Business development · 27 March 2017

How to run a successful (and legal) promotional prize draw

Prize draw
Although the prize draw must be free to enter, you are able to have a special promotional product which people must buy to enter the draw

For the latest in his marketing series for Business Advice, Grid Law founder David Walker explains how a promotional prize draw can be used as an effective tool within a small company’s marketing strategy

We all love competitions and being in with the chance of winning some free goodies, so they’re a great way of generating interest in your products and services.

Let’s say you’re thinking of running a promotional prize draw to boost sales for your business. What do you need to think about to ensure it’s a huge success, rather than a costly disaster?

In this article, we’re going to look at three key elements of the promotion. First, we will consider the prize itself, then the type of promotion you’re running and finally, how it’s administered.

The prize will be the first thing to catch peoples’ attention, so it needs to be enticing. However, it must be described honestly and accurately so people can decide whether or not to enter.

For example, if the prize is a one-night stay in a three-star hotel, you shouldn’t describe it as a “luxury holiday”. A luxury holiday implies that food and travel are also included and some people may have an expectation of staying in a five-star hotel for a week.

Whilst your prize may be lovely, it’s likely to be a disappointment compared to what the winner was expecting.

Even if this really is a luxury stay and you are clear that it’s two nights, full board in the penthouse suite of top London hotel, you should also explain whether the winners will have to pay for anything themselves, or if there are any other expectations on them.

If the winners have to pay for their own travel to get there, and dinner is a black-tie event, this will have a definite impact on their decision about whether or not to enter.

Once the prize is clear, you need to decide on the format of the promotion, how it’s going to benefit your business and how the winner will be decided.

There are many options here. You may decide that the promotion is an excellent PR opportunity and that this is sufficient for you. However, you could go a step further. You could use the promotion to actually sell products or build your marketing database.

If you do this, you need to be careful. You cannot ask people to pay to enter and then choose the winner at random or your promotion will be classed as a lottery. Without a licence to run the lottery, your promotion would be illegal and you would be committing a criminal offence.

Running a promotional prize draw

So, putting lotteries aside, you basically have two options:

  1. You could have a free prize draw, where entry is free and the winner is chosen at random
  2. You could run a prize competition where the winner must exercise a “significant” amount of skill, knowledge or judgment (I’ll talk a little more about what “significant” means later)

Done well, either of these could give you the boost in sales you’re looking for, but you’re not home and dry yet. For your promotion to be a genuine prize draw, it must be open to everyone and everyone must have the same chance of winning.

But let’s think about your business.

How is this going to benefit you, if someone who isn’t a potential customer wins?

Although the prize draw must be free to enter, you’re well within your rights to have say, a special promotional product which people must buy to enter the draw. Then, only someone who has purchased a product will win. However, you mustn’t increase the price of your products to cover the cost of the prize or this could be considered paying to enter and then your promotion would be an illegal lottery.

It’s also perfectly acceptable to ask for someone’s personal details as a condition of entry to build your marketing database. If they’re not interested in your products or services they’re unlikely to want to give you their details so again, the winner will either be a customer or a genuine prospect.

If you do ask for personal details, you must comply with the Data Protection Act. This means that if you are going to use their details for marketing purposes they must be notified of this up front. For more information about this, see my previous article on direct electronic marketing.

If the promotional prize draw is open to people in Northern Ireland there must be a “no purchase necessary” way to enter. In other parts of the UK this isn’t strictly necessary, but people often include this provision just to be absolutely sure they don’t fall foul of the lottery rules.

If you decide to run a competition, entrants must demonstrate “sufficient” skill, knowledge or judgement to be in with a chance of winning. It’s hard to give a definitive idea of what “sufficient” means, but generally the answer to a question must not be so obvious that everyone gets the answer correct.

Once sufficient skill, knowledge or judgement has been demonstrated, if more than one person gets the answer correct, you can draw the winner at random from all of the correct entries.

Guessing the outcome of, for example, a sports event is not considered a skill. These are a special type of competition known as “prediction competitions”. If you run a prediction competition, such as a fantasy football competition, you have to comply with additional betting and gambling regulations to stay on the right side of the law.

How to administer a prize draw

Finally, the promotional prize draw must be properly administered. This means you must give clear information about the competition, how to enter, how the winner will be decided and much, much more. The best way to do this is have clear terms and conditions and rules of entry.

Some of the key provisions to include are:

  • The full name and address of the promoter
  • Any restrictions on who can enter (for example, over 18’s only, one entry per household, not an employee of the promoter)
  • The closing date by which entries must be received
  • How the winner will be decided
  • Whether the winner will be required to participate in any post-event publicity

Also, you will want to protect yourself in case of unforeseen events. So, for example, you may reserve the right to offer an alternative prize or amend the rules of competition if necessary.

If you don’t get all of this right, (or even if the promotion is far more successful than expected) it can seriously backfire on you. Not only can it be a PR disaster, it can be financially expensive too.

Hoover found this out back in 1992 when it ran a promotion offering two free return flights to anyone who spent more than £100 on one of their products. Anyone who spent more than £300 also received an additional £60 voucher to be used on car hire or accommodation.

Hoover estimated that around 5,000 consumers would redeem the offer, but in the end over 200,000 took it up! This may seem like a huge success because far more people bought products than expected, but that wasn’t the case.

People were buying new products just to get the free flights and Hoover struggled to keep up with demand. This resulted in an enormous number of customer complaints, a PR nightmare and even legal action. By the time everything was settled, it is estimated that this promotion cost Hoover more than £48m.

This is a classic example of how a good idea can turn against you if it’s too good to be true and not administered properly. So, if you’re thinking of running a promotional prize draw for your business and you have any questions about anything I have covered here, please feel free to ask via editors@businessadvice.co.uk.

David Walker is the founder of Grid Law

Catch up on the rest of the marketing series:

Sign up to our newsletter to get the latest from Business Advice.


 
TAGS:

ABOUT THE EXPERT

David Walker is the founder of Grid Law, a firm which first targeted the motorsport industry – advising on sponsorship deals, new contracts and building of personal brands. He has now expanded his remit to include entrepreneurs, aiding with contract law, dispute resolution and protecting and defending intellectual property rights.

Q&A

If you’ve found the article above useful, but have a more detailed and bespoke question, then please feel free to submit a query to our expert. We at Business Advice will get in contact with them on your behalf and arrange for a personalised response. These questions and answers will then be collated on the site for any other readers who have similar queries.

Ask a question

On the up

Find out how KPMG Small Business Accounting can really work for you

FIND OUT MORE