A client called recently and asked for advice concerning the laws and proper use of a coupon he was planning to offer in a sales promotion. This was his first foray into the coupon world and he was a little unsure of the rules and structure of a coupon program. Even though we are inundated with coupons (just look in the Sunday newspaper) very few people ever actually think much about the mechanics of how they are set up, what law governs them and how they are used.
This article will address some of the more common coupon issues. I won’t address the tax implications for issuers, the intervention of resellers, price fixing implications or how the large collection firms work.
Essentially, coupons are a short contract between the issuer and the holder. They fall most often under the Federal Trade Commission’s Guide (FTC) for "Free" offers. The FTC recognizes that free merchandise or services, frequently used in connection with purchase of some other article or service, is a valuable and useful marketing tool. As expected, the FTC’s primary concern is that the consumer not be misled or deceived by the offer. The Guide focuses on two specific areas: (a) the requirement that the "free" (or discounted) merchandise or service is truly free or discounted, and (b) the conditions attached to the use of the coupon’s offer.
In addressing the "free" issue the FTC is pretty clear. In essence, when the purchaser is told that an article is free (or discounted) to him if another article is purchased, the word "free" indicates that he is paying nothing (or a discounted price) for that article and no more than the regular price for the other. The merchant cannot directly and immediately recover the cost of the free or discounted article or service by marking up the price of the article or service which must be purchased, or by the substitution of inferior merchandise or service.
The conditions attached to a coupon are a little more complicated. The FTC’s Guide addresses the issue of communicating these conditions, stating that they have to be set forth clearly and conspicuously at the outset of the offer. Most of the advice I have provided has been in the determination of what the conditions should be.
Here are some of the things to consider in a coupon offer:
• The time period of the coupons validity.
• Any days or hours not honored or valid.
• How the coupon can be redeemed.
• Whether it can be used with other promotional offers.
• Maximum value and any cash value (generally none).
• Is its use prohibited for any group?
• Can the coupon be used more than once? (If so, how do you track?)
• Are any items excluded (i.e. alcoholic beverages).
• Is it against the law anywhere? (Void where prohibited).
Generally, because of their popularity and widespread use, coupons are pretty well understood by the public and merchants. However, in businesses which are not regularly engaged in the coupon game or in specialized cases, such as the introduction of a new product, or where a price is not fixed or regular, they can be a little tricky. Also, coupon offers should not be "evergreen"; there should be breaks in the program, or at least a change in the free or discounted merchandise or service. Otherwise, there is some doubt about whether the coupon offer is really a free or discounted offer for something of value.
I’ll leave you with my most recent coupon experience...
My partner said come have lunch with me
There’s a special place I’d like for us to see
When the bill came he hopped on
And pulled out his coupon
Guess who’s lunch cost $10, and who’s lunch was free
© 2002, Jon Lee Andersen