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Good advertising does not just circulate information. It penetrates the public mind with desires and belief.William Burnbach
How many times have you come across “verified” news informing you about a miraculous new colon cleanser or weight loss product and wondered whether to give it a try? In a recent Journal of Marketing Research article, professor Anita Rao explores the important topic of “fake news” advertising and its impact on attracting new customers for the advertised products. A potential consumer has multiple ways of learning about a product, one of which is via advertisements that present fake news as legitimate. As a prevalent occurrence in society that can be used to potentially dupe consumers into purchasing inferior products, the Federal Trade Commission (FTC) ordered a nationwide shutdown of over 35 fake websites run by 10 parent companies in 2011.
Using this event as a setting, the author uses a difference-in-difference approach to quantify the effects of the FTC shutdown and understand how it impacted merchant site visits via other advertising channels. The results of the study are thought-provoking: Through a series of regression analyses, the author discovers a significant decrease in merchant site visits after the FTC shutdown, using consumer complaint data to supplement original purchase numbers. However, the riveting fact is that not all traffic to the affected merchant sites slowed or stopped, with some experiencing positive substitution effects from other means of promotion, namely organic and legitimate advertisements.
So what are the final takeaways? The author’s inferences from this paper have important implications for managers and policymakers. The results indicate that policymakers should keep their eyes open for fraudulent activities like fake news sites and merchant sites that are duping consumers and selling inferior products. Moreover, to preserve good will and consumer loyalty, managers should plan their promotional activities so that they in no way provoke or wrongly motivate a consumer to purchase a product that will not live up to its claims.
We had a chance to contact the author to learn more about their study and gain additional insights.
Q: What inspired you to write this paper? How did you approach your literature review (from deceptive advertising in marketing, or fake news in political science)? Why did choose the term “fake news advertising” as a focal concept?
A: I was intrigued by the fact that in the political domain, uncovering the treatment effect of fake news is hard: Those who consume fake news might be a select set of people, and outcomes (e.g., votes) in the presence and absence of fake news might have been the same. So how does one know whether the fake news had an effect? Without observing behavior prior to (or in the absence of) fake news, attributing the effect to the treatment (fake news exposure) is tough. Second, I came across the FTC actions in 2011 that shut down 10 fake news operating companies. This combined with the fact that in marketing we are equipped with rich individual-level data with repeat observations, led me down the path of disentangling the treatment effect: Do such fake news stories change consumers’ purchase propensity, or are they viewed by a select set of consumers already in the market for such products? Answering this question is feasible with the kind of data we have access to in marketing.
Digging deeper I realized “fake news” style marketing (i.e., ads designed to look like editorial content) is not new – it has been present since the advent of newspapers. Therefore, the term fake news advertising is more applicable. Moreover, I believe the review team had suggested this term to be more precise and to distinguish it from the more general “fake news.”
Q: How did you go about identifying alternative/confounding events (e.g., negative publicity from the press, Google algorithms)? Is there a systematic way that you usually approach this issue?
A: Yes. When trying to establish causality using an event study, you want to be able to rule out everything else that could possibly have happened and could serve as confounds. So you think of as many alternatives that could have caused similar patterns and try and rule them out. In addition, it is good practice to present to various audiences to the extent you can: Through presentations you get to hear alternative explanations, some of which you might have thought of and some which are new. You are on the right path if you can convince the audience or think of additional data/analysis that will satisfy the question.
Q: The way you empirically find the lag period of two months was brilliant. How did you arrive at this empirical verification, and was it difficult to persuade reviewers to accept it?
A: Thank you. It was indeed an interesting and convincing find. It actually reassured me that the data is reliable: complaints take time to be reported and seeing that in the data was reassuring. I think the review team also liked the idea and were supportive of using this analysis.
Q: For the robustness check of the launch of other fake news sites, you came up with two creative methods to approach this issue, how did you come up with them?
A: The question was whether these companies, after facing the FTC shutdown order, now created alternative fake news site names in a whack-a-mole manner. So, how does one identify if any new fake news sites are popping up? In my setting, the fake news sites have unique names – they mimic real news sites so they have words like “daily,” “news,” and “report.” Because they need to create multiple fake news sites, they often combine these words with a number (report6, news9, etc.). Those two patterns were key in coming up with this approach of identifying whether new fake news sites were being created.
Q: Considering that the results talk about negative spillovers yet positive substitute effects, what implications do you think this research can provide for managers and marketers?
A: Fake news style advertising seems to work. However, the message is geared more toward policymakers and implications for consumers. It is easy for consumers to be persuaded by such messages, as can be seen by the large treatment effect. A few new consumers continue reaching the site through regular ads, but the draw is not as great as with fake news ads, which are able to bring in many more new visitors. I think this underscores the role of regulatory oversight in domains where consumers are likely to be susceptible to such false advertisements.
Read the full article here:
Anita Rao (2022), “Deceptive Claims Using Fake News Advertising: The Impact on Consumers,” Journal of Marketing Research, 59 (3), 534–54. doi:10.1177/00222437211039804