Startup advertising: Caught between agility and compliance

Startups must balance innovation with compliance, as regulatory oversight is crucial for sustainable growth and brand credibility

By Ruppal Walia Sharma

Published: Nov 14, 2024 02:14:13 PM IST

Updated: Nov 14, 2024 02:24:21 PM IST

The word 'startup' conjures images of passionate founders working round the clock against all odds to make their mark and ramp up their customer base. Startups are lean and mean set-ups, working on tight budgets with small teams, generally stretched thin. While they have fire in the belly and the agility of a young organisation, they may lack experience or a deep understanding of some aspects of the business, especially the regulatory side. Not only is the regulatory environment often confusing, but it is also seen as the boring, unsexy side of the business while the founders wish to devote their energy to innovative business processes and offerings which can help them stand out in a competitive environment. Even within the regulatory landscape, attention will more often than not be paid to aspects related to setting up the business and managing financial regulations. Given this context, it is not surprising that compliance issues related to marketing and advertising often slip through the cracks.

ASCI's Annual Complaint Report for 2023-24, released earlier this year, highlighted that about 85 percent of the ad violations were found on digital media, of which 42 percent were accounted for by band communication on Instagram, followed by 30 percent on websites and 17 percent on Facebook. Honasa, the parent company of Mamearth and brands like Dr. Sheth's Skin and Hair Clinic, Aqualogica, The Derma Co. and Ayuga was found to be the biggest violator with 187 such ads, followed by sports betting companies WinDaddy and Fun88 India with 98 each. Unacademy and FirstCry were also part of this list.

Many startup brands like the ones above rely heavily on digital media, and in fact, many such brands are digital-first brands. These are young, agile brands quickly learning and adapting to new mediums and new ways of connecting to the customer. Being bold, experimenting with new formats and tapping influencers are some of the key pillars of their communication strategy, helping them get traction even with low budgets. Lack of awareness of regulatory guidelines combined with the speed of experimenting and implementing often leads to compliance gaps in advertising. The agility, which is the strength of startups, can become their Achilles' heel if attention is not paid to the risks of non-compliance.

Non-compliance with brand communication in the digital medium can take multiple forms. The most prevalent is that of brand messaging and content marketing through influencers. The vast number of people involved over which the brand has little direct control, along with a rapidly evolving landscape of content creation, makes it challenging to ensure adherence to strict standards. According to the ASCI report, 29 percent of the total ads processed by ASCI are related to non-disclosure by influencers. Personal care accounted for the largest number of influencer violations, followed by fashion and lifestyle in second place, with food and beverages in number three. Both influencers and startup brands are in a hurry to ramp up desired views and engagement. While this leads to interesting and creative playbooks, it also makes the brand vulnerable to accusations of misrepresentation or non-disclosure of paid promotions. Deliberate obfuscation could be true in some cases, but in others, it could simply be a result of a lack of awareness or attention to detail. Brands need to be very careful when setting clear terms and conditions in influencer agreements. It is their responsibility to check the law and ensure adherence by the influencers. Some form of checks and audits need to be carried out by the brand team. Ethical violations can damage the brand's reputation and credibility even if the influencer is at fault. ASCI has offered support in this area by introducing the ASCI Responsible Influencing Playbook, which provides a short 'nuggets-based e-learning certification course specifically tailored for influencers to help them understand the need for responsibility in advertising'. Another area of ethical transgressions is that of celebrity advertising. Celebrities featured in 100+ ads, mainly in personal care, food and beverages, illegal betting, and to some extent in healthcare and durables, reportedly violated guidelines based on lack of evidence of due diligence. This can again damage the credibility of the celebrity brand as well as the advertised brand.

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Startup brands rely heavily on data and personalisation. Performance marketing is the cornerstone for many digital campaigns, focusing on clicks, conversions, and tracking customer behaviour.

Overzealousness in this direction can lead to violations of data privacy norms, resulting in legal issues and loss of trust. In addition, other issues like misleading and unsubstantiated claims are a major area of transgression.

Ethical transgressions are not restricted to startup brands alone, but these brands are more vulnerable and less prepared to manage the consequences. Since most are still building awareness with customer relationships in the nascent stage, the bonds are not yet strong enough to forgive lapses/ misdemeanours. Brand reputation and credibility need to be nurtured, and this can only be done by taking extra care to be on the right side. While being nimble-footed is necessary, the age-old lesson of looking before you leap needs to be on top of the rule book for startups.

Some simple steps that startups can adopt to ensure they stay on the right side of ethical and legal boundaries include, first and foremost, assigning dedicated responsibility within their teams to check advertising compliance and stay updated with legal and ethical requirements. These include not only government and industry guidelines but also platform regulations. While in-house expertise may not be available, seeking support from external experts and industry bodies would be well worth their while. Second, startups need to realise that transparency in messaging is non-negotiable. This entails all claims being backed by substantiable evidence and displaying necessary disclaimers. Any promise made should be verifiable with proper records. The third area that needs attention is collaboration and brand partnerships, which will continue to play a big role in the future. Mechanisms need to be implemented to ensure all partners' awareness and compliance. As highway traffic signs warn us – 'speed thrills, but kills'. While time and agility are the very essence of the startup race to garner numbers, putting in place checks and balances will ensure they stay in the race for the long term!

Prof. Ruppal Walia Sharma is Professor of Marketing and Head - Delhi Centre, SPJIMR. Views expressed are personal.

[This article has been reproduced with permission from SP Jain Institute of Management & Research, Mumbai. Views expressed by authors are personal.]