AJPark

The general rule of thumb is to make sure fine print does not materially alter the terms of the offer.  If it does, you could risk breaching the Fair Trading Act.  You also need to be mindful of the Gambling Act 2003.

Borders breaches Fair Trading Act

The Commerce Commission has recently warned a large retailer that one of its promotions breached the Fair Trading Act.

During last November and December, Border advertised an offer with the heading ‘Receive $20 in vouchers for every $75 you spend at Borders until Christmas’.  The promotion was advertised extensively instore, by e-newsletter and on Borders’ website.  It was an offer almost too good to be true and many customers purchased goods totalling $75 in order to obtain the $20 voucher.  However, the fine print of the offer said that customers could only redeem one $10 voucher in January and a second $10 voucher in February.   Many customers were not aware of this condition.

Customers complained to the Commerce Commission.  They felt that the offer was misleading.  The required amount of $75 had been spent on the understanding that the customer would get a $20 voucher to use in total for their next purchase.  The Commerce Commission agreed.  Instead of prosecuting Borders, they issued them with a warning and said they would be keeping an eye on future offers and promotions.

If Borders had been prosecuted and found guilty, they could have faced fines of up to $200,000—not to mention the costs in adverse publicity, legal fees and customer disillusionment.

Falling into promotion traps is common

But Borders is not alone.  A number of New Zealand retailers and other businesses (both small and large) have suffered significant financial and public relations nightmares by not complying with the law when promoting their goods or services.  The advertising playing field is littered with casualties. 

Yet despite media attention, breaches of the Fair Trading Act still continue. No retailer or business deliberately sets out to fall foul of the law or its obligations.  But many retailers and other businesses need to brush up on their obligations and instil a culture of compliance.  Seeking timely legal advice would avoid most, if not all, non-compliance issues from arising.

So what are the traps to look out for?

Check the fine print

We have all heard about ‘fine print’.  Yet this is an area where often things go ‘pear-shaped’ in promotions.  It is acceptable to use fine print, but you need to be careful.  You must not exploit or take advantage of your customers.  This makes it risky to use fine print, asterisks, or technical terms to justify and explain any claims you make in your offer. 

Fine print needs to be legible and easy to read.  It must set out any conditions, qualifications, or information that would be critical to, or could influence, a customer’s buying decision.

Fine print cannot be used to contradict or modify a claim made in the body of an offer if it changes the nature of the offer. 

‘Freebies’ must be free

If you offer something as ‘free’ then it must be truly free.  There must be no hidden costs to a customer.

You cannot inflate the price of an item to cover a gift or offer customers a discount as an alternative to a gift. 

You must also provide the gift or free item automatically without the buyer having to take any further action. 

Avoid hidden costs

The ‘price’ of an item is an important element of a promotion or advertisement.  It must therefore be accurate and complete so a customer can make an informed buying decision. 

If there are additional charges or taxes to be paid then these must be clearly disclosed.

Be careful what you say

You should ensure that all statements and images used in your promotion are truthful, accurate and complete.

This includes statements, descriptions and claims made about any characteristic of the goods and services you are promoting, including the nature, condition, origin, quality, and benefits of your goods or services.

Avoid jargon or technical wording. The wording you use must be readily understood by the groups of customers you are targeting.  Any specific claims made—for example, ‘the cheapest tomato sauce in New Zealand’—must be able to be verified by independent evidence.

Could your promotion be considered gambling?

The Gambling Act 2003 is relevant if participants in a competition are required to buy goods or services.  You would need a gambling licence unless your competition falls within the definition of ‘sale promotion scheme’.

To qualify as a ‘sales promotion scheme’:

• the goods or services must not be sold for a price exceeding their usual retail price;
• there is no additional direct or indirect cost or charge (such as an entrance fee) to persons who wish to participate; and
• the start and end dates of the competition are clear.

The Advertising Standards Codes and the Codes of Broadcasting practice may also apply.

The Department of Internal Affairs website www.dia.govt.nz provides useful information about what is, and is not, considered to be a gambling activity. 

Sign-off from suppliers

It is increasingly common for suppliers of goods to want to run promotions in conjunction with the retailers of their goods.  Because of the risks associated with promotions, retailers are asking the supplier to ensure that the promotion complies with all relevant statutory and legal requirements including, but not limited to:

• all relevant fair trading legislation;
• all relevant legislation;
• all relevant trade promotion lottery legislation;

And to provide in writing confirmation that appropriate legal advice and other necessary clearances have been obtained.

Get the best out of your promotion

Promotions should be good for business—not the reverse.  Facing Commerce Commission investigations, customer complaints, and negative publicity will outweigh any good that was gained from the promotion.

Making prudent checks and seeking legal advice where necessary will ensure that your promotion is legal, gets the desired result and creates a lasting impression with your customers for all the right reasons.  This way, everybody wins!*

*Conditions apply

An edited version of this article was published in NZ Retail, April 2010

• 

  Corinne Blumsky

  Partner