In Short
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Sales promotions in New Zealand, such as prize draws linked to purchases, are considered gambling and are strictly regulated.
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Entry must be free, meaning you can only charge the usual retail price without any extra fees or inflated pricing.
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You must clearly disclose the prize value, draw method, promotion dates, your contact details, and cannot change the terms once the promotion begins.
Tips for Businesses
Before running a sales promotion, document your usual retail price, ensure entry is genuinely free, and publish clear rules covering prize value, draw method, dates, and contact information. Staying transparent from the start helps you avoid legal trouble.
Sales promotion schemes are popular marketing strategies used by businesses to boost sales, attract customers, and increase brand visibility. It is important to be aware that sales promotion schemes are a form of gambling under New Zealand law. Gambling is highly regulated in NZ. So, before launching any sales promotion scheme, it is crucial for businesses to be aware of the legal regulations that apply. This article aims to provide an overview of the key legal considerations businesses must adhere to when conducting sales promotions.
What is a Sales Promotion?
A sales promotion scheme is a marketing technique businesses use to promote the sale of their goods or services. It involves a business offering consumers the ability to enter a draw to win a prize as a result of purchasing a product or service from them.
Once the sales promotion scheme begins, you cannot change the promotion conditions. Therefore, you must ensure that you have complied with all of the below requirements before commencing the sales promotion.
We unpack each of these criteria below.
Promoting Goods or Services Your Business Already Sells
A sales promotion aims to promote goods or services your business already sells. Your established business must sell goods or services and operate independently of any sales promotions. You will also need to establish a ‘usual retail price’ for your goods or services before running a sales promotion. It is important to note that a sales promotion must be run for the purposes of promoting your goods or services. The primary operation of your business should not be the running of sales promotions, with the sale of your goods or services being secondary.
Selling Goods or Services at their Usual Retail Price
Under New Zealand law, it is a requirement that you sell your goods or services at their usual retail price when running a sales promotion. The usual retail price refers to the regular selling price of the goods or services, outside of any promotional or discounted period. It is the price at which consumers purchase your goods or services under normal conditions.
To establish a usual retail price, your business will need to offer your goods or services for sale for a reasonable period to genuine customers (not friends or family) before running any sales promotions.
It will be easier for your business to establish a usual retail price if:
- you sell goods or services for a longer period of time; and
- you make a lot of genuine sales.
Ultimately, you should maintain sufficient evidence to show you have established a usual retail price for your goods or services. This is especially important if the Department of Internal Affairs investigates your business.
Beware of the risks of launching your business and immediately commencing a sales promotion without an established market value or usual retail price. Otherwise, your sales promotion will not meet the requirements for a genuine sales promotion under the law. Accordingly, the Department of Internal Affairs could deem your promotion as a form of illegal gambling.
Free Entry
Your business must not charge customers a fee to enter into your sales promotion. Customers should only pay for the promoted goods or services.
If a customer pays above the established usual retail price to enter a sales promotion, the Department of Internal Affairs may consider that the customer is paying a fee for entry. This would make the sales promotion an illegal gambling activity.
Transparent Terms and Conditions
When running a sales promotion, it is crucial to ensure that all terms and conditions are clearly communicated to participants. This includes providing detailed information about the promotion’s:
- duration;
- entry requirements;
- prize details; and
- the method of selecting winners.
Consider creating a dedicated webpage or section in your promotional materials that outlines all the necessary information. Remember to use plain language that is easily understood by the average consumer. Additionally, it is important to share your contact details to allow you to address any queries or concerns that participants may have during the promotion period.
Drawing a Winner
Remote interactive gambling is a form of gambling a person conducts at a distance through a communication device, such as a computer or mobile phone. Remote interactive gambling is illegal in New Zealand.
There is an exception for sales promotion schemes a business conducts in the form of a lottery. Being a lottery, your business must randomly draw a winner after the sale promotion ends. If you decide to run any online sales promotions, be sure to comply with these requirements for drawing a winner.
Penalties for Non-Compliance
The penalties for failing to comply with regulations for sales promotions are significant. Where you fail to comply, you may be found to be conducting illegal gambling. Companies can receive a fine of up to $50,000 and individuals of up to $20,000. Individuals can also go to prison for their actions.
Continue reading this article below the formOther Jurisdictions
It is important to remember that other jurisdictions may have very different laws and regulations when it comes to sales promotions. For example, Australia refers to sales promotions as trade promotions and has very different requirements and restrictions than New Zealand. You should always seek legal advice for whichever jurisdiction you intend to operate your sales promotion.
This Website Privacy Policy states how a business will deal with the personal information of its users.
Key Takeaways
Running a sales promotion in New Zealand can be an effective way to engage with customers and drive sales. Before starting a promotion to increase brand awareness and gain new customers, consider that sales promotions are highly regulated. It is essential to navigate the legal landscape to avoid breaking the law or receiving penalties. To comply with sales promotion laws, entry must be free. Likewise, you must be in business and selling your goods and services before offering a sales promotion to establish a usual retail price. Finally, you must sell the promoted goods or services at their usual retail price.
For more information on how to run a sales promotion, our experienced regulatory and compliance lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers who can answer your questions and draft and review your documents for a low monthly fee. Call us today at 0800 005 570 or visit our membership page.
Frequently Asked Questions
A sales promotion is a form of gambling which involves a business offering consumers a chance to win a prize in return for purchasing a product or service from them.
The goods or services you promote as part of your promotion must be those you ordinarily sell. Likewise, you must sell promoted goods and services at your established retail price. You must be able to demonstrate consumer interest and willingness to purchase your goods or services without additional benefits.
No. Customers must not pay for entry into your sales promotion beyond the usual retail price for the goods or services you promote.
Once a sales promotion has commenced, it is generally not permissible to cancel or modify its terms and conditions. However, if unforeseen circumstances arise that make it impossible to continue the promotion as planned, you should seek legal advice immediately. You may need to consider options such as extending the promotion period, offering alternative prizes of equal or greater value or cancelling the promotion and providing appropriate compensation to participants.
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