Tony Zito, CEO, Rakuten Marketing

Eight in 10 U.S. consumers shop online, according to Pew Research. Whether it’s from a desktop, tablet or mobile phone, online is the prime destination where brands and retailers can reach, influence and ultimately drive revenue from shoppers. One of the most effective ways they are doing this is through ‘influencer marketing.’

Think Kylie Jenner. Think fashion blogger Bryanboy. Think Girl With No Job. Influencer marketing is a form of marketing where brands partner with bloggers and social content creators to reach, engage and influence consumers via sites like Twitter, Facebook, Instagram, YouTube, Pinterest, Tumbler, Shopstyle and others.  It is a marketing channel growing at a pace impossible to ignore. Rakuten Marketing recently evaluated the role of influencers in driving revenue, and found that 84% of site traffic driven by influencers are first-time visitors, and the cost of acquiring a new online customer through an influencer is 77% lower than other types of online publishers. Our research also showed that influencers start more purchase journeys than any other publisher type and drive highly engaged shoppers that, on average, view eight or more site pages per visit.

For these reasons, big marketing bucks are being doled out to attract and target the very captive consumer base connected to online influencers. In fact, eMarketer estimates that advertisers worldwide spent upwards of $500 million on influencer marketing on Instagram alone in 2016, with many millions more going to influencers on other venues. Influencer marketing is changing the way consumers engage with brands and retailers, and, in turn, is driving meaningful revenue.

With this growth, the Federal Trade Commission (FTC) has begun to crack down on compliance of influencer marketing regulations. The infamous Fyre festival is an ideal example of the consumer interests that the FTC hopes to protect through regulation.

Targeted to the millennial elite, the event was touted by high-profile endorsers promising a luxury concert experience in the Bahamas with villas, yachts, fancy food and celebrities. Instead, consumers who shelled out first-class prices got tents and boxed lunches. While ticket-buyers are still waiting to find out if they’ll be refunded, the influencers who endorsed the event, without proof-of-concept and without disclosure of their paid relationship with the event, are falling under scrutiny for irresponsible marketing that failed to consider the consumer.

This April, the FTC issued letters to influencers and marketers addressing the need for “clear and conspicuous” disclosure of brand/influencer relationships to consumers when promoting or endorsing products through social media. Along with this, attention has been called to major retail and media brands who have recently settled charges from the FTC for running campaigns where influencers did not properly disclose that posts were paid promotions.

FTC regulations that apply to paid endorsements aren’t new, but the environment for enforcing them is. A recent survey of 2,500 global online consumers, conducted by my company through Qualtrics, Rakuten Marketing, reveals that almost 60% of U.S. consumers actively follow an online influencer, and 92% of them are following those influencers through social media. With social media use in America jumping from 5% in 2005 to 50% in 2011 and then to 69% in 2017, changes to the landscape are expected—enough to merit a resurgence in education and enforcement by the FTC.

We’re facing a new frontier of brand and product endorsements that applies to a larger, more diverse group than traditional celebrity contracts. The FTC is taking action to communicate what its regulatory guidelines mean in our 2017 landscape. Its efforts to educate are needed. Among marketers who work with influencers, only 11% understand FTC guidelines for influencer marketing on social media, according to eMarketer.

‘Clear and conspicuous’ disclosure of paid endorsements isn’t the only issue being regulated. The FTC says any “unfair or deceptive acts or practices, in or affecting commerce, is declared unlawful.” This means the FTC can enforce action against any brand, product or service endorsement that isn’t substantiated by fact. For example, a fashion influencer who wants to create a post about the top eco-friendly purses must have scientific evidence of the environmental benefits of each product on their list. It is also imperative that influencers have up-to-date language and current links about any promotions, product information, service terms and conditions or other related information. For example, a financial brand must ensure all its influencers have current annual percentage rates for the products they have reviewed on their sites.

The low awareness of federal regulations is alarming, as the repercussions for violations are severe. While the first offence is just an official warning from the FTC, failure to adequately address compliance violations can result in a lawsuit or enforcement of marketing oversight, which requires all marketing related to the area of concern be submitted to the FTC for review monthly for 10-20 years.

Complaints can be filed against brands, retailers and/or influencers, but ultimately, brands can be held responsible for the compliance of their influencers, meaning that monitoring influencer partners, notifying partners of compliance violations and proactively educating partners on how to be compliant is in the best interest of the brand. This is a huge job for brands, which is why, at Rakuten Marketing, we have dedicated technology and human resources to supporting our clients in monitoring and enforcing compliance across their programs.

Beyond the impact of FTC enforcement, brands and influencers stand to lose the most valuable feature of influencer marketing—trust. Authenticity is at the heart of the success and growth of influencer marketing. Consumers have faith that the influencers they follow are recommending and endorsing products they believe in. And that confidence remains intact when the influencer discloses its paid relationship with a brand or retailer. In fact, the Rakuten Marketing consumer survey revealed that 80% of people who follow influencers say that transparency about paid endorsements is ‘very’ or ‘extremely’ important, and 66% say they trust an influencer to give an unbiased view of a product or service, even when a paid relationship is disclosed.

Influencer marketing is a high-performing marketing strategy, and the FTC guidelines shouldn’t deter marketers from investing in one of the most effective ways to influence new consumers and promote product discovery. It is critical, however, that brands invest in the education, resources and partners that will help ensure they are maintaining the trust of their followers, and are maintaining regulatory compliance. If not, they may be hearing from the FTC.

Rakuten Marketing provides affiliate marketing services to 127 of the Top 1000 online retailers in North America.