Tuesday, January 7, 2014

Alpha-lean 2-20

Today the FTC Director of the Bureau of Consumer Protection, Jessica Rich, held a press conference to address  the FTC's recent crackdown on deceptive marketing claims for weight loss products. The FTC even offered guidelines for advertising outlets that they should consider when reviewing ads for distribution.

As previously reported by numerous news agencies, the press conference had nothing to do with Herbalife, NuSkin, Usana or GNC. The FTC announced actions against Sensa, L'Occitane, HCG Diet Direct & Leanspa, totalling around $34 million (Sensa getting crushed with $26.5M of that).

There was a lot of speculation that today's conference would deal with MLM companies operating in the weight loss arena and shares sold off sharply last week, possibly on speculation that the FTC was gunning for the MLMs. The press conference must come as a double shocker to Ackman because not only did the FTC not discuss his massive short position, but it also seems to put in jeopardy the supply of Sensa and Almond slimming cream he's been sprinkling and slathering over his firm's accounts.

The press conference was streamed live and questions were open to journalists only (legitimate of course).There were some pretty good questions from various news agencies that were relevant to the presentation they'd all just watched. One particularly off topic question that actually led to something interesting was offered by Michelle Celarier (I have embedded the excerpt below).

Through the reverberating shrill (only partially attributable to feedback), Celarier stated that several public MLM's shares fell after the FTC announced their press conference last week. Given that the FTC actions and press conference about the announced actions deal with false claims made in mainstream advertising by marketers of the products specifically discussed, and given that the companies Celarier was referring to were neither mentioned in the actions nor patrons of those mainstream advertising outlets, the question seemed doubly off topic and transparent. She continued by asking whether the FTC was looking into those MLMs since they don't use mainstream media to advertise.

Celarier asks:
Hi, yes I have a question, last week when you announced uh that you were going to be having this press conference the stocks of several publicly traded multi-level marketing companies fell because the investors obviously felt that those companies may have some problems with their diet products and these are the companies that don’t advertise in the mainstream media, they are done through distributors or word of mouth and obvious, and often, and uh, communities that  aren’t reached by the mainstream media. I was wondering if you are looking into claims in those companies and if not, why not?

Director Rich responded as follows: 

I’m just going to wait because there is some feedback. Ok um, we read those stories too. Um, I, we’re aware of what you’re talking about. Um, we can’t comment on any companies uh, that we’re not, uh, that, you know, we either haven’t brought an action against in the past or we aren't um, announcing today, because our investigations are non-public um according to, to the rules that we that we follow here, so I just can’t comment on those other companies. We do have other investigations going on in the health area but I can’t identify the companies we are investigating.

What I found extremely interesting was Director Rich's intriguing Freudian slip (you know, when you're thinking about one thing and actually say something about a mother) when she paused right after "we are not". Did she really almost just say companies we are not investigating? She did not actually say that, but I can't help but think she almost said it. She also quickly followed the stutter step by stating that there were other investigations in the health area, seeming to infer that those other investigations were also not of the public MLMs. I am also rather amused at the smirks that Rich Cleland and Mary Engle offer in response to the questioning. Engle is much more subtle, but Cleland really appears quite amused. Make of it what you will.

You can watch the full video at the following link by sorting for the newest video titled Weight Loss Products Press Conference. 

There are also some interesting kernels of FTC sentiment buried in the GUTCHECK quiz the FTC is hosting as part of today's announced initiative. The GUTCHECK guidelines are meant to help media outlets spot misleading claims about weight lost products. The answer guide notes whether you answered the question correctly and why. Some of the WHY's offered are below. 

  • By focusing on necessary dietary changes, the ad avoids a false promise of easy weight loss.
  • The science is clear: Substantial weight loss requires dietary changes.
  • But ads for reduced-calorie foods aren’t covered by the "gut check" standard for clearly false weight loss claims.
  • Maintaining weight loss requires a lifetime of lifestyle changes. No product can permanently change a user’s metabolism.
  • The ad doesn’t make a "gut check" claim. It suggests permanent weight loss, but ties it to long-term changes to diet.
Two caught my eye in particular. Questions three and six.
(I added the highlight box)

The quiz, when taken in aggregate illustrates some important points. The FTC likes money back guarantees and appreciates when weight loss claims are tied to long term changes in diet. Likewise reduced calorie foods don't meet the false advertising standards and weight loss requires a change of lifestyle.

Can you think of any companies that weren't targeted by the FTC that focus on reduced calorie foods, coupled with a healthy lifestyle change and a modified diet that also offer money back guarantees?  I bet Ackman can. 

As outrageous as some of his claims have been, it's lucky for Ackman that Pershing never offered a money back guaranty for their portfolio slimming products. Can't you just see the late night infomercials now..

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1 comment:

  1. There was a lot of speculation that today's conference would deal with MLM companies operating in the weight loss arena and shares sold off ... weightlossalpha.blogspot.de