Businesses often use competitions as a mechanism to market products or services to customers. During the COVID-19 pandemic, when lockdown regulations have restricted certain stores from opening, we have seen an uptake of competitions run by small to medium-sized companies. If you go on Instagram or Facebook, you will most likely see at least one such company promoting their goods through a competition. It is an easy way to market the goods you sell while people cannot visit your store. “Instagram Giveaways” in particular are considered one of the best strategies for businesses to use to engage with their customers and grow the business, as the costs involved are relatively low and the exposure it can provide is relatively high.[1]
However, it is important to note that when your business decides to take the plunge and run a competition, via Instagram, Facebook or whatever other platforms you may choose, the Consumer Protection Act[2] (the CPA) will come into play. The CPA will regulate how you run your competition, what information you have to disclose, what you may promote and who may win (and who may not). Section 36 of the CPA will apply and your competition must comply with its requirements in order for it to be valid and lawful.
The CPA defines a ‘promotional competition’ as any competition, game, scheme, arrangement, system, plan or device for distributing prizes by lot or chance if:
- “it is conducted in the ordinary course of business for the purpose of promoting a producer, distributor, supplier, or association of any such persons, or the sale of any goods or services […] irrespective of whether a participant is required to demonstrate any skill or ability before being awarded a prize.”[3]
In other words, if your business runs a competition in order to attract new consumers to your business, such a competition will be regarded as a ‘promotional competition’ for purposes of the CPA and its requirements must be adhered to. If the aim of the competition is fundraising, for example, a raffle, the competition will not be a ‘promotional competition’ and the requirements of the CPA will not apply.[4]
The business running the promotional competition is known as the ‘promotor’[5] of the competition and they must adhere to the strict rules set out by the CPA.
DUTY OF THE PROMOTER:
The promoter may not require a participant in the competition to pay for an entry into the competition, other than the reasonable cost for postage or transmitting the entry to the promoter.[6] A promoter can ask a participant to buy a product in order to be eligible to win the prize; however, if the price charged for those goods is more than the price ordinarily charged for those, the competition rules will be contrary to the requirements of the CPA and the competition itself will be considered invalid and unlawful.[7] The promoter must also prepare clear competition rules before the start of the competition.[8] Because these rules constitute a consumer agreement, the CPA further requires that these rules must be “fair, just and reasonable” terms and conditions, as regulated by Section 48 of the CPA. Promotors stating that they “reserve the right to change the terms and conditions” may find themselves contravening the CPA.[9]
THE PRIZE:
A ‘prize’ is defined as a “reward, gift, free good or service, price reduction or concession, enhancement of quantity or quality of goods or services, or other discounted or free thing”.[10] This definition has a very wide interpretation and any extraordinary thing may constitute a ‘prize’. However, it must be clear that where all qualifying consumers receive such a ‘prize’ we are not dealing with a promotional competition, but rather a promotional offer.[11]
WINNING (OR NOT):
The CPA states that a promoter may not inform a person that they have won a competition if no competition has been conducted; the person has not really won the competition; the collection of the prize is subject to another condition, previously unstated; or the person has to make further payment after the prize has been awarded.[12] The CPA goes further to state that a promotor may not award a prize to the winner of a competition if it is unlawful to supply those goods or services to that prizewinner. What that means is that a promoter may not, as an example, offer as a prize the opportunity to drive a luxury vehicle at 200km/h on the highway, as driving at that speed is prohibited. It does not, however, mean that the promoter may not award a prize in the event that the winner is unable to possess such a prize. For instance, awarding a vehicle to a person without a driving licence will not be unlawful.[13]
In order for the promotional competition to be fair and transparent, the CPA further prohibits certain persons from winning a competition. The CPA states that a promoter may not award a prize to any person who is a director, member, partner, employee or agent of, or consultant to the promoter; or any other person who directly or indirectly controls or is controlled by the promoter; or a supplier of goods or services in connection with that competition.[14]
CONCLUSION
With COVID-19 regulations keeping consumers indoors and out of shops, running a promotional competition is a smart way of building a customer base and enhancing brand recognition. Businesses must, however, take note of the CPA’s rules for such a competition. Not complying with these rules may lead to administrative fines being levied on the promoter of the promotional competition.
Should you wish to run a promotional competition and you are uncertain of the requirements and rules, please contact your SEESA Consumer Protection and POPI legal advisor, or SMS the word “SEESA” to 45776 and we will contact you.
About the author
Louwrens
Bakker is a SEESA Consumer Protection & POPI Legal Advisor. He obtained his
BCom (Law) degree in 2015 and his LLB degree in 2016, both from the University
of Pretoria. He was admitted as an Attorney of the High Court in 2018. He started his career at SEESA in 2018 after
leaving practice.
[1] https://gleam.io/guides/contest-promotion/instagram; Accessed on 19 May 2020.
[2] Consumer Protection Act No. 68 of 2008 (the CPA).
[3] Section 36(1)(d) of the CPA (supra).
[4] https://www.golegal.co.za/law-promotional-competitions-ts-cs-apply-2; Accessed on 19 May 2020.
[5] Section 36(1)(c) of the CPA (supra).
[6] Section 36(3)(a) of the CPA (supra).
[7] Section 36(4)(b) of the CPA (supra).
[8] Section 36(3)(c)(i) of the CPA (supra).
[9] https://www.golegal.co.za/law-promotional-competitions-ts-cs-apply-2; Accessed on 19 May 2020.
[10] Section 36(1)(b) of the CPA (supra).
[11] Strachan ‘Promotional competitions under the CPA’ (2010) 10(11) Without Prejudice 34
[12] Section 36(2)(a) of the CPA (supra).
[13] De Stadler et al ‘Section 36’ in Naudé & Eiselen (eds) Commentary on the Consumer Protection Act (Original Service 2014) para 9.
[14] Section 36(3)(b)(ii) of the CPA (supra).