Drunk Elephant Case: FTC Compliance Wake-Up Call for Brands

Introduction

In the wake of the Federal Trade Commission’s (FTC) October 2024 ruling banning fake endorsements and ending traditional influencer marketing as we knew it, the National Advertising Division (NAD) has taken swift action, setting a powerful precedent with its inquiry into Drunk Elephant’s advertising practices. This case highlights the dual efforts of the FTC and NAD in enforcing transparency and accountability in influencer marketing.

The NAD’s investigation not only addressed influencer disclosure issues but also examined product safety claims made by Drunk Elephant. While the brand complied with the NAD’s recommendations, the case underscores the increased scrutiny brands face in this new regulatory landscape. In this article, we’ll break down the NAD’s findings, explore its implications for brands, and outline how brands can stay compliant with these evolving standards.

Background: NAD’s Inquiry into Drunk Elephant

The National Advertising Division (NAD), part of BBB National Programs, routinely monitors advertising claims to ensure they meet industry standards. In this case, the NAD investigated two primary areas of concern regarding Drunk Elephant’s social media practices:

1. Safety Claims for Kids and Tweens: Drunk Elephant posted on Instagram that certain products were “safe for kids and tweens to use.” The NAD reviewed whether these claims were substantiated with evidence.
2. Influencer Disclosure Practices: Two TikTok videos promoting Drunk Elephant products were flagged for failing to disclose the material connection between the influencers and the brand in a clear and conspicuous manner.

These inquiries reflect the NAD’s broader mission to uphold truthful advertising and its ability to escalate non-compliant cases to the FTC if brands fail to cooperate.

NAD’s Findings and Recommendations

Safety Claims: Substantiated but Scrutinized

Drunk Elephant’s Instagram post included a list of products it claimed were “safe for kids and tweens to use.” After reviewing the evidence provided by the brand, the NAD determined that Drunk Elephant had a reasonable basis for this claim.

However, this aspect of the case serves as a reminder that health and safety claims, particularly those targeting vulnerable audiences like children, must be backed by robust evidence. Brands must be prepared to substantiate such claims if challenged.

Influencer Disclosure: Issues with Alix Earle and Sophia Pauline’s TikTok Posts

Beyond product claims, the NAD’s findings also raised concerns about how Drunk Elephant’s influencers disclosed their relationships with the brand. The NAD reviewed two TikTok videos promoting Drunk Elephant’s B-Goldi Bright Drops, created by influencers Alix Earle (7.1M followers, represented by United Talent Agency) and Sophia Pauline. Both posts failed to provide clear and conspicuous disclosure of their connection to Drunk Elephant, prompting the NAD to recommend specific adjustments.

1. Alix Earle’s TikTok Post
   Alix Earle, a paid influencer for Drunk Elephant, posted a TikTok video endorsing the B-Goldi Bright Drops, stating, “@Drunk Elephant you did it again – you guys know I’m obsessed with the bronzing drops… wait til you see these b goldi drops #drunkelephantpartner.” The disclosure tag, “#drunkelephantpartner,” was included in the caption but only appeared on the fifth line, requiring viewers to click “more” to expand the text and view the disclosure.
   The NAD determined that this placement was insufficient because it was neither clear nor conspicuous. They recommended that Drunk Elephant ensure that disclosures are immediately visible without requiring users to expand the caption and suggested including a material connection disclosure within the video itself.
2. Sophia Pauline’s TikTok Post
   Sophia Pauline, an unpaid influencer who received free products from Drunk Elephant, posted a TikTok review of the B-Goldi Bright Drops without including any disclosure of her material connection to the brand. The NAD highlighted that even unpaid influencers who receive free products must disclose their relationship with the brand, as this connection can influence consumer perception.
   The NAD recommended that Drunk Elephant ask Sophia Pauline to modify her post to include a clear and prominent disclosure of her relationship with the brand, ensuring transparency for viewers.

In response, Drunk Elephant confirmed that it would take measures to inform influencers about required disclosure practices. The brand stated it would “take reasonable steps to encourage influencers receiving free products to make clear and conspicuous material connection disclosures” and would provide influencers with guidelines to support compliance.

Why the Drunk Elephant Case Matters

This case is significant because it sets a precedent just weeks after the FTC’s landmark ruling banning fake endorsements. It demonstrates that regulatory bodies like the NAD are actively supporting the FTC’s enforcement efforts, creating a layered approach to compliance that brands must navigate carefully.

Key Points:

1. A Dual Enforcement Approach: The NAD’s actions show that it is not only the FTC cracking down on deceptive endorsements. The NAD operates by receiving tips, investigating claims, and providing brands the opportunity to respond. If brands fail to comply, the NAD can escalate the case to the FTC, potentially leading to substantial fines.
2. Increased Accountability: The case highlights how both paid and unpaid endorsements are subject to scrutiny. Brands must ensure that all influencers, even those receiving free products, are fully transparent about their material connections.
3. Transparency Builds Trust: In an era where consumers demand authenticity, non-compliance risks eroding trust. By ensuring influencer disclosures are clear and conspicuous, brands can safeguard their reputation and build stronger relationships with their audience.
4. Proactive Compliance Reduces Risk: The NAD provides brands with a first line of defense. Addressing issues at this level can prevent costly escalations to the FTC, saving both reputation and financial resources.

Lessons for Brands: Staying Compliant in Influencer Marketing

The Drunk Elephant case offers several important lessons for brands navigating the new landscape of influencer marketing:

1. Clear and Conspicuous Disclosures Are Non-Negotiable

Influencer disclosures must be visible without requiring additional actions, such as clicking “more” or expanding captions. Incorporating disclosures directly within videos ensures they are unmissable.

2. Train Influencers on Compliance Standards

Brands should provide influencers with clear guidance on disclosure requirements and emphasize the importance of FTC and NAD compliance. This training can include templates for disclosure language and examples of proper placement.

3. Monitor and Review Influencer Content

Implement a review process to ensure all influencer-generated content complies with disclosure standards and accurately represents the product. This step is critical for avoiding misleading claims or non-compliant posts.

4. Substantiate All Claims

Any product claims, particularly health or safety-related ones, must be supported by reliable evidence. Ensure that these claims are consistent across all marketing channels to avoid scrutiny.

5. Respond Proactively to NAD Inquiries

Cooperation with the NAD allows brands to address issues before they escalate. By adhering to recommendations, brands can demonstrate a commitment to transparency and ethical marketing.

Conclusion: Navigating a New Era of Influencer Marketing Compliance

The Drunk Elephant case serves as a wake-up call for brands relying on influencer marketing. With both the FTC and NAD stepping up enforcement, the margin for error has narrowed significantly. Transparency and accountability are now critical components of any successful influencer marketing strategy.

By prioritizing clear disclosures, substantiating claims, and adhering to NAD and FTC recommendations, brands can avoid regulatory pitfalls and build consumer trust. The stakes are high, but proactive compliance offers a pathway to sustainable, ethical growth in today’s competitive market.

‍