The US regulatory agency opened up public comment on a proposed rule that would enact "stiff civil penalties."
The US regulatory agency opened up public comment on a proposed rule that would enact "stiff civil penalties."
Fake reviews have been a yearslong problem in ecommerce to the point that illicit product ratings obtained in exchange for payment have created a marketplace of their own. As this activity became more well-documented over the last several years, Amazon has filed lawsuits to address the issue. Now, the Federal Trade Commission (FTC) is weighing additional action of its own.
According to a news release, the FTC on Thursday voted to open up public comment on a proposed rule that would “combat deceptive or unfair review and endorsement practices.” This would include practices such as fake reviews, suppressing negative reviews and paying for positive reviews.
Following a 3-1 vote, the FTC initiated publication of an Advance Notice of Proposed Rulemaking (ANPR) that seeks public comment on potential harms that such practices cause, as well as whether a rule would help consumers and “create a level playing field for honest marketers.”
“Companies should know by now that fake reviews are illegal, but this scourge persists,” said Samuel Levine, director of the FTC’s Bureau of Consumer Protection, in a statement. “We’re exploring whether a rule that would trigger stiff civil penalties for violators would make the market fairer for consumers and honest businesses."
Fake reviews prey on a key area of the ecommerce shopper experience: The availability of crowdsourced product reviews from people who have used a product. Amazon began including unbiased reviews on product pages in its earliest days, as founder Jeff Bezos argued that providing an authentic viewpoint was a key way that the site could help customers make decisions about a product that they could not otherwise inspect and hold in their hands.
It turned out to be a prescient move. Reviews have since become widely used, and are especially important for smaller brands seeking to build credibility. In a Pew Research study from 2016, roughly eight-in-ten Americans said they consult online ratings and reviews when buying something for the first time.
Ecommerce growth meant more new sites with more reviews. As marketplaces continue to expand, there will likely be more reviews. For instance, Albertsons implemented reviews on its ecommerce stores this year. But the illicit actors realized that it was possible to game the system. They set up incentive structures that paid people to buy a product, and leave a review that wasn’t true.
“The rapid growth of online marketplaces and platforms has made it easier than ever for some companies to create and use fake reviews or endorsements to make themselves look better or their competitors look worse. It can be difficult for anyone—including consumers, competitors, platforms, and researchers—to distinguish real from fake, giving bad actors big incentives to break the law,” the FTC wrote in its press release.
Illicit actors, in turn, have manipulated this process to drive sales. A recent study published in the INFORMS journal Marketing Science found that marketers selling on Amazon, Walmart, Wayfair and other marketplaces purchase fake reviews. The study looked at fake reviews on Amazon, and found that they had an impact on sales and ratings of the brands.
“For the products in our research observed buying fake reviews, roughly half of their reviews were eventually deleted, but the deletions occurred with an average lag of over 100 days, allowing sellers to benefit from the short-term boost in ratings, reviews and sales. Almost none of the sellers purchasing fake reviews were well-known brands,” said Davide Proserpio of the Marshall School of Business at the University of Southern California, a co-author of the study with Sherry He and Brett Hollenbeck of the UCLA Anderson School of Management.
Amazon has taken action to root out the problem. The latest example came at the same time as the FTC meeting on Thursday, as the company announced it filed criminal complaints in Italy and Spain against brokers of fake reviews. The company has filed a total of 10 lawsuits in the US, including one in July targeting Facebook Groups where arrangements for the fake reviews are made, and another in February against two companies that orchestrate fake reviews across multiple marketplaces. It also sent a cease and desist to five websites in Germany that were directing visitors to a fake review broker, and the site operators have since complied.
“Holding bad actors accountable through litigation and criminal referrals is one of many important ways that we protect customers so they can shop with confidence,” said Dharmesh Mehta, Amazon VP of selling partner services, in a statement. “In addition to continuing to advance our robust detection and prevention of fake reviews in our store, Amazon will remain relentless in identifying and enforcing against bad actors that attempt to engage in review abuse.”
The FTC has been sending signals that it would bring more enforcement, as well. In 2021, it issued a warning to marketplaces such as Amazon, Walmart, Target and “an array of large companies, top advertisers, leading retailers, top consumer product companies and major advertising agencies." It aimed to put companies on notice that they could face fines of up to $43,792 per violation if deceptive practices were found to be in use. In January, it took enforcement step against Fashion Nova, ordering the site to pay $4.2 million for suppressing negative customer reviews on its website.
“These practices don’t only harm the consumers who place their trust in fake reviews,” said Khan, in a statement issued at the meeting. “They also pollute the marketplace and put honest businesses at a competitive disadvantage.”
The publication of the advanced notice this week marks an escalation. FTC Chairwoman Lina Khan said the rule “could enable us to obtain civil penalties and return money to consumers injured as a result of deceptive or unfair reviews and endorsements.”
It is expected to be published “shortly,” according to the FTC, and the public will then have 60 days to comment.
Commissioner Christine S. Wilson opposed the publication, and was the lone dissenting voice on Thursday.
In a statement, Wilson said she “agrees that these practices are unlawful,” but questioned whether additional rulemaking was the best use of FTC resources when it has already made other enforcement tools available, and added that “the harm that results from the deception at issue is speculative in nature.”
“Rather than churning out another proposed rule, perhaps we should stay the course on these initiatives and devote the incremental resources to enforcement in other critical areas,” Wilson said. Wilson called on the commission to pay more attention instead to enforcing the Opioid Addiction Recovery Fraud Prevention Act, which inflicts penalties on bogus treatment programs.
“The opportunity cost of yet another rulemaking should not be understated,” Wilson said.
Plus, check out peak holiday shopping weekend results shared by Klaviyo, Wayfair and Ace Hardware.
At Amazon, 2022 delivered the "biggest ever" Thanksgiving weekend to date.
ustomers purchased a record number of products from Thanksgiving through Cyber Monday, the company said in a news release Wednesday. Amazon did not disclose sales figures, while sharing that “hundreds of millions” of products were purchased.
"This was a record-breaking holiday shopping weekend for Amazon,” said Doug Herrington, Amazon’s CEO of Worldwide Stores, in a statement. “Customers shopped millions of deals this weekend and we have many more amazing deals to come.”
It came as record sales and traffic were reported for US ecommerce as a whole during the peak shopping weekend.
Despite the growth, Amazon is still expressing a cautious approach that led it to forecast more tepid sales growth over 2021 for the all-important holiday quarter. According to Bloomberg, CEO Andy Jassy said Wednesday that inflation is leading shoppers to seek deals.
“Consumers are spending, but they’re being careful about trying to stretch their dollar,” Jassy said at the New York Times DealBook conference.
This year, Amazon sought to get an early jump on the shopping holidays to reach bargain hunters. It began Black Friday deals on Thanksgiving, as many shoppers turned to their phones after dinner. For Cyber Monday, deals started on Saturday.
Over the Turkey 5, the best-selling categories were home, fashion, toys, beauty and Amazon devices. Electronics including Echo Dot, Fire TV Stick, and Apple AirPods were the best-selling items. Other top sellers included Hasbro Gaming Connect 4, Burt’s Bees Christmas gifts, apparel from Champion, apparel and shoes from New Balance, the Amazon smart plug, Echo Show and Nintendo Switch.
Amazon said that more than $1 billion in sales were generated for US small businesses through the weekend. This includes third-party sellers that offer goods on Amazon’s marketplace and access its logistics services through Fulfillment by Amazon (FBA).
“If the news of Amazon having the best Black Friday weekend in company history is any clue, it was historic for 3P sellers in many ways,” said Jon Elder, who consults with Amazon sellers as founder and CEO of Black Label Advisor.
Elder said that the vast majority of FBA sellers experienced “tremendous” year-over-year growth through the weekend.
“Sellers noticed that customers were hungry for deals like never before and coupons played especially well,” Elder said. “Some sellers opted to not sign up for deals and still experienced historic traffic and sales.”
Sellers also ramped up PPC, or pay-per-click, in which brands and sellers access sponsored product space to appear in prominent positions on the highly-trafficked marketplace.
“With inflation on the rise, it was more important than ever to increase brand awareness through PPC ads, including video ads. Expect to see brands make this a ‘best practice’ going forward,” Elder said.
Despite all the sales ringing up, Black Friday did bring one curve ball, as a glitch in Amazon’s ad tools led to inaccurate reporting of spend that misled brands and advertisers. According to Business Insider, the sitewide reporting error caused agencies and other ad buyers to either overspend, or miss out on sales as a result of underspending. While a spokesperson said the issue was fixed, it caused a state of confusion on retail’s most important day of the year, as many were forced to wait for a fix.
Nevertheless, the weekend's overall results serve as a reminder that the Thanksgiving shopping period remains the largest weekend of the year for ecommerce, even as Amazon has introduced Prime Day and this year’s early October holiday kickoff event, which it dubbed Prime Early Access Sale.
The Prime sale events are “unique to the Amazon ecosystem, but many Americans simply don’t show up for those events as much because of the time of the year," Elder said.
"Black Friday weekend remains king and the numbers prove that."
Here are a few more key data points over the Black Friday-Cyber Monday weekend that were shared this week:
How many sales do the volumes of messages being sent by brands account for? One of the largest platforms is offering hard numbers. Klaviyo, which serves direct-to-consumer businesses, said revenue attributed to its SMS and email marketing messages reached $2.2 billion during Black Friday-Cyber Monday. That represents a 46% increase in dollars over 2021, while total order count reached 34% year-over-year. The growth was even more staggering in SMS-attributed sales alone, which grew 200% in dollars and $190 in order count.
Black Friday was the highest day for message sends, but Cyber Monday closed the gap from 2021, with 47% growth.
This came after businesses using the platform sent a combined 10.7 billion emails and text messages—up 41% from 2021.
While Klaviyo’s growth is likely a factor, it’s a fair bet that a shift toward owned marketing channels following Apple’s App Tracking Transparency played a role in this growth.
A pair of retailers in the furniture and home improvement categories released sales results showing growth.
Wayfair, the furniture home goods marketplace, reported a “low single digit sales increase” over 2021 for Thanksgiving weekend. Over the five days, 73% of the orders were from repeat customers, while “hundreds of thousands” of new customers ordered from Wayfair for the first time. Wayfair said its revenue strengthened following an early November earnings call, in which the company shared its revenue was down 10% quarter-to-date.
Ace Hardware, meanwhile, may known for its local stores, but ecommerce was the focus of its holiday update. Black Friday brought a record online sales day for the home improvement and tools retailer, posting 45% growth over 2021. Cyber Monday also saw a year-over-year jump of 33%. Ace said demand spiked for grills and smokers, electric mowers and snow blowers, while power tools also remained a popular category. In all, Ace saw a 33% increase in ecommerce sales over 2021 during the five-day weekend.
Ace sells through its ecommerce site, but its omnichannel model remains heavily linked to its neighborhood-level stores. The company said that 90% of online orders are either picked up in store, at curbside or delivered by store associates.
“Our continuous investments in the digital and omnichannel shopping experience make it easy for customers to shop Ace any way they prefer," said Bill Kiss, head of digital at Ace Hardware, in a statement.