Are misleading ads by start-ups a sign of a deeper governance malaise?

The consumer landscape has undergone dramatic shifts over the past few years, largely driven by the rise of online-first companies. These startups, particularly those in the direct-to-consumer (D2C) space, are rewriting the rules of consumer marketing and distribution, leaving traditional consumer brands scrambling to keep pace. With bold innovations in influencer marketing, social commerce, and content-driven campaigns, D2C startups are setting the pace for what modern advertising looks like.

The diversity within the D2C sector is vast, spanning everything from food and beverages, personal care, and baby care to health and wellness, fashion, pet care, electronics, and even travel. According to a recent report by 1Lattice and Sorin Investments, India's D2C market is expected to reach a staggering $61.3 billion by FY-27, with an annual growth rate of around 38 percent. Such promising numbers speak to a huge demand and consumer willingness to spend more for unique products and services. Many D2C brands have tapped into this consumer enthusiasm by offering niche products that appeal to a discerning audience. However, as these brands race to scale and capture market share, they may be venturing onto shaky ground. And there is a troubling question that arises - are these new approaches skirting ethical lines, and if so, does this point to deeper governance issues?

A review at the annual reports from the Advertising Standards Council of India (ASCI) reveals a worrisome trend. ASCI has found that some D2C startups are trading off ethical communication practices for fast-paced advertising strategies, especially in influencer-driven digital marketing. These startups sometimes rely on exaggerated claims, misrepresentations, and quick-fix advertising tactics that can mislead consumers. The numbers paint a concerning picture. Personal care has become one of the top three violative sectors, with ASCI’s Complaints Report of 2023-24 indicating that 13 percent of all ads it processed came from this sector alone. Additionally, a previous report by ASCI in 2023 on Personal Care, Influencer and the D2C Space, found that 85% of the Influencers (period 2021-22 and Q1-Q3 2022-23) collaborating with personal care brands, were associated with D2C brands. 

Initially, it might seem like these missteps are simply an oversight, an inadvertent byproduct of youthful ambition and resource constraints. Many startups operate with limited marketing and legal expertise, which can lead to some unintentional breaches of advertising guidelines. However, as these violations persist and increase, it begs the question- are these missteps truly incidental, or do they reflect a more problematic mindset?

To understand this, we must deep dive into the startup culture itself, particularly in the D2C world. For many of these companies, the primary focus is on rapid growth, often at the expense of cautious brand-building. In their quest to attract customers and stand out in a crowded digital marketplace, many D2C startups are tempted to use eye-catching claims and flashy marketing tactics. 

The pressure to perform is intense, with investors demanding quick returns. In this high-stakes environment, ethical advertising may seem less critical than driving conversions. However, as we’ve seen with several high-profile cases, cutting corners in advertising can backfire spectacularly. Misleading claims, once uncovered, damage a brand’s credibility and erode consumer trust—both of which are invaluable for long-term success. 

As an example, ASCI had picked up numerous cases of false advertising by a prominent start up advertiser in the Ed-tech category. This company had been continuously featuring global tech gurus in their ads. Needless to add, most of these people had no clue that they were being represented as endorsing this service. The ads blitzkrieg, with unsubstantiated promises, added to its list of errors such as unwise financial decisions and resource allocations. The company was then acquired but the brand couldn’t survive. The misleading advertisements were just one of the many external symptoms of a deeper malaise of poor governance and ethics.

Governance structures are crucial for keeping companies on the right track, especially in areas such as marketing where the line between creative liberty and ethical responsibility can blur. Established brands often have comprehensive legal and compliance teams to ensure their advertising meets regulatory standards. For startups, however, this level of oversight may be viewed as cumbersome or unnecessary—a perception that can lead to systemic issues. The culture within many D2C startups often values agility and innovation, which are indeed vital for success. But when governance is lax or overlooked in favour of speed, it becomes all too easy to have a dismissive attitude toward rules and regulations. 

Startups in the D2C space must recognise that ethical advertising isn’t just about ticking regulatory boxes; it’s a cornerstone of sustainable brand building. As more D2C players enter the market, building trust with consumers will be paramount. And only those with robust governance structures, including honest communication, will thrive in the long term.

This article is penned by Manisha Kapoor, CEO & Secretary General, ASCI. 

Disclaimer: The article features the opinion of the author and does not necessarily reflect the stance of the publication.