Back in 2013 the New York Attorney General set up a fake yoghurt shop in Brooklyn and paid reputation management firms to enhance the image of the business. The Sham yogurt shop rapidly gained accolades from reviews in far flung countries such as Bangladesh and the Philippines – despite never having existed. The problem however has never been one of American culture (apologies) and the UK needs to set its own house in order.
At the beginning of 2015, the Competition and Markets Authority ('CMA') called for information on online reviews and endorsements, particularly whether or not these online reviews matched up to consumers' expectations. As a result of this, on 19 June 2015 the CMA published a report detailing its findings and announced that it is launching an investigation into a number of businesses in connection with the potential non-disclosure of paid endorsements and other concerns associated with unlawful practices. But what does this mean for businesses and consumers?
CMA report – purpose and findings
The CMA call for information sought to fully understand not just how businesses collect and use consumer data, but also how data affects consumers, businesses, competition and the wider economy. Alex Chisholm (CMA Chief Executive) commented: "One of our priorities as a new authority is to take a closer look at developments and practices in growing areas such as this. We want to understand better the ways in which consumer data is used, as well as the consequences from this".
Fast forward six months and the CMA has published its report which includes the following key findings:
- consumers that use online reviews find them valuable and these reviews appear to be an important source of information for consumers' buying decisions;
- there have been developments in the reviews sector which have the potential to improve outcomes for customers including the development of systems which detect and verify fake reviews; identify reviews that are likely to be more helpful and enable users to flag suspicious-looking reviews themselves; and
- consumers that use blogs and vlogs before making a purchase find them valuable but these types of endorsements are often read by consumers for entertainment purposes.
What is the focus of the CMA's investigation?
The online review market is used by approximately more than 50% of UK adults and is primarily the focus of the CMA's investigation. In carrying out its research into this area, the CMA welcomed the pro-competitive effect of online reviews but found instances of potentially misleading practices in online reviews and endorsements including:
- fake positive/negative reviews posted on review sites;
- review sites 'cherry-picking' positive reviews or suppressing negative reviews;
- negative reviews not being posted; and
- businesses paying for endorsements in blogs and other online articles without this being made clear to consumers.
In order to combat these types of practices, the CMA will use its consumer enforcement powers to investigate a number of companies in connection with the potential non-disclosure of paid endorsements.
At this stage, the CMA has not publicly named the businesses that are directly involved in its investigation. However, businesses that engage in this type of activity should ensure they are compliant with consumer protection law to avoid any potential action from the CMA.
So what should businesses do?
The CMA has published two advice notes for businesses on what they are required to do to ensure they comply with consumer protection law when publishing online reviews and endorsements. These notes relate to 'Online reviews: giving consumers the full picture' and 'Online endorsements: being open and honest with your audience'.
The key takeaways from these notes are:
- be clear with consumers about the sources of information and how they are verified; and
- if an endorsement/review is paid for, businesses must ensure this is made clear to consumers else they risk breaking the law.
If you would like to discuss how to ensure you are compliant with consumer protection law, how to ensure your competitors are not seeking an unfair advantage or the legal and commercial issues associated with the CMA's investigation, please contact me.
 CMA Statistic 2015