Saturday, March 21, 2009

Hofstra Conference on Energy and the Environment: Empowering Consumers

A Threat to Consumer Empowerment: Greenwashing

Me: I’m interested in how consumers understand advertising claims in general. The claims we are discussing here are strange from the perspective of early advertising theory – they’re not about individual use attributes like taste (experience claims). Most green claims can’t be verified by consumers, or even by a group of consumers – these are extreme forms of credence claims. Economic theory says that purely rational actors should discount credence claims entirely because they’re unverifiable. Given how common credence claims are, it’s evident that advertisers are not aiming at the market segment consisting of purely rational actors. And the empirical literature makes clear that credence claims work, if only because familiarity with any claims breeds trust in those claims. Among other things, memory of source decays faster than memory of claim, so eventually even ad skeptics start to credit the substance of ad claims.

Most people have only a vague notion of what a carbon footprint is, or lifecycle analysis, etc. And consumers know they don’t know. As Alan Levy says, buying a green product is an act of symbolism and faith. Worse still, there’s some evidence that consumers reward themselves for “good” purchases by indulging on some other metric—so if consumers think that a product is good for the environment, or otherwise morally good, on one axis, they will be satisfied and not necessarily ask about the other ways in which the product might be less than ideal, even for environmental reasons. A limited or distracting green claim can thus be just as persuasive as an unlimited one.

False advertising law may be of limited assistance in dealing with complicated green marketing claims. At least in the Lanham Act context, meaning private lawsuits between competitors, some cases hold that terms that consumers don’t understand, or only have vague expectations about, cannot be false because they don’t communicate specific enough information. Example: In one recent case, the court concluded that, although Mitsubishi designated its television set as a 1080p television set, the phrase 1080p “does not convey a specific claim that is recognizable to the targeted customer”—it just indicates a technologically sophisticated TV set. Another: when a vacuum cleaner maker made up a scale of vacuum effectiveness, but the scale had no external meaning, the court concluded that the scale couldn’t be deceptive because it didn’t tell consumers anything they understood.

For green marketing claims where consumers have no preexisting understanding of what the claim means or how it relates to other green claims, that might mean that only a regulatory standard, or maybe an industry standard, would be enough to set a baseline against which claims of falsity and misleadingness could be made. Knowledge from the FDA, courtesy of Alan Levy’s excellent summary of the research: Consumers generally don’t assume ads or labels are educational; they don’t look to Exxon for information about the environment. They are looking for product-specific information. Likewise, consumers don’t necessarily assume ads are reliable. They don’t carefully assess every claim – they know they can’t -- but they look for whether a claim is consistent with what they already know. This is the value of a positive brand identity: it makes claims automatically more credible.

What is a marketer to do? Dietary supplement makers use the news to provide information to consumers about what new products they should consumer because news is more credible. News outlets always need to fill the news cycle, and they often report what marketers tell them.

Consumers’ rules of thumb, all pointing to a regulatory solution: (1) Ubiquitous claims generate confidence that the claims have been vetted and are trustworthy. If McDonald’s and Burger King and Subway all make the same pitch about healthy meals, consumers will trust all of them more. (2) Marketing that uses the same format to convey information increases credibility. This is why the nutrition panel on food has been a huge success—it’s easy to use and it’s trustworthy; consumers don’t need to know how nutrient levels are determined or even how it was decided which nutrients should be labeled. And it explains why industry should (and often does) want a Green Guide. (3) Corollary: without a market standard, inconsistency signals ulterior motives and heightens skepticism.

Laura DeMartino, Assistant Director, FTC Enforcement Division

Enforcement isn’t the only FTC activity—business guidance, and support for self-regulation. Two simple rules: tell the truth and have substantiation for your claims. FTC looks at ads from the perspective of the consumer. Express claims are easy, but you also need to identify implied claims. FTC has Green Guides for businesses, but it isn’t an environmental agency. Its job isn’t to encourage “right” decisions, but to make sure that consumers can make their own choices.

“Eco-friendly.” The advertiser may mean that the bottle is made of recycled plastic, but the consumer may interpret it to mean that the production didn’t cause pollution. By using a broad claim, the advertiser may be conveying claims for which it lacks substantiation. Relatedly, don’t overstate claims: “50% more recycled content,” where the content increased from 2% to 3%: that’s likely to convey a false impression of a significant increase. If a claim is true but misleading, marketers can use qualifications or disclosures to limit the claim, but not by using footnotes.

“Biodegradable”: FTC requires it to break down in a relatively short time when disposed of in a conventional manner. Bunnies diaper ads said these diapers would decompose before your child grows up. FTC brought an enforcement action: Most trash ends up in landfills, which are designed to avoid biodegradation.

“Recyclable”: The product has to be capable of being collected/diverted from the solid waste stream, and there must actually be existing programs in a substantial majority of the communities in which the product is sold or a substantial majority of the population to which the product is sold. To consumers, recyclable means you can recycle this. FTC tested some qualifications, and found that marketers need to be really clear. “Check to see if recycling facilities exist in your area” did not inform consumers. You need to say: “Recycling programs may not exist in your area.”

What about “please recycle”? Doesn’t say recyclable. Research: when consumers see that, they think programs to recycle exist, so the same qualification is needed.

The Green Guides are under review. There are a lot of novel claims. For example: paint with an insulating quality that will decrease energy losses 40-60%--the FTC is now in court on that. Another claim FTC is acting against: advertiser’s device will turn any car into a hybrid. FTC can and will seek monetary remedies: not toothless.

Katherine Farrara, BBB, National Advertising Division staff attorney

Farrara had awesome slides! NAD does ~150 cases/year with seven staff attorneys, everything from personal computers to household cleansers to male enhancement products to animal husbandry. Green claims receive some play as well. The ondustry was quick to respond to consumers’ environmental concerns in the 1980s. They made useless product changes, overstated green benefits, advertised to people’s misconceptions, and occasionally just made stuff up. Example: Hefty “degradable” bags with green imagery. The problem: they went to landfills.

Another great one: less light for same money: replace your 100 watt bulbs with 90 watt bulbs!

Companies are making legitimate efforts to educate consumers and change products, but unfortunately there will always be some who aren’t. Consumers can’t distinguish accurate and inaccurate green claims; they simply lack the info.

Examples of recent NAD decisions raising recurring issues. (1) Ad for Panasonic plasma TVs: taking one attribute of the product and saying that it lacks lead/mercury, and LCDs do, thus plasma is environmentally friendly. But consumers think that “friendly” means good for the environment, or at least not bad for the environment. But plasma consumes more energy than same-size LCDs. NAD recommended removal of the “friendly” claim.

(2) Polygreen claims: 100% oxo-biodegradable. But consumers read that as biodegradable, which is not true.

(3) Natural claims. Arm & Hammer is trying: claims “100% naturally derived surfactants,” which wasn’t true because after processing the content was only 35%.

(4) False denigration: Companies spend money to create a green product, and then want to scare the crap out of consumers about how ungreen competitors’ products are. Series of ads, all including a dead thing soaked in formaldehyde; what was marketed was actually wood paneling, PureBond, for inside the home. “Formaldehyde is quite beneficial. Unless you happen to still be breathing.”
They can definitely advertise that their own product lacks formaldehyde, but they had no evidence that the level of formaldehyde in the competing products was harmful.

Elizabeth Glazer, Hofstra Law: Two sets of interests—consumers who have the right to make their own autonomous choices. And consumers as people in the world who are benefited by the environment being better. Greenwashing is bad. But we want to avoid disincentives for companies that try to be green.

Is there anything like reverse greenwashing? Can you imagine a product that doesn’t enhance its reputation by being green, and conceals it? [Rob Walker’s Buying In discusses pretty much this scenario, with American Apparel—doesn’t spend much time advertising organic fabric or good labor policies; advertises based on sex appeal.]

DeMartino: No one forces marketers to advertise anything unless they’re saying something misleading that requires a qualifying disclosure. On the first point, deterrence: that’s why we have Green Guides and not Green Rules—FTC doesn’t want to inadvertently chill claims.

Me: I don’t buy the idea that the point is to guarantee individual choice: making a standard encourages valuing it—USDA meat grading means that people value Grade A over other possible ways of evaluating meat; organic rules encourage production of food that meets the standard and discourage production of food that only has a small percentage of organic ingredients; disputes over whether dairy producers can use the label “rBGH-free” or whether that misleads consumers about safety (even if it also provides truthful information about environmental consequences). I've written about this.

Farrara: An ad campaign goes through a bunch of hands before reaching the public. The creatives, the lawyers—they fight about what they can and can’t say. The Panasonic lawyers probably cut back on the number of green claims in that plasma TV ad. People advertise green claims in order to make money.

Q: Small Vermont business: Chose not to use “biodegradable” on a cup when the cup met ASTM standards, because appropriate recycling was not available outside Vermont. Businesses need incentive to innovate, which is absent if you can’t market; and then municipalities don’t invest in composting facilities because they don’t think biodegradable products are out there. Chicken-and-egg problem.

Separately: Given how small the impact of a CFL is, especially on a clean grid, how is anyone supposed to substantiate a claim about energy?

DeMartino: Have heard feedback on this issue of “recyclable”/biodegradable. But consumers have also reacted by saying that “recyclable” is a hollow call to action if recycling isn’t available, and use would lead consumers to discount the claim even when recycling was available. Qualifying claims may be your solution: the guides provide examples for marketers.

Q: Car manufacturers—how can all these different superiority/fuel economy claims be true?

DeMartino: EPA does require a label. After that, puffery kicks in—some claims are just not verifiable.

Q: Are there statutory changes that could help? Or is it a question of enforcement? There’s no private cause of action under the FTC Act. Should we increase penalties? Ads change minds even if they’re withdrawn.

A: I’m fond of standards, but they do have costs in controlling innovation. The nutrient panel means that it’s hard to convince people that they should pay attention to nutrients that aren’t on it. The EPA mileage estimates are wrong, but they’re still valuable insofar as they allow people to make comparative judgments between cars. (Though hybrids may change that.)

Farrara: People are anxiously awaiting the new Green Guides.

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