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If you think you can offer any service or product for free on your business website, think again. The use of the word “free” is anything but simple. Why? Because of three omnipresent letters: FTC.
The Federal Trade Commission maintains strict regulations as to how the word “free” may, or may not, be used in marketing and advertising. To the untrained eye, such regulations seem convoluted and bizarre, but with time, the FTC’s concerns become logical. Accordingly, below are relevant points to keep in mind before you broadcast any promises of free offers to your customers.
An offer for a free product or service must be based upon a regular price for the product or service that must be bought by consumers in order to avail themselves of that which is represented to be free. In other words, when a customer is told that Product B is free only if Product A is purchased, then the word “free” indicates that the customer is paying nothing for Product B and no more than the regular price for Product A.
Thus, a customer has a right to believe that the merchant will not directly recover, in whole or in part, the cost of the free merchandise by marking up the price of the product that must be purchased, by the substitution of inferior merchandise or service, or otherwise. For example, Tom’s Tuna Inc. cannot offer “Buy One Can of Tuna and Get the Second Free” and then sell the first can of tuna for $4 (when he normally sells it for $2) in order to make up the difference.
DISCLOSURE OF CONDITIONS
When making any free offer, all of the terms, conditions and obligations upon which receipt and retention of the free item are contingent should be set forth clearly, conspicuously and in close conjunction to the offer so as to leave no reasonable probability that the terms of the offer might be misunderstood. For example, disclosure of the terms of the offer set forth in a footnote of an advertisement to which reference is made by an asterisk placed next to the offer is generally not regarded as making disclosure at the outset. A footnote will not suffice. Rather, it is preferable to place your disclaimer language directly beneath the offer.
The seller must identify those areas in which the free offer is not available if the advertising is likely to be seen in such areas, and should clearly state that it is available only through participating resellers, indicating the extent of participation by the use of such terms as some, all, a majority of, a few, as the case may be.
No free offer may be made in connection with the introduction of a new product or service unless the seller expects, in good faith, to discontinue the free offer after a limited time and to commence selling the product or service separately, at the same price at which it was promoted with the free offer. Otherwise, it is not an “introductory offer,” and is therefore misleading to the customer.
FREQUENCY OF FREE
In order for a free offer to be special and meaningful, a product or service should not be advertised as free for more than six months in any 12-month period. At least 30 days should elapse before another such offer is promoted in the same trade area. No more than three such offers should be made in the same area in any 12-month period. In such a period, the seller’s sale of the product or service in that area with a free offer should not exceed 50 percent of the total volume of sales of the product in the area.
NO STRINGS ATTACHED
In making a free offer, a seller must be sure that no other conditions are attached to the offer except for the basic condition that the other goods or services must be purchased in order for the consumer to be entitled to the free goods or services.
CONTINUOUS FREE OFFERS
Continuous or repeated free offers are deceptive acts because the supplier’s regular price for goods to be purchased by consumers in order to avail themselves of the free goods will, by lapse of time, become the regular price for the free goods or services together with the other goods or services required to be purchased. Under such circumstances, therefore, an offer of free goods or services is merely illusory and deceptive.
In short, a business owner would be well-advised to: 1) be clear as to how he or she communicates free offers, 2) ensure that the cost of the free product is not recovered by marking up the price of other products or services, and 3) ensure that free offers are temporary or one-time offers rather than continuous. With that mind, the FTC is more than happy to see free offers advertised on your business website.
Matt Lowe is the chief financial officer at CLEARLINK. He can be reached at Matthew.Lowe@clearlink.com.