The Cost of Exaggerated Marketing Claims in Digital Entrepreneurship

In the fast-paced world of digital entrepreneurship, the allure of quick sales often tempts sellers to embellish their offerings. Phrases like “fully automated” or “100% passive income” may catch the eye, but new research from Washington State University’s Carson College of Business reveals that such exaggerated marketing claims can come at a significant financial cost.

The Research Overview

The study, coauthored by Chase Potter, an assistant professor of accounting, and Zhonghua Zhang, a doctoral student in accounting, analyzed over 2,100 online business listings sold on Flippa—a popular peer-to-peer platform for buying and selling digital assets. Their findings, published in the Review of Quantitative Finance and Accounting, shed light on the implications of using puffery in marketing.

Puffery: A Double-Edged Sword

Puffery refers to hyperbolic or overstated language that emphasizes positive aspects without providing factual evidence. The research found that listings employing puffery sold approximately 12% faster than those without such claims. However, the average negotiated price for these puffed-up listings was a staggering 66% lower.

Zhonghua Zhang notes, “It’s a trade-off. If your goal is to sell quickly, puffery can help. But if you’re trying to get the best price, exaggerating your claims might work against you.” This insight underscores the delicate balance between speed and value in the digital marketplace.

Legal Implications of Puffery

Interestingly, puffery is often legally permissible because it is considered opinion rather than factual representation. However, the study indicates that buyers are not always dismissive of these exaggerated claims. “Sellers may be signaling urgency, and buyers are picking up on that,” Zhang explains. Even if potential buyers are skeptical, the attention generated by puffery can influence negotiations.

The Role of Voluntary Disclosures

Unlike traditional business acquisitions, which typically involve formal due diligence and legal oversight, platforms like Flippa rely heavily on voluntary disclosures from sellers. This lack of regulation means that sellers have significant control over what information they choose to share or omit. As Zhang points out, “Sellers control what they disclose, and there’s very little oversight. Buyers have to verify everything themselves, which makes them cautious and sometimes skeptical.”

The Behavior of Experienced Sellers

The study also revealed that experienced “super sellers”—those with multiple successful listings and recognition badges—tend to use more puffery than first-time sellers. This finding was unexpected for the researchers. “We initially thought experienced sellers would rely less on exaggerated language,” Zhang admits. However, these seasoned sellers may have learned to use puffery more strategically, leveraging their credibility to employ attention-grabbing language effectively.

Aligning Goals with Marketing Strategies

For sellers, the research suggests a careful consideration of how puffery aligns with their goals. Those looking for a quick exit may find value in using exaggerated claims, while sellers aiming to maximize their business’s worth should prioritize transparency.

Guidance for Buyers

For buyers navigating the digital marketplace, it’s essential to approach puffery with a discerning eye. Zhang advises treating exaggerated claims as prompts for further questions rather than outright red flags. “Be cautious when you see listings that sound too good to be true,” he warns. Buyers should seek evidence to support claims, asking questions like, “If a business is described as ‘fully automated,’ how does that work? What tools are used? Who maintains them?”

Conclusion

In the realm of digital entrepreneurship, the temptation to use exaggerated marketing claims can be strong. However, the research from Washington State University highlights the potential pitfalls of such strategies. While puffery may facilitate quicker sales, it often comes at the expense of price. Sellers and buyers alike should navigate this landscape with caution, balancing the allure of rapid transactions against the need for transparency and value. By understanding the implications of puffery, both parties can make more informed decisions in the ever-evolving digital marketplace.