Fudging the facts on 'healthy' products is tempting, but is it worth it?

A new study from the University of Chicago Booth School of Business analyzes what happens to the sales of popular consumer products after federal regulators order manufacturers to stop making misleading health claims.

In the working paper, "Demand for 'Healthy' Products: False Claims in Advertising," Chicago Booth Assistant Professor of Marketing Anita Rao and University of Massachusetts Assistant Professor Emily Wang, find that questionable health claims on consumer packaging lead to a significant drop in revenue if and when regulators force the claims to be removed. The researchers also find that such claims primarily influence consumers who have the least loyalty to the brand and who may have purchased the products precisely because of the contested claims.

The analysis focused on four products that had received consent decrees from the U.S. Federal Trade Commission between 2008 and 2010 to stop making what regulators determined were false claims:

Kellogg's Frosted Mini-Wheats' claim that the cereal clinically improves children's attentiveness by nearly 20 percent Dannon Activia yogurt's claim that it relieves irregularity Dannon DanActive drinkable yogurt's claim that it helps strengthen the body's defenses Airborne nutritional supplement's claim to guarantee cold-fighting protection In each case, the FTC issued a press release describing the false claim and the proposed settlement, and the manufacturer removed the claim in question from its packaging.

Using Nielsen Homescan data of the purchases from 40,000 to 60,000 households and Nielsen Media data of advertising activity, among other information, the researchers found that after the FTC announcement, each product faced significant decline in demand. And the biggest drop in demand occurred among newcomers to the brand.

Four months after the companies were required to remove the misleading claims from packaging, monthly revenue from the product was $3.5 million below its previously established peak for Kellogg's Frosted Mini-Wheats, off $3.82 million for Dannon Activia, down $400,000 for Dannon DanActive and off $3.63 million for Airborne, the researchers found. The companies didn't change prices for the products after removing the claims, and the inventory for most of the products remained steady.

The findings have implications for consumers, manufacturers and regulatory authorities.