Online marketing, social media, and social commerce have created an environment that places an increased burden on franchise marketing departments. The task of effectively managing a brand's image is now so daunting that it has spawned an entirely and relatively new sub-industry called reputation management. We asked franchise attorney Keith Klein to provide some advice. Klein is a partner at Bryan Cave LLP and is certified by the California Board of Legal Specialization as a specialist in franchise and distribution law.
Define "reputation management" and its relevance to franchising.
Reputation management is Internet terminology for online brand management. It evolved as a result of the increasingly pervasive nature of consumer reviews about products and services through social media and customer review sites. Since its beginnings as a grassroots forum for consumer feedback, it has become a powerful commercial convergence of branding, marketing, and customer service. Developing a reputation management strategy is increasingly critical.
Are there general legal guideposts for franchise systems implementing a social media strategy?
Yes. The most widely discussed include the "Guidelines Concerning the Use of Endorsements and Testimonials in Advertising" promulgated in December 2009 by the FTC. The guidelines focus on the use of "endorsements," which, in turn, are broadly defined to include "any advertising message... that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser." Because virtually every form of social media may fall within this definition (whether by affirmative statements or omissions) reputation management strategies must ensure compliance.
A failure to comply with these FTC guidelines can result in significant fines and other consequences. A good example is the FTC's March 15th announcement that it had reached a $250,000 settlement of an enforcement action against Legacy Learning Systems. The FTC alleged that Legacy had failed to monitor members of its affiliate marketing program who endorsed its "Learn and Master Guitar" DVD program on their websites and blogs but did not disclose their financial connection to Legacy.
Affiliate marketing programs are not franchise systems, but they share some similarities. They work by generating endorsements of products through reviews in blog postings, website articles, and other online materials. Affiliate networks, such as Legacy's, run into trouble when the financial connection between the endorser and the seller is not adequately disclosed to consumers.
Are there specific examples of legal actions from a franchisor's reputation management efforts?
The FTC has become increasingly vigilant in the enforcement of marketing online as evidenced by the Legacy Learning Systems enforcement action, and franchise systems are certainly within the FTC's field of vision. For example, when the FTC promulgated the Children's Online Privacy Protection Act, it pursued an enforcement action against Mrs. Fields Famous Brands, Inc., with respect to its pursuit of an online marketing strategy. Mrs. Fields entered into a Consent Decree in which it was required to pay $100,000, to provide a copy of the order to all agents and representatives for a five-year period, and to submit compliance statements to the FTC.
The FTC's enforcement action against Mrs. Fields can provide guidance to franchise systems today as they develop and implement strategies for reputation management. Specifically, franchise systems should make sure the franchisor's employees and agents understand the FTC guidelines. Similar efforts may need to be made for franchisees.
Identify two key do's and don'ts for reputation management.
There is much to do so it is hard to limit or prioritize the do's. In my experience, two that scream out include: 1) establish a social media policy that sets forth system-wide policies that enable the brand and individual franchisees to pursue reputation management strategies collaboratively; and 2) implement a software system that enables the franchisor to monitor franchisee compliance. In pursuing both of these efforts, the best practice includes consulting legal counsel so the franchisor can avoid potential vicarious liability issues based on franchisees' conduct.
Two things to avoid: 1) implementing any obstruction in transparency to the consumer; and 2) attempting to enhance your brand's reputation by denigrating others. Both of the don'ts may put the brand on a direct course for litigation or other legal proceedings.
What developments are likely to affect reputation management?
As social media websites such as Facebook increasingly offer search capabilities, social media will likely become essential to maintaining a material Internet presence. A brand's implementation of an effective reputation management strategy may now prove vital to its survival online in much the same way real estate played an important role in determining which brands prevailed in the burger wars over the past 50 years.
Keith Klein is a partner in the commercial litigation and franchise and distribution practice groups of Bryan Cave LLP. He can be reached at 310-576-2159 or firstname.lastname@example.org.
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