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Sales promotion schemes (or trade promotion competitions) can be an effective way to draw new customers for sales. You offer customers the chance to go into a random draw to win a prize after they have purchased your goods or services. You may do this by having customers fill out an entry form when you process the sale at the till. It is important to note that any kind of sales promotion or trade competition is a lottery, so it qualifies as gambling. Once you start your sales promotion scheme, you cannot change its conditions. Therefore, you need to ensure you have adequately prepared your competition to comply with gambling law. This article will go through five mistakes to avoid when running sales promotion schemes in New Zealand for some guidance.

1. Failing to Keep the Promotion Random

To run a sales promotion scheme, you do not usually need a permit to do so as you would with other forms of gambling. However, this is only 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

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. 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.

Usually, it should 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 of mailing their entry; or
  • the 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. 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 to do so.

3. Failing to Inform Customers of Necessary Information

Before customers enter your sales promotion scheme, you need to ensure you 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 when the submission deadline is;
  • 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 very careful about misleading your customers with the prizes or rewards your promise, and you cannot change anything once the promotion starts.

4. Offering Prohibited Prizes

It is up to you what you offer as 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, and this includes both 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 in 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.

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) once the submission deadline has passed.

Key Takeaways

Running a sales promotion scheme can be an excellent way to draw new customers to purchase your goods or services. However, because this is a form of gambling, you need to operate your competition within the law. If you would like more information or help with your sales promotion scheme, contact LegalVision’s regulatory and compliance lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

What is a lottery?

A lottery is a form of gambling where people pay money for a ticket to go into the draw to win something. Chance determines who wins, although there may be a partial element of skill to the competition. Organisers distribute the prizes once they collect all tickets and determine the winner.

What is a sales promotion scheme?

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.

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