The Challenges Native Advertising Poses: Exploring Potential Federal Trade Commission Responses and Identifying Research Needs

Abstract

Native advertising is a new form of online advertising that appears in many settings, such as blogs, social media, and entertainment and news publications. Native ads typically blend with their surrounding context, stem from sources or placements that do not signal advertising, lack overtly persuasive or sales-focused messaging, and have less clear material outcomes. Such characteristics raise ethical concerns because native ads are more difficult for consumers to identify and because they challenge concepts that are central to current deceptive advertising policy. Native advertising is a Federal Trade Commission enforcement priority, and the agency has developed guidelines for this new ad form. However, the unique characteristics of native advertising likely require novel approaches to protect consumers. In this article, the authors trace the evolution of regulation relevant to native advertising. They identify shortcomings and propose remedies that the Federal Trade Commission or industry could adopt to prevent consumer harm, detect infractions, and enforce its regulations. The authors also develop an agenda for future research needed to more fully inform public policy and industry response in this arena.

Beyond Deception: Potential Unfair Consumer Injury from Various Types of Covert Marketing

“…Deception about the nature of disguised commercial advertising also may cause consumers to engage with message content that they would not have engaged with had they realized the message was advertising. Campbell and Grimm (, 114) suggest that the FTC would consider covert ads deceptive even if the “sole effect of inadequate source disclosure is more time spent viewing an ad.” For this reason, the FTC presumes that certain misleading formats are material to consumers. Such presumptively material covert marketing formats include news or featured articles, independent reviews, investigative reports, scientific research or other information from an independent source or the government.…”

“…Such presumptively material covert marketing formats include news or featured articles, independent reviews, investigative reports, scientific research or other information from an independent source or the government. The FTC also assumes consumer materiality of native ads appearing on publisher websites (Campbell and Grimm , 114).…”

“…However, consumers would not apply these persuasion defenses to communications they believe are objective information rather than commercial advertising intended to persuade. For this reason, consumers often respond more positively to messages they do not recognize as ads (Campbell and Grimm , 110). Table shows traditional forms of promotion that may be deceptive about their subject with various forms of masked, stealth and covert marketing that are deceptive about their source or type of message.…”

“…As discussed above, covert marketing practices are likely to injure reasonable consumers by deceiving them into paying attention to (and perhaps believing) marketing messages they otherwise would have ignored had they realized the marketing nature or source of the messages (FTC , 10). Campbell and Grimm (, 112) applaud the FTC's “elucidation of materiality to include effects such as increased interaction with an ad.” This injury is caused by the deception of covert marketing and is often minimal for any single consumer but may be substantial if aggregated across consumers.…”

“…The FTC (, 13–14) has stated that a clear disclosure of the commercial nature of the disguised message may resolve the problem so long as reasonable consumers perceive and understand the disclosure. Yet, research on consumer understanding suggests that some disclosures proposed for covert marketing are only minimally effective with one‐third or less of consumers understanding the disclosure (Campbell and Grimm , 110). Campbell and Grimm () recommend that the FTC propose a new standardized disclosure including a visual symbol and other standards such as disclosure in the URL address and use of third‐party detection or identification programs.…”