Private investment firm Comvest Partners acquires the financially troubled e-retailer, which filed for Chapter 11 bankruptcy protection in March.
The Federal Trade Commission has notified shoe brand Cole Haan it should have disclosed that shoppers were offered an incentive to pin items on Pinterest. Consumers who did pin Cole Haan images were entered into a contest to win a $1,000 gift card. The agency is not penalizing Cole Haan because it's just now clarifying this policy.
The Federal Trade Commission for the first time defined disclosure rules related to contests that encourage consumers to pass along content on social networks. Put simply, if a contest requires consumers to share something for a chance to win a prize, that needs to be disclosed in every post.
Mary K. Engle, the FTC’s associate director for advertising practices, defined the agency’s stance in a letter she sent last month to Cole Haan.
The multichannel shoe retailer recently ran a contest on Pinterest that offered shoppers a chance to win a $1,000 gift card if they created a Pinterest board featuring five images of their “favorite places to wander” along with five images from a Cole Haan board, tagging each with the hashtag #WanderingSole.
The problem, Engle writes, is that the shoppers entering the contest were endorsing Cole Haan’s products for the chance to win a prize, but the retailer didn’t require them to disclose their motivation.
“Entry into a contest to receive a significant prize in exchange for endorsing product through social media constitutes a material connection that would not reasonably be expected by viewers of the endorsement,” Engle writes.
By sending the letter, the FTC is publicly underscoring its rule that advertisers and marketers require contest entrants to disclose when any content is posted or promoted for commercial purposes, or if it there is any incentivize for the individual to share a post, says Eric Goldman, an Internet and advertising law professor and director of the High Tech Law Institute at Santa Clara University.
While the letter continues the FTC's battle against "inauthentic content," it is also crazy, he says.
"The position is over-reaching at best," Goldman says. "Cole Haan didn't give entrants a freebie, it didn't pay them to set up a board, it just gave them the chance for a prize. The FTC's position is that the boards were advertising because they were done with a financial motivation. But we know better. Most entrants were deep brand loyalists who were excited about expressing their relationship with the brand and the contest was an afterthought. Telling those fans that their brand loyalty is advertising is a foreign concept to those fans."
While the move won’t likely have a “chilling effect” on social media contests, it will force marketers to change their practices to comply with the law, says Rebecca Lieb, an analyst at The Altimeter Group.
“As marketers move into new digital channels, they often tend to ignore or overlook this,” Lieb says. “As with e-mail and search in the past, marketers are being strongly encouraged by the FTC to develop best practices and guidelines. We’ve seen this happen before, and will continue to see it whenever there’s a major new channel or platform.”
The FTC says it will not fine or penalize Cole Haan for its violation because this is the first time it has publicly addressed whether a Pinterest pin constitutes an endorsement.
The letter says that after the FTC began investigating Cole Haan’s contest, the retailer adopted a social media policy that addresses the agency’s concerns. Cole Haan could not be reached for immediate comment.