June, 2008
Ethics
Inspection News and Views from the American Society of Home Inspectors



Part III of IV: An Ethically Challenged Marketing Partnership Program

PETER G. ENGLE, PE

Let’s analyze a typical marketing partnership program. While the program we use as an example doesn’t represent any specific program offered right now, each of its parts can be found in one or more real programs the ASHI Committee for Ethical and Professional Practice (CEPP) has examined in the past. We will describe this hypothetical program and examine each of its aspects to determine whether it is ethical or unethical under the ASHI Code of Ethics. We also will offer suggestions as to how, with minor changes, this program could become ethically acceptable.

The program

The program is offered to home inspectors and other service providers (mortgage companies, pest inspectors, plumbers and other tradespeople, etc.) in a metropolitan region by a real estate company that has 15 offices. Participants in this Marketing Partnership program receive a bundle of “advertising” products and benefits for a single annual fee of $20,000. The benefits include the following:

  • Listing on the company’s Web site on a page titled “Our preferred vendors.”  The heading of the page informs viewers that these vendors have met the company’s requirements for quality services, good customer support and responsiveness to customer needs. The listing includes the vendor’s phone number, contact information and a link to the vendor’s Web site.

  • A half-page ad in the company’s promotional magazine, published twice per year and given to homebuyers at the individual offices. The circulation of the magazine is approximately 5,000 copies per year.

  • The opportunity for a representative of the vendor to make a short presentation, twice a year, to each of the offices owned by the company at their regular office meetings.

  • The opportunity to display company brochures in each real estate office.

  • A listing on a handout titled “Preferred Home Inspectors” that will be given to each prospective homebuyer and seller in a package of information typically bundled in a folder by their agent.

  • A semi-exclusive program. The company states explicitly it is interested in working with only a small number of vendors, and this program is limited to the first three home inspection companies to participate. Only Marketing Partners will be permitted to make presentations to the real estate office, to place their brochures in the office and to take advantage of the other opportunities.

Importantly, the program does not contain any of the following:

  • There is no indication in the contract for this program that it will result in referrals to the vendors. There is no indication that real estate agents or brokers in the offices will be in any way encouraged to recommend
    Marketing Partners.

  • It does not require any specific actions on the part of the vendors other than signing the contract and paying the fee.

  • The contract includes typical contract language, including a disclaimer that the real estate company does not guarantee any amount of business will be generated by the relationship. It does require the vendor to carry insurance and that the insurance lists the company as an additional insured for any complaints related to referrals from the company’s agents.

Ethical? Yes and No

Is this program ethical? Well, yes for some aspects and no for others. Let’s deal with the easy parts first. The half-page ads in the magazine are fine. They are clearly advertising, nothing more. The fact that they appear in a real estate publication does not matter. The same
is true of the office presentations. These are generally not an ethical problem, even if one has to pay for the opportunity.

Similarly, placing brochures in real estate offices is okay. Surprising to many members, the exclusive nature of the relationship is also okay. Real estate offices are private enterprises. They can decide who does and does not get to post advertising, they can charge for that advertising, and they can include or exclude anyone they want, based on just about any criteria. Exclusivity does not make a program ethical or unethical. Note that this is not the case in some states that have defined exclusive relationships as unethical by state regulation. By the same argument, the cost of the program does not make it unethical. True, many small companies could not afford to participate, but that still doesn’t make it unethical. There are many business opportunities available to large companies that are not available to small companies, and that’s part of an open and active marketplace.

A Web site listing is not automatically unethical. But, in this case, it is not ethical because it is labeled “preferred vendors” and because it pretty specifically indicates that these vendors are “preferred” because they provide good service when, in fact, they are “preferred” for the most part because they paid the company money. This is a violation of CoE 3.A – it is false and misleading advertising. It also violates 2.C, pay for referrals, because the Web site is clearly a referral tool. Even though there is no one-to-one correlation (say, $50 per referral), this is still pay for referrals; therefore, it is unethical. If the page were redesigned to make it clear that it is an advertising page rather than an endorsement by the company, it would be ethical on both bases.

The handout is unethical for the same reasons as above. It again includes a list labeled “Preferred Home Inspectors.” It is clear the company endorses and recommends these vendors. The endorsement is a violation of 2.C, and the lack of disclosure of the paid advertising nature of the handout is a violation of 3.A. Again, both could be corrected by proper identification of the piece as a paid advertisement and not an endorsement.

Small changes could make a big difference

So, the program as designed is unethical. But with small changes, it could be made ethical without materially changing its nature or benefit to both parties. If the Web site page was simply a “links” page, it would probably be okay because a link does not automatically imply an endorsement, and the assumption on the Web is generally that everything there is paid for unless specifically described otherwise. If it was titled “links” and it had a disclosure that these links are a paid benefit of an advertising program with the company, it would definitely be okay. The handout could be made ethical simply by changing the title to “Local Home Inspectors” or something similar, and including a line at the bottom that indicates it is a paid advertisement.

Unethical because…

In summary, the parts of this program that are unethical are unethical because they are misleading and, therefore, false advertising. They also are unethical because the explicit or implicit endorsement of the vendor has been paid for, and that is an unethical paid referral. Removing the endorsement and adding clear identification of the material as paid advertising makes it acceptable, as long as there also are no hidden deals or agreements for referrals in exchange for participating in the marketing program.