Long ago, Ronald Reagan and Lucille Ball advertised cigarettes. Sammy Davis Jr. promoted Alka-Seltzer.
In modern times, Cindy Crawford has appeared in Pepsi commercials. Shaquille O’Neal is a fan of Icy Hot. Tom Selleck and Henry Winkler support reverse mortgages.
Perhaps the most embarrassing celebrity salesman is Larry David, whose Super Bowl ad for crypto company FTX later backfired when the company was shut down and founder Samuel Bankman-Fried was sentenced to 25 years in prison. David apologized.
Celebrity spokespeople are nothing new. But in a major development, the Federal Trade Commission is warning companies that sell their products with big names against becoming the next CarShield/American AutoShield.
In case you haven’t heard, the company whose ads promise to help you pay for car repairs has agreed to pay $10 million for its deceptions, with news of refunds to customers expected soon.
Customers were promised help in paying for their car repairs, but the company let them down.
In a statement to The Dallas Morning NewsCarShield attorney Michael E. Carter blamed the pandemic, which led to supply chain problems and labor shortages, and said the company was under “extreme stress and tremendous pressure.”
Many CarShield customers experienced the same stress and pressure when they realized they had been lied to by the company. Many paid and got nothing in return.
Misleading claims
CarShield uses celebrities in its ads, most recently rapper and actor Ice-T, actress Vivica A. Fox and ESPN announcer Chris Berman.
Mark Lovvorn, a longtime Dallas banker and certified fraud investigator, told me he visits church groups and senior living communities to warn about scams.
He urges his audience not to fall for celebrity endorsers. He asks whether they actually use the product they are promoting. If they do, he believes they are likely to be treated better than complaining customers.
“The trust factor attracts them,” he says of the customers.
Washington DC attorney Gonzalo Mon told me that in the CarShield case, the FTC alleged that some of the claims in the commercials were misleading—either because they were untrue or because they reflected atypical experiences for most consumers.
The FTC has issued disclosure requirements for social media influencers who promote products, including whether they are paid to do so.
Celebrities could be next to be affected. Mon said the FTC has “said that celebrities themselves face consequences, especially if they knew or should have known that their claims were not true.”
Celebrities sell
A study by the Wharton School at the University of Pennsylvania examines the marketing psychology behind celebrity advertising – and is insightful.
It was actually a study about how celebrities’ eyes follow advertisements.
The study suggests that celebrity endorsements work. Consumers are more likely to buy products endorsed by celebrities.
They tested eye movements in advertisements and found that a famous person draws attention away from a product and is more likely to lead to a quicker sale. Non-famous people do not have the same appeal.
Researchers at Wharton University concluded that the persuasive power of celebrities is based on evolution and biology.
“Both humans and primates follow the example of individuals with high status and prestige in their group by directing their gaze or copying their decisions,” the study concludes.
As for CarShield, company attorney Carter promised in a statement that the company will expand insurance coverage for rental cars and provide rideshare benefits for customers.
“Finally, we make it very clear that all the speakers in our ads are real CarShield customers.”
How hard is that? They could have saved $10 million.
Watchdog Tips: Do not sign a contract with a company without reading it first.
In the case of CarShield, after signing the contract, the buyer was simply presented with a 25-page contract listing all the services covered.
Instead of signing a risky extended warranty contract, consider setting aside money for future car repairs.
For most car dealerships, the warranty contract is where they make their biggest profit. Negotiate!
Before signing up, conduct a web search to check a company’s track record.
Don’t fall for celebrity advertising.
