The FTC Is Really Into Surveys. Is That a Good Thing?

If you read the Federal Trade Commission’s (FTC) statement  on its recent revision to its Jewelry Guides, you’ll notice that one phrase pops up a lot: “consumer perception evidence.” It’s repeated 19 times in the 155-page document.

Since the 1970s the FTC, reluctant to hamper legitimate commercial speech, has relied heavily on so-called consumer perception data—generally surveys—to guide its decisions.

As its statement says:

To prevent deceptive acts and practices, the Commission’s guidance must be based on how consumers reasonably interpret claims. Thus, the Commission tried to use available consumer perception evidence whenever possible to develop its guidance. To avoid chilling the use of truthful terms that may be useful to consumers, the Commission issues new guidance only when supported by sufficient evidence that doing so is necessary to prevent deception.

So, for instance, the FTC statement includes references to a Harris Poll conducted by the Jewelers Vigilance Committee (JVC), as well as a Frost & Sullivan survey touted by the International Grown Diamond Association (IGDA).

And when those polls aren’t available, the FTC tends to punt. That’s what happened with four lab-grown diamond descriptors that the FTC had been asked to approve:

A number of commenters asked the Commission to add “[manufacturer-name]-grown,” “foundry,” “created,” and “grown” to the Guides’ list of non-deceptive qualifying terms. However, no commenter submitted perception evidence demonstrating how consumers understand these terms.… [T}he Commission lacks a basis for advising marketers that any of these terms alone can be used non-deceptively to qualify the word “diamond.”

So no poll, no ruling.

But perhaps this dependence on “perception evidence” should be rethought. For one, while the FTC has said it welcomes trade comments, it mostly listens to people who submit consumer data. Which means that many people who submitted comments not backed up by polls were wasting their time.

In addition, requiring surveys sets an awfully high—and expensive—bar for accomplishing anything and needlessly complicates what could be a straightforward decision-making process.

Take the above list of descriptors. The FTC has already approved [manufacturer-name]-created and lab-grown. So [manufacturer name]-grown seems like a cinch. Do we really need a survey to make that call?

On the other hand, while foundry works as a company name—and as far as I know, no one has objected to it—I don’t like it as a stand-alone descriptor. Google defines a foundry as “a workshop or factory for casting metal.” Most metals come from the earth. If that term were approved as a solo descriptor, in theory, Diamond Foundry could just use its company name, and no other info about the stones’ origin. At the moment this is an academic discussion; Diamond Foundry tells me it’s “not planning on using foundry as a [stand-alone] descriptor as of now.”

The FTC has put forward a clear, fair standard for descriptors of lab-grown diamonds: They need to describe the product in a straightforward way. It shouldn’t require a Gallup Poll to judge whether certain terms clear that bar. Just a dictionary.

Even man-made, a term the FTC itself uses 22 times in its statement, hasn’t made the okay list. “The approach we took in doing this set of revisions,” FTC attorney Reenah Kim told me, “is that, where there was a basis in the record to do so, we made the changes. And where there wasn’t a basis, we didn’t.” Without a poll, the agency won’t even endorse its own term of choice.

Now, while canvasing consumers may seem like an evidence-based way to settle these issues, it is far from perfect. Market research is frequently introduced in trademark litigation. In 2013, federal judge Richard Posner wrote that courts should treat such polls with caution, as they are “prone to bias.” For one, submitting parties can shape questions to elicit specific answers. They can also cherry-pick data they like and not share numbers they don’t. Plus, consumers sometimes react differently when they see an advertisement in a store than when they view it in a focus group. In fact, studies have found U.S. courts mostly ignore this data.

Furthermore, most of the perception data submitted to the FTC are top-line numbers, rather than detailed information on questions or methodology. That makes it even more difficult to mitigate the problems posed by Posner. In some cases, such as when the FTC looked at research on gold karatage, the FTC disagreed with the submitter’s interpretation of the data.

So what are the other options? The JVC sometimes shares with the Commission information about the mediations it conducts; when a buyer complains about being misled, that would seem to be the ultimate piece of consumer perception data. However, while these reported cases may be factored into the FTC’s internal decision-making, they aren’t reflected in its final statement, which references only polls.

Granted, there is a place for consumer studies, particularly in borderline cases, and assessing tricky terms like cultured, which may mean one thing to the trade and another to the rest of the world. But if the FTC believes so strongly in consumer research, shouldn’t it be polling the public? That way the results would be unbiased and not cherry-picked, and the process wouldn’t present an economic burden. There is also at least one precedent for this: In 2009, the FTC surveyed consumers in preparation for its Green Guides.

No one is suggesting that the attorneys behind the Guides have an easy job; some of these issues can be surprisingly contentious. It’s not surprising they want something on the record when making a call. Still, while the Commission based many of its revisions on perception data, it didn’t for all of them, including some of the most controversial ones. For instance, it cited no consumer studies when it changed the definition of diamond to eliminate the word natural. So it’s hard to see the consistency.

An FTC spokesperson did not return requests from JCK for comment on this issue. However, JVC president and CEO Tiffany Stevens believes that “there are long-standing debates between [FTC] employees about these types of issues,” but adds that the decision process within the agency remains largely opaque.

Industry groups are considering asking the FTC to change some of its more-disputed changes. My advice: Come armed with surveys.

(Image: Getty)

 

JCK News Director