Identify bad smell in snake oil (7)
I believe the answer is:
placebo
'snake oil' is the definition.
(both can mean a supposed medicine with no effect)
'identify bad smell' is the wordplay.
'identify' becomes 'place' ('place' can be a synonym of 'identify').
'bad smell' becomes 'bo' (informal abbreviation for body odour).
'place'+'bo'='PLACEBO'
'in' is the link.
(Other definitions for placebo that I've seen before include "harmless drug" , "control measure?" , "Measure purely to calm or humour another" , "Medicine given solely for psychological effect" , "Prescription to soothe" .)