Special offers and competitions

Many businesses offer gifts or prizes as a way of attracting new customers or rewarding their existing customer base. Care must be taken to ensure such promotions are not misleading.

On 17 June 2014, new provisions of the Fair Trading Act came into force. The following guidance should be read in conjunction with our Changes to the Fair Trading Act page.

Businesses that, when promoting or selling goods or services, offer gifts or prizes they do not intend to provide, or do not intend to provide as offered, will breach the Fair Trading Act.

When contests and other promotions offering gifts or prizes are run, all the conditions that apply, including any relevant time limit must be clearly stated. Gifts and prizes must be described accurately, and must not mislead people into thinking that what they stand to gain or win, or their chance of winning, is better than it actually is.

Example: An investment company ran a television advertising campaign promoting a 'Money and the Bach Summer Bonus Draw' which implied that people buying bonds in a specific time period would be placed in a draw to win the major prize, valued at $1.5 million. The company however intended to run a two tier prize draw. Eligible consumers would only be placed in an initial draw; the winner of which would go on to be placed in a second draw where they would draw from 100 envelopes - only one contained the major prize of $1million and a further $500,000 to go towards a bach, a one per cent chance of winning the advertised prize. The other 99 envelopes contained a cheque for $10,000. The company was convicted under the Fair Trading Act and fined.

In addition, a business must not disguise the cost of a 'free' gift or prize by including it in the selling price of the advertised goods.

Referral selling

'Referral selling' is the practice whereby a business induces potential customers to purchase their goods or services by promising some form of reward if they provide the names of other people who then buy goods or services from that business.

It is prohibited by the Fair Trading Act because the customer could be misled into believing that the true price of goods or services will be discounted because of a rebate, commission or other benefit, when in fact they will only get the benefit if sales are made to the people whose names were supplied. If no sale is made, then the original customer receives no benefit.

Referral selling differs from the legitimate practice of offering a rebate or other benefit following the sale. It is not illegal for businesses to offer rewards for names of other potential customers if the offer is made separate to, and after, the first customer has paid for their goods or services.

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