When marketers fudge facts, consumers are taken in

Alina Dizik | Aug 18, 2015

Sections Marketing

When it comes to the labels on packaged goods, consumers often know they shouldn’t believe everything they read. But claims on packaging can be difficult for individuals to test, which gives marketers incentives to stretch the truth on statements that aren’t easily verified. And when they do this, research suggests, customers are highly susceptible to their influence.

Chicago Booth’s Anita Rao and University of Massachusetts’s Emily Wang investigated how questionable health claims on the packaging of four popular grocery products—Kellogg’s Frosted Mini-Wheats cereal, Dannon Activia yogurt, the drinkable yogurt Dannon’s DanActive, and the nutritional supplement Airborne—affected consumer behavior. The products were all targeted by the US Federal Trade Commission because of their claims, and in each case the company removed the claim in question from its packaging after settling with the FTC—which also issued press releases on the date of each settlement, making information about the claims widely available. Following settlement, each product faced significant decline in demand, Rao and Wang find.

Four months after Kellogg’s was required to remove its claim from Frosted Mini-Wheats boxes—which asserted the cereal was “clinically shown to improve kids’ attentiveness by nearly 20%”—monthly revenue from the product was $3.5 million below its previously established peak, the researchers estimate. Four months after being compelled to drop its claim, Dannon Activia, which had promised that it “relieves irregularity,” was down $3.82 million in monthly revenue compared to its peak month. DanActive and Airborne, each of which had made claims related to immunity, were down $400,000 and $3.63 million, respectively, from their monthly peaks over a similar time period. The companies did not change prices for the products after removing the claims, and the inventory for most of the products remained steady. Demand fell most markedly among consumers who were least brand loyal to begin with—those who may have purchased the products precisely because of the contested claims.

Over the long term, potential consequences such as class-action lawsuits and loss of confidence among customers make the ultimate cost of dubious marketing claims difficult to pin down. But in the short term, making such claims could be a business decision that pays off, even if companies are later required to back down—or pay a regulatory penalty. Kellogg’s agreed to a $4 million settlement fund as part of an ensuing class-action lawsuit, but Rao and Wang estimate that making the claim helped the company earn $105 million.

Anita Rao and Emily Wang, “Demand for ‘Healthy’ Products: False Claims in Advertising,” Working paper, July 2015.