Sales promotion schemes (commonly referred to as trade promotion competitions) can be an effective way to draw in new customers, boost sales, and increase your brand visibility. A sales promotion scheme is a marketing technique where you offer customers the chance to enter a random draw to win a prize as a result of them purchasing your goods or services. You may do this by having customers fill out an entry form online or when you process the sale at the till. It is important to note that any kind of sales promotion qualifies as gambling under New Zealand law, and is highly regulated. Therefore, you must adequately prepare your competition to comply with gambling laws. This article will go through five mistakes to avoid when running sales promotion schemes in New Zealand.
1. Failing to Keep the Promotion Random
To run a sales promotion scheme, you do not usually need a permit as you would with other forms of gambling. However, this is only the case if you run the promotion according to the law. A sales promotion scheme has various requirements, and one of those is that you determine the winner or outcome either:
- completely by chance or randomly; or
- partially by chance and partially through knowledge or skill.
For example, you may ask customers to submit the correct answer to a question about your business to send a valid entry. However, once they submit the correct answer, choosing the winner from that pool of participants must be random. All participants must have an equal chance of winning.
2. Raising Prices or Charging for Entry
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. You can use a sales promotion scheme to draw customers to buy certain products or services, but you cannot raise prices to gain more profit. If you do, you are breaching gambling regulations. Importantly, you cannot make a commercial gain from the sales promotion outside of what you generate from regular trading. Any goods or services you sell using the sales promotion scheme must be those you usually sell at the usual or lower price.
It should also not cost your customers anything extra to enter your competition. However, you can charge the standard rate for how a customer sends you their entry, such as the:
- usual postage rate for mailing their entry; or
- fee for sending a text message from their phone.
For example, you may include entry forms for your sales promotion scheme as part of a pamphlet or newsletter or include them in your social media posts. It is reasonable to expect customers to pay the cost of mailing in their physical entry form.
If you are running your sales promotion scheme through an app that customers download, it must be free.
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. Accordingly, your sales promotion may be an illegal gambling activity.
Continue reading this article below the form3. Failing to Inform Customers of Necessary Information
Before customers enter your sales promotion scheme, you should include the necessary information in your promotional material. You should explain:
- the full value of the prize, including a description and full retail value;
- important time limits for the competition, such as the promotion start date and the submission deadline;
- your method for determining the winner; and
- when and how you will notify the winners.
You also need to include your business address or address for questions in your terms and conditions.
Be careful about misleading your customers with the prizes or rewards you promise. Further, you cannot change anything once the promotion starts.
4. Offering Prohibited Prizes
Your business is free to choose the prize for your sales promotion scheme, whether that be a:
- cash prize;
- vacation or holiday;
- valuable good, like a car or upscale electronics; or
- store credit.
However, the Gambling Act has a set list of prohibited items that you cannot offer as prizes for your competition. If you do, you could face legal and financial penalties. Some examples of prohibited prizes include:
- restricted weapons;
- explosives;
- firearms;
- tobacco/tobacco products (including vaping products); and
- alcohol.
If you want to use a sales promotion scheme to promote your alcohol sales, you need to be careful about how you do so. You cannot advertise your sales promotion involving alcohol outside of your licensed premises, including digital and physical advertising. You can only make these offers:
- within your licensed premise; or
- as part of a loyalty programme where the rewards do not primarily relate to buying alcohol.
5. Running Instant Win Promotion Schemes Online
Some sales promotion schemes are ‘instant win,’ meaning that a random customer wins your prize as soon as they purchase your product or service. If a customer purchases your products in-store, you can run your competition this way. However, you cannot allow instant win promotions on your online or phone sales. This practice becomes online/remote interactive gambling, which is illegal.
However, there is an exception. If customers purchase goods online, they can still enter a lottery-style sales promotion scheme, where you choose the winner from a random draw (such as choosing a random purchase receipt) after the submission deadline.
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Penalties for a Non-Compliant Sales Promotion Scheme
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.
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 requirements and restrictions that are very different from New Zealand’s. You should always seek legal advice for whichever jurisdiction you intend to operate your sales promotion.
Key Takeaways
Running a sales promotion scheme can be an excellent way to draw new customers and generate brand awareness. This marketing strategy can also boost customer satisfaction when exciting special offers are promoted. However, because this is a form of gambling, you need to operate your competition within the law. A sales promotion scheme is a kind of lottery. A business can let customers enter if they purchase products from their store as a part of consumer sales promotions. They then draw a random winner from the entrants. 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.
For more information or help with your sales promotion scheme, our experienced regulatory and compliance lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0800 005 570 or visit our membership page.
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