The FTC's focus on the future is no accident. In October 1991, in conjunction with the 10th anniversary of National Consumers Week, the Commission co-sponsored a symposium titled 'Consumer Protection in the Year 2000,' in which we brought together experts in technology, communications, and demographics to consider what the consumer marketplace would look like in the year 2000. Among other things, we learned how interactive television ('video terminal stations'?) and telephones will shape how we shop in the coming decade. What we can see presents many interesting parallels and contrasts with the door-to-door and mail order industries as we have known them for much of our lifetime.
By comparison with the door-to-door selling, an infomercial has less trouble finding an excuse to get in the door with a 'deceptive door opening,' although the various deceptive formats that the FTC has challenged may be the modern-day equivalent of such attempts.
Like door-to-door sales, the main challenge of infomercials is to find the right product and to give a demonstration that will be both entertaining and compelling. Creating the sense of urgency ('you must buy tonight or you lose your opportunity') is less a factor than in an in-home presentation, but even in the early years of infomercials, it was recognized that creating an atmosphere for impulse purchases was very important.
Not surprisingly, manufacturers and producers early on tried to score 'quick hits' with such products as diet patches, baldness cures, government giveaways, and similar products and ideas. In some respects, this could be compared to the proverbial snake oil salesman who went from town to town, making pitches on the village green and collecting money.
The FTC moved quickly against many of the early abusive shows (several important matters remain in non-public status) and, we believe, the FTC helped create a sense of confidence among marketers of more traditional, less controversial products that infomercials might present a vehicle for legitimate product sales, if the 'Wild West' atmosphere could be changed. FTC cases addressed substantiation standards, required format disclosures, and standards of liability for promoters and producers of products and shows, as well as expert endorsers and others. While our public efforts to date inevitably have generated some negative publicity for the industry, we believe that, on balance, we have created a sense of confidence that 'the cop is on the beat' and that the legal landscape for producing and airing infomercials is somewhat more level and predictable.
The proof is in the pudding.
As we look at infomercials that have been produced in the last year or so, we see fitness products, vacuum cleaners, small kitchen appliances, and cosmetics.
It is conceivable, although very unlikely, that it is a coincidence the products that are increasingly being featured in infomercials today include many of the old staples of the door-to-door selling industry. My original metaphor seems to be on target.
From an enforcement standpoint, it is somewhat easier for the FTC to investigate infomercials than door-to-door sales practices. After all, an FTC attorney need not lose sleep, in these times when one can go to bed early and leave a VCR programmed to tape infomercials all night. Of course, there was no dispute about what was said, unlike the situation with salespersons who may depart from a script in a living room. With infomercials, everyone gets the same message. Nor is there much doubt about the details of a product demonstration. It is right there on the screen and, if it is deceptive, it will be much easier for the government to prove it.
At the same time, there are benefits for the lawyers who must give legal advice for infomercial producers. Because the 'script' is controlled and the demonstration is done in a studio, an infomercial producer can use every bit of available marketing expertise to make the program attractive to consumers, while being able to get a legal opinion from counsel who does not need to worry about the 'rogue' salesman who goes 'off the reservation.' While there may be a narrow spectrum where government and private attorneys differ about where to draw the line, on balance the nature of infomercials should make it easier for both government and private attorneys and, for that reason, for the infomercial producers as well.
There also are important similarities to the mail order business. Perhaps the major one is the lesson that successful mail order firms learned decades ago - it is not important to 'make a killing' on the front-end customer; rather, it is important to develop a satisfied first-time buyer and to establish a business through add-on sales and repeat business.
This critical lesson was apparently lost on some of the infomercial pioneers whose idea was to get a quick return on a small investment in TV time and production costs with products that obviously could not work as promised and would leave fleeced consumers in no mood for additional purchases. Such instances are clear in some of the FTC's early cases.
From my perspective, the market changed because of economic forces, as well as through government intervention. As the cost of purchasing a 30-minute slot increased dramatically in some markets and the cost of production of an infomercial multiplied to a significant degree, the initial investment in infomercials became more significant. As government efforts forced infomercial producers to market more traditional, less controversial products, it became increasingly difficult to earn an extremely high gross margin through fraud. Documents that the Twin Star firm filed with the Securities and Exchange Commission gave a graphic picture of the impact of FTC action on its profit margins. Indeed, Twin Star recognized that it might be forced to sell the same products via telemarketing or mail order, if they could not profitably be marketed through infomercials.
I believe that responsible infomercial producers have incorporated the learning of successful mail order firms in today's market. That is not to say that some infomercials may not do extremely well on the front end, but there seems to be a trend towards developing good customer lists that will produce business in the future.
As television becomes more and more interactive, with consumers able to call up shows at will, the analogy between the television of the future and the mail order catalog of today will get closer and closer.
Thus, I believe that my introductory analogy to mail order sales is on target as well.
The other aspect of the analogy to door-to-door sales and mail order marketing that I want to make is how similar the legal rules of the game are. In my initial contacts with infomercial producers, many questions were raised about special standards that the FTC might apply to infomercials. In my view, these concerns have proven unwarranted. The FTC applies to infomercials pretty much the same standards that it applies to advertising generally. Yes, the Commission has taken action against infomercials that employed deceptive demonstration, or used unsubstantiated expert endorsements, or otherwise made claims that could not be supported. But the FTC has taken similar actions as well against the same types of claims and marketing devices when used by advertisers in other formats. Thus, for example, deceptive demonstrations have recently been the subject of FTC challenges when they involve automobile safety or the performance of toys. And over-the-counter cosmetics have been the subject of scrutiny in traditional advertising as well as in infomercials. Indeed, once one gets over the hurdle of avoiding a deceptive format - trying to pass off a commercial message as an objective program - it is difficult to think of many legal standards that the FTC has developed for infomercials that do not reflect traditional principles of advertising and marketing law. I see little reason to fear that the situation will change in the future.
Speaking of the future, the really exciting prospect that I see for the infomercial industry is the continuation of the expansion of infomercials around the world. I have personally seen infomercials on television in Bulgaria - so where is it impossible to imagine them by the end of this decade?
If a single infomercial can be produced for all of Europe and Eastern Europe, with simultaneous ordering information for 10 countries or more, only one's imagination limits the possibilities for infomercials around the world in the next decade. That is good news.
The bad news is that abuses that one has not seen in the United States for several years, if ever, are now appearing in Eastern Europe and perhaps elsewhere. In Bulgaria, for instance, I saw infomercials for health care products that one could not even imagine running in the United States. And the American delegation I was with heard repeatedly from government groups and consumer federations in Eastern Europe that products that had been prohibited in the United States and elsewhere that were being 'exported' to Bulgaria, Hungary, and other situated countries.
Perhaps none of this comes as a shock. Frauds, like other things, tend to follow the path of least resistance. Countries with less developed laws on labeling and advertising, and with consumers who are less experienced in weighing the costs and benefits of competing products, may be sitting ducks for fraud.
What a tragedy it would be if the golden opportunity that confronts marketers of consumer goods through infomercials and other forms of modern marketing were to lose their effectiveness because of the outraged reaction of governments in nations that are just beginning to feel the beneficial effects of a market economy. One can hope, of course, that interested parties, through trade associations and otherwise, will have sufficient foresight to create a marketplace here and abroad that will be a friendly medium for imaginative marketing in the global economy that is developing.
In short, the FTC does not really view infomercials as 'an industry.' Rather, it sees them as a method for reaching consumers about products and services, in much the same way that door-to-door sales, mail order catalogs, and telemarketing have preceded them. It is clear, both in the United States and abroad, that infomercials are in a critical state of transition. Either they will become a traditional vehicle for Fortune 500 companies around the world, or they will become a minor niche for a limited type of product with a slightly negative taint.
Much of the answer to how the infomercials will go, of course, now rests in the hands of infomercial producers and marketers themselves. For the FTC's part, we hope that, in a few years, we will look back with pride and satisfaction that our efforts to weed out the early outlaws led to flourishing and stable settlements for law-abiding citizens.
Mr. Cutler is Director of the Federal Trade Commission's Bureau of Consumer Protection. The views expressed in these remarks are those of Barry J. Cutler and do not necessarily represent those of the Commission, or of any individual Commissioner.
Copyright Adweek L.P. (1993)