'It worked great for me ...'

False testimonials and the impact on consumers


By Diana Campeau; Patrick Cooney; Kevin Didio; Jared Kass; Edited by Mark F. Zimbelman, Ph.D., CPA, Educator Associate Member;and Colin May, M.S., CFE
mark-zimbelman-80x80.jpg   colin-may-80x80   Starting Out: For new and budding fraud examiners

 JanFeb-testimonial    
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Late-night TV infomercials or "paid programming" often feature a multitude of "very satisfied customers" who may or may not have been compensated for their appearance. These testimonials have now migrated to the Internet. In this issue's column, four former students in Joyce Zadzilka's Principles of Fraud Examination course at Syracuse University discuss the problem of false testimonials and the impact they have on consumer fraud. — ed.

"I loved it!" 

A false testimonial is a statement that a supposed consumer makes about his or her experience with a product or service that doesn't reflect the true quality or desired results as promised by a company marketing that product or service. The company knows the statement is false. 

This popular way to defraud consumers gives them a false sense of security in the apparently objective statements, making them more likely to purchase the products or services. This can result in economic harm to the consumer. 

HIDING BEHIND THE INTERNET 

The rise of the Internet in the 1990s created new business opportunities for fraudsters. Users now can communicate via social media networks, blogs, text messages, tweets and other means on tablets, smartphones, laptops and those old-fashioned desktops. 

Because of these diverse methods, it's difficult to find accurate statistics on the volume of false testimonials. Companies thus far have been unwilling to publicly release numbers because they fear negative publicity. A recent survey from Nielsen/NetRating of 2,500 online users reported that 48 percent said they had made purchases based on online reviews. Apparently, testimonials can sway almost half of all consumers. 

RELIABLE PRODUCT REVIEW? NO, IT'S A FAKE!

Consumers are beginning to realize that some companies are surreptitiously posting fake product reviews online to sell more products as part of deliberate marketing strategies. 

Recently, an Amazon.com merchant, operating under the name "VIP Deals," gave customers refunds on purchases if they were willing to post positive reviews. "We invite you to write a product review for the Amazon Community," the company declared on Amazon.com. "In return for writing the review, we will refund your order so you will have received the product for free. We strive to earn 100 percent perfect 'FIVE-STAR' scores from you!" Company staff members or others the company hired will often post the fake reviews. 

David Streitfeld, in his article "In a Race to Out-Rave Rivals, 5-Star Web Reviews Go for $5," in the August 20, 2011 issue of The New York Times, reports that a fraudster wrote on the help-for-hire site, Fiverr, " 'For $5, I will submit two great reviews for your business.' " 

Individuals who responded to these "opportunities" were given clear, aggressive instructions for their postings. According to the article, an individual, hired to produce Amazon reviews for $10 each, said, "We were not asked to provide a five-star review, but would be asked to turn down an assignment if we could not give [a five-star rating]." 

BAIT AND SWITCH 

As defined by the U.S. Federal Trade Commission (FTC), bait advertising is "an alluring but insincere offer to sell a product or service which the advertiser in truth does not intend or want to sell. Its purpose is to switch consumers from buying the advertised merchandise, in order to sell something else, usually at a higher price or on a basis more advantageous to the advertiser." 

(The FTC's stated mission is: "To prevent business practices that are anticompetitive or deceptive or unfair to consumers, to enhance informed consumer choice and public understanding of the competitive process and to accomplish this without unduly burdening legitimate business activity.") 

In bait-and-switch schemes, which have been around hundreds of years, a firm will attract customers to a product with false or misleading marketing. When they purchase the item, the company will send them a different but often similar product. The second product is usually overpriced and/or of inferior quality to the first product. 

According to a 2011 ABC News report, Goldline Corporation, a precious metals dealer specialized in selling gold bullion via the Internet, was participating in a bait-and-switch scheme with customers by claiming that the company was "offering [gold] bullion for sale on Goldline's website with no intention of selling it," although the company marked it up by nearly 50 percent.  

The prominence of these schemes has increased proportionately with the growth of Internet commerce.  


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