6 Rules to Protect Your Business From Making False Business Claims

By Paul Weber

Living Essentials, maker of 5-Hour Energy, alleged its energy drink shot contained a synergistic combination of ingredients that made it superior to drinking coffee and that doctors recommended it. A Washington state court ruled these claims, among others, were misleading and ordered the maker to pay $4.3 million in penalties and fees for its false business claims.

Lumos Labs, creators of Lumosity, claimed its brain-stimulating app would help prevent Alzheimer’s disease, though no research as proof was ever presented. The company settled the charges brought by the Federal Trade Commission (FTC) for $2 million.

And the list of companies making false claims goes on and on.

Is it only a matter of time before a grocery store or seafood marketers tout the benefits of free-range sushi because free-range sushi is better sushi? Of course, the idea that freely swimming fish produce a better sushi is absurd, but it’s no less ridiculous than the claims made by some small businesses on a daily basis.

Let the buyer—and the seller—beware

Who, if anyone, is regulating small businesses’ advertising claims? The FTC doesn’t possess the resources or investigative power to monitor the vast small business landscape and regulate false or misleading claims, nor should they. The invisible hand of capitalism does a fine job regulating small business advertising claims.

The invisible hand of capitalism is a term used by Adam Smith in 1776 to describe the unintended social benefits of an individual’s self-interest. Simply put, if you lie to us, we won’t buy what you are selling and your business will fail.

In an era of declining regulation, capitalism controls the marketplace. For small businesses, the mistake of misleading customers can be devastating. We have all heard the saying caveat emptor (let the buyer beware), but for business owners who want to embellish their marketing message, the real message should be “seller beware.” Some marketers fail to heed capitalism’s invisible hand when it comes to embellishing product features and benefits in their advertising.

iSpring Water Systems of Alpharetta, Ga., claimed its water filtration systems were made in America, but many were either largely or entirely manufactured overseas. The FTC intervened, but the damage to iSpring could have gone well beyond fees and penalties. Customers might have turned away, and a major distributor like Amazon could have chosen to disassociate with a brand that had misled consumers.

In essence, any marketing claim is a promise to the customer. Break that promise and risk alienating a customer for life. Break that promise in grand fashion and risk accompanying FTC fines and failure.

Even a small business owner’s seemingly innocuous claim can cause irrevocable harm to a brand or business. A Kansas City car dealership touted its customer service superiority with the tag line “You couldn’t buy from a nicer bunch of guys.” Unfortunately, the dealership was notorious for its bait-and-switch selling and atrocious customer service. As one former customer said, “You couldn’t buy from a bigger bunch of jerks.” A claim of superiority, when not matched with a superior product or service, is worse than not making the claim at all.

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• Are Franchises Regulated by the Government?
• How to Make Ethics a Cornerstone of Your Company Culture
• Why Entrepreneurs Should Never Hire a Yes-Man (or Woman)
• 3 Ways to Be More Authentic (and Successful) in Your Business

In the 1970s, Domino’s Pizza introduced its “30 minutes or it’s free” guarantee to gain market share in a competitive industry. Before Domino’s bold move, nobody cared if a pizza arrived in 30 minutes or 35 minutes. By making such a bold claim, Domino’s created a competitive difference on speed of delivery—but not necessarily a competitive advantage.

The company ended the guarantee after drivers were involved in crashes resulting in injuries and deaths. Whether the accidents were related to weather, bad driving habits, or intentional speeding at managers’ requests, the public perception soured on the 30-minute guarantee. Domino’s still offers a guarantee, but today it is based on quality. If you’re not satisfied with your order, they’ll remake it.

6 simple rules to avoid making false business claims

History serves as a fair warning to millions of small business owners trying to gain a competitive advantage in the marketplace. Yours is probably not the fastest, cheapest, most qualified, best trained, nicest, most talented business in your competitive space. Don’t make claims you can’t quantify or honor for an indefinite period of time, as they may backfire for reasons out of your control.

Here are simple rules to live by to avoid the pitfalls of making false business claims in your advertising:

1. Understand the definition of the word hyperbole. Avoid walking the tightrope between exaggerating and telling a lie.
2. Test your claims with employees and customers. Do they believe your message to be fair and true? If not, reconsider your advertising statements.
3. Assess if your advertising claims are quantifiable. Can you substantiate what you say about yourself in real numbers that readers will understand?
4. Ask yourself if your advertising statements really matter to your customers. Remember the Domino’s story? If you make a grandiose claim and nobody cares that you deliver in 30 minutes or less, reconsider your statement.
5. Don't make false claims using the statements of others. If you want to be challenged about the effectiveness or efficacy of your product, just say it is recommended by a doctor. Doctors will come out of the woodwork to challenge your claim.
6. Run your business with integrity. When rating the values most desired in a product, service, or company, customers will usually choose integrity over anything else. So if you need to embellish to sell, you jeopardize the very integrity your customers seek.

If you’re going to claim that your free-range sushi is better sushi, just make sure you can prove to the FTC or in a court of law that your fish get adequate free swim time.

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