Member Article

Avoiding the legal pitfalls of customer reward schemes

Dorothy Agnew, senior solicitor at law firm Moore Blatch, highlights the legal issues that need to be considered when introducing a customer reward scheme.

Word of mouth is one of the most effective forms of business marketing, but if you’re tempted to encourage your customers to voice their approval by rewarding praise, then there are certain legal considerations that you need to make.

’Selling parties’ reinvented

Encouraging customers to share their experiences, reviews and recommendations is a mechanism increasingly being used by brands, both large and small. Traditionally this type of selling could be seen in the form of Tupperware, jewellery and other ‘selling parties’, where the host would be rewarded for purchases that their guests made.

With the growth of the internet, this type of marketing activity is now being reinvented in an online forum. An increase in the popularity and number of social media platforms now available has also generated growth in this area, as it offers even more opportunities for businesses to harness the power of customer recommendation. Individuals are now using these sites to actively seek out and request reviews from their friends.

The nature of social media makes it very easy to share information and to ask questions, but this trend is not just limited to consumer-facing activity. It can also be seen on business-focused sites such as LinkedIn, which itself is based on the concept of recommendation and sharing contacts.

Getting it right

So for businesses the opportunities are there, but the challenge lies in making sure that any schemes introduced to encourage and capitalise on recommendation are lawful.This type of marketing approach falls within a legal and regulatory framework which includes the Committee of Advertising Practice’s (“CAP”) UK Code of Non-broadcast Advertising, Sales Promotions and Direct Marketing and the Consumer Protection from Unfair Trading Regulations 2008.

In short, the central principle of the CAP code is that all marketing communications should be legal, honest and truthful, while the essence of the Consumer Protection from Unfair Trading Regulations is that unfair practices and misleading advertising are banned.So a major consideration for a business is that it needs to make clear the difference between a genuine customer who makes a genuine recommendation about a product she or he likes and is rewarded for that recommendation, and someone who has been engaged by the business to recommend them.

Businesses may be heading for serious trouble if they have people who are essentially acting as a type of ‘professional recommender’ and who mislead others by failing to make it clear that they are appointed brand champions or brand ambassadors, or who make fake recommendations purely motivated by a desire to earn rewards, rather than any genuine like of the product.

Professional legal advice will always be the safest way to ensure your scheme to engage and reward ‘professional recommenders’ is not breaking any laws or codes of conduct.

As a starting point be aware that the following is prohibited and could even be a criminal offence:

• Planting a viral advertisement in a blog, on Facebook or a similar site, in a manner that implies one is simply member of the public without making it clear that the message has been placed by, or on behalf, of a business

• Falsely posing as a genuine consumer in order to promote your goods

• Spreading positive messages about a brand in a blog without making it clear that the message has been created by, or on behalf of, the brand

• Using “buzz marketing” specialists to communicate with potential consumers in social situations without disclosing that they are acting as brand ambassadors

For further details call 023 8071 8000 or visit www.mooreblatch.com

This was posted in Bdaily's Members' News section by Dorothy Agnew .