is verified and can result in the spreading of false information. However, not fact-checking information might prove costly. What are these costs related to misleading advertisement? TRi Facts considered this question by specifically looking at the reputational risk caused by false information in marketing campaigns.

Reputational risk refers to the negative perception a business gains when it fails to meet the expectations of its stakeholders. Also known as a threat or danger to the good name or standing of a business or an entity, it can occur in three ways. Directly, resulting from the actions of the business – for example delivering poor quality products and services. Indirectly, resulting from the actions of an employee, or tangentially, resulting through joint venture partners or suppliers. In 2014, Redbull suffered reputational risk as it was linked to spreading false information, due to the tagline stating that the product will give you wings.

Direct reputational risk is strongly associated with marketing campaigns of businesses, as it relates to public brand perception and value. Disinformation in advertising refers to businesses that intentionally spread information that is false, biased, manipulative, or propaganda. An example of this is L’Oreal who advertised that their skin care products were “clinically proven to boost genes and give visibly younger skin in just seven days”. In 2014, the American Federal Trade Commission stated that the claims were false and unsubstantiated, after which the company admitted that their Lancôme Génifique and L’Oréal Paris Youth Code skincare products were in fact not clinically proven to deliver on their promise. The company was banned from making anti-aging claims and any future violation will cost the company $16 000 per violation.

Misinformation in advertising refers to false information that is unintentionally shared to get a point across. This usually happens when a business believes they are sharing the truth about their product but it might be false. An example of this is Subway Restaurant’s sandwich that is named and advertised as the Footlong. However, in 2013 an Australian Subway franchise was sued for misleading advertisement, as a consumer measured the sandwich at 11-inches instead of the implied 12. In defence, the company stated that Subway Footlong is a registered and trademarked descriptive name for the sub (sandwich) sold in Subway Restaurants and is not intended to refer to a measurement of length.

The effects of false information in advertising can cause your business to be investigated and ultimately incur financial loss through fines and settlements. However, equally as damaging is the reputational risk related to losing the trust of your consumers. Aiming to attract consumers through misleading advertisement will cause your consumers to perceive you as untrustworthy. Current and potential consumers might feel betrayed by your business and take their money elsewhere. You might also lose the loyalty of your customers, as your brand has a negative reputation – which in turn could reduce your future business prospects. . Redbull’s tagline was accompanied by marketing claims that the caffeinated energy drink could increase consumers’ concentration and reaction speed. However, the company was sued by several consumers for a lack of wings and no signs of improved intellectual or physical abilities and had to settle a lawsuit of $13 million.  

A brand’s reputation is at risk when it is involved in spreading misleading advertising that might convince a consumer to make a purchase they otherwise might not have. The distortion of online reviews is a difficult problem to combat, and websites take a long time to detect fake reviews. Contact TRi Facts to verify your online content and reviews and assist you in developing strategies to combat the spread of mis- and disinformation.

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  1. https://www.businessinsider.com/false-advertising-scandals-2016-3?IR=T 
  2. https://www.ideagen.com/thought-leadership/blog/what-is-reputational-risk-here-is-everything-you-need-to-know#:~:text=Reputational%20risk%20is%20the%20damage,regardless%20of%20size%20or%20industry.
  3. https://www.investopedia.com/terms/r/reputational-risk.asp
  4. https://blog.hubspot.com/service/reputational-risk
  5. https://www.investopedia.com/terms/r/reputational-risk.asp

  6. https://www.businessinsider.com/red-bull-settles-false-advertising-lawsuit-for-13-million-2014-10?IR=T

  7.  https://csirt.uct.ac.za/fake-news-misinformation-and-disinformation-same-same-or-different 

  8. https://www.businessinsider.com/false-advertising-scandals-2016-3?IR=T#tesco-was-criticised-for-an-ad-in-response-to-the-horsemeat-scandal-which-suggested-the-problem-affected-the-whole-food-industry-4 

  9.  https://mumbrella.com.au/subway-claims-that-footlong-isnt-a-measurement-of-length-134454 

  10.  https://smallbusiness.chron.com/negative-effects-false-advertising-25679.html

  11.  https://www.businessinsider.com/red-bull-settles-false-advertising-lawsuit-for-13-million-2014-10?IR=T 

  12.  https://www.ccpc.ie/consumers/shopping/misleading-advertising/