The Knives are Out – What to Keep in Mind When Offering Gifts and Prizes

Over the holiday period, the New World supermarket chain has been running a promotion by which stickers can be redeemed for a range of six Smeg knives and a knife block. Customers can also collect fewer stickers and pay a cash top-up in exchange for a knife.

According to a recent news article, however, New World has all but run out of the knife blocks and cannot source any more. As a result, an Auckland businessman has lodged a complaint with the New Zealand Commerce Commission (NZCC) alleging New World breached the Fair Trading Act (FTA) by continuing to promote the giveaway despite there being no knife blocks left.

While there is yet to be any substantive response from the NZCC on the complaint about the Smeg promotion, this episode provides a timely reminder of how careful businesses need to be when running promotions, competitions, or giveaways.

Section 17 of the FTA specifically governs offering gifts and prizes. This section states that no person shall:

‘in connection with the supply or possible supply of goods or services or with the promotion by any means of the supply or use of goods or services ...

offer gifts, prizes, or other free items with the intention of not providing them or of not providing them as offered.’

In practice, this means businesses planning to run a competition or promotion should:

  • Ensure any T&C’s are clearly stated - including time limits on the promotion, and the availability of prizes.
  • Ensure gifts and prizes are described accurately - including what the prize is, and entrants’ chances of winning the prize.
  • Make sure the cost of a “free” gift with purchase is not simply disguised by including it in the selling price of advertised goods.

In 2010 Panasonic fell afoul of this provision when it ran a “Million Dollar Summer” prize draw promotion. The headline implied that the prize, valued at $1,000,000, could actually be won. The NZCC were of the view that there was a high risk that the “two-tier” nature of the prize draw was misleading and thus breached the FTA because there was only a remote chance that the headlined million-dollar prize could actually be won.

Panasonic and the NZCC ultimately entered into a settlement agreement under which Panasonic agreed that the advertising of any future “two-tier” or similar promotions will feature prizes which are guaranteed to be won.

In addition to section 17, the other provisions of the FTA such as those prohibiting misleading and deceptive conduct and bait advertising, among other things, also apply.