SALES PROMOTION: SP charts course in legal minefield - Restrictive laws can be a pitfall for sales promotions in the UK as well as in Europe. Holly Acland reports

On the face of it, marketers could be forgiven for taking a long,

hard look at their sales promotion budgets. In recent months, the

promotions industry has taken quite a bruising.

In July a court ruling threw the future of instant wins - one of the

most popular sales promotion mechanics - into doubt.

Earlier in the year, the government imposed National Insurance

Contributions (NIC) of 12.2% on non-cash vouchers, despite 18 months of

lobbying by industry bodies.

Add to that the threat to the UK’s self-regulatory system from

vociferous EU member countries, pushing for tougher sales promotion law,

and the future of the promotions industry could be described as

precarious.

So what is the industry doing to safeguard its future? Does its fate

really hang in the balance or has it simply been subjected to a series

of knocks, none of which seriously jeopardise its health?

Europe has always been a thorny issue for the sales promotion

industry.

In 1996, a European Commission (EC) Green Paper laid out the objective

of ’harmonising’ all commercial communications across the EU.

European barriers

There is currently a plethora of different legislation, governing what

companies can and can’t do in different countries. Although this doesn’t

prohibit pan-European sales promotion campaigns, it certainly limits the

activity of countries wanting to run Europe-wide campaigns.

Three years after the publication of the Green Paper, an expert group of

member states representatives is grappling with divergent sales

promotion law across Europe, hoping to harmonise them.

The fear for the UK promotions industry is that our liberal,

self-regulatory framework will be replaced by the restrictive one

favoured by countries such as Germany and Belgium.

’Our freedom here is a privilege. We have a very strong self-regulatory

system and it works but we mustn’t take it for granted,’ says Sue Short

general secretary of the Institute of Sales Promotion (ISP).

The ISP is lobbying the EC through Brussels-based firm Cabinet Stewart

and is writing to all its members this month to encourage them to

actively lobby their MEPs.

’This is a wake-up call,’ maintains Short. ’We have to keep banging the

drum and hope that the strength of our lobbying will convince

others.’

So, while the European Union does present a very real threat to the UK’s

SP industry, there is growing confidence that if agencies, clients and

industry bodies act now there is every chance of protecting our

framework.

In the meantime, agencies continue to run pan-European campaigns which

are adapted to divergent markets. Eighteen months ago, Interfocus

comprehensively reviewed promotional law in 18 European markets funded

by a range of pan-European clients, including Visa.

’In terms of Europe, you have to be flexible, nimble and educate clients

about what can and can’t be done,’ says Matthew Hooper, managing

director of Interfocus.

Last year, the company ran a campaign in Italy and Denmark to promote

Visa International’s sponsorship of the 1998 Winter Olympic Games.

Because of legal restrictions, the two markets ran different

activity.

While Italy’s relatively relaxed legal framework enabled Interfocus to

run a prize draw for cardholders, including VIP trips to the Olympic

Games, this mechanic is illegal in Denmark. There, activity focused on

educating customers about the benefits of having a Visa card supported

by themed point-of-sale and a staff competition to win Olympic

merchandise to increase product knowledge.

Even in the UK, sales promotion has always trod a legal tight rope

compared with the advertising industry.

’In terms of what is possible, the law and the mechanic are very closely

entwined,’ says Philip Circus, head of legal affairs at the ISP and

partner of marketing law consultant Lawmark.

Scratchcard promotions are particularly fraught with legal pitfalls.

To avoid the charge of running an illegal lottery, any scratchcard

promotion has to provide a clear means of accessing the competition

without having to make a purchase.

The recent judge’s ruling that a scratchcard campaign designed for

independent retailers was illegal, by failing to provide a genuine and

visible ’free entry route’ (see box), provided a sharp reminder to

promoters of the law.

Legal reminder

Far from heralding the demise of instant-win campaigns, however, most

practitioners see the ruling as an alarm call to those who may have

become sloppy about the law.

’The law has given us a window within which we can operate and that

mustn’t be abused,’ says Graham Griffiths, director of planning at

promotions agency PCG.

’The judgement is a reminder to be diligent but we’re certainly not

going to stop suggesting instant wins as a mechanic.’

There is little evidence of any tail-off in scratchcard activity.

Sainsbury’s is currently running a millennium scratchcard campaign,

offering consumers the chance to win pounds 1m, while Carlsberg’s will

distribute around 100,000 scratchcards in a student campaign, through

PCG, launching at the end of this month.

This follows on from a similar sized campaign, Play the Equaliser, which

ran earlier in the year and featured heat sensitive instant win game

cards.

Available with purchase, the cards revealed a win or lose message when

placed against the pint glass.

Wimpy is another company which relies heavily on instant win

promotions.

According to Katherine Young, marketing director, the company runs

around three kids’ promotions a year, which exploit ’the fun, excitement

and immediacy of instant win and generate anything up to 20% sales

uplift’.

Wimpy’s most recent Easter scratchcard campaign linked with Kinder Egg

and offered every child a prize, ranging from Toys ’R’ Us vouchers to a

giant Kinder Egg.

However, the company works hard to ensure that its promotional activity

is legally watertight. The free entry route is highlighted on the back

and front of the gamecard as well as on the POS. Any instant win

campaign is checked by the company’s solicitor as well as the ISP’s

legal service through Wimpy’s promotions agency Ignition Marketing.

While any threat to the future of the pounds 1bn scratchcard industry

can be side-stepped by close compliance to the law, the implications of

NIC on voucher schemes as well as the impending tobacco ban are having a

more immediate effect on business.

Research by the ISP following the publication of the White Paper

’Smoking Kills’ in December 1998 revealed that more than 20% of member

agencies and suppliers estimated the value of their business with

tobacco clients at more than pounds 1m.

Loyalty peak

With many tobacco manufacturers relying on below-the-line mechanics such

as loyalty schemes to communicate with the customers, the promotions

industry is already feeling the effects of tobacco ban regulations. Two

members of the British Promotional Merchandise Association (BPMA) -

Sales Link and TPL - have reported the cancellation of promotional

orders in the past month. The cancellation of one SP campaign can have

many casualties.

According to Marian Elliott, BPMA chief executive, one brand loyalty

programme alone involves more than 60 members and at its peak showed a

redemption value of about pounds 150m.

’Our members who supply goods and services are being hit very badly,’

says Elliott. ’Manufacturers are uncertain about what they can and can’t

do and are erring on the side of caution and cancelling orders.

’There is no clarity from the government about the extent and

implications of the ban.’

This is not the first time that the government has been in the firing

line from the promotions industry. The introduction of NIC on non-cash

staff incentive schemes was also characterised by a lack of clarity.

Although vouchers have been identified as the main area to be affected,

other incentives such as merchandise and holidays are likely to be hit

in the future.

But Graham Povey, managing director of Capital Incentives, insists that

clients, which include Abbey National, Texaco and Bass, have not

dramatically reined in their incentive budgets. ’Most clients have been

very quick to come to terms with the new legislation. We went to great

lengths to let them know in advance and most have adjusted budgets to

cope with the additional 12.2%,’ Povey says.

Severn Trent Water is one client which has decided to continue running

its current voucher-based incentive scheme despite the additional

tax.

With 7000 employees in the UK, the company runs three separate incentive

schemes including the ’Saying Thanks’ scheme, which empowers line

managers to reward staff on the spot with a cheque that can be redeemed

for vouchers.

’Our staff incentive scheme has come under the spotlight but we will

continue to run it. Costs have to be contained but it is easy to

administer, the reward is given immediately and it’s worth doing,’

confirms payments manager Bob Cope.

Povey argues that the importance of staff motivation is now so firmly

ingrained in the culture of many companies, that the additional cost of

NIC will not have as great an impact on the industry as was

expected.

And with the Marketing sales promotion league table showing increased

investment in below-the-line activity, there is strong evidence that the

industry has weathered recent knocks with surprising ease.

LESSONS OF THE BRISTOL COURT RULING

By Philip Circus, head of legal affairs at the ISP, and partner of

marketing law advisory consultancy Lawmark

There isn’t at first sight an obvious link between the Bristol district

registry of the High Court and the sales promotion industry - but at the

end of June, a ruling in Bristol by Judge Jack looked as if it would

spell the curtains for a pounds 1bn sales promotions technique.

Certainly, early press reports suggested that this could be the

case.

The case of Russell v Fulling and Page involved an instant win

scratchcard campaign designed by Russell for independent retailers. So

why should it end up in court?

Russell invested a substantial sum of money in the scratchcard

initiative, which never got off the ground, and he was subsequently owed

money by Fulling and Page.

However, what started out as a civil case for debt recoverage soon

became more complicated. The court deemed that the scratchcard scheme

was illegal so it could not enforce such a debt.

But what is illegal about selling a scratchcard scheme into independent

retailers to boost customer loyalty? Instant wins avoid the charge of

being an illegal lottery because people genuinely choose to participate

without having to make a purchase.

When the facts of this case became apparent, it was clear that there was

no such genuine choice.

The retailer directly controlled the free chances given away and very

few chances were given away free or were intended to be. A choice for

the consumer between purchase and non-purchase did not exist.

Does this mean that promoters had a fright for no reason? No. If recent

publicity has helped to highlight the need for free-entry routes that

give consumers a genuine choice between purchase and non-purchase, the

case and its surrounding publicity will have done the industry a great

service.

This article was first published on Marketing