Legal Issues to Know Before Offering a Sale or Coupon

Discounts, promotions, and coupons are excellent for increasing sales, especially during slow sales or eliminating excess inventory. These types of promotions can assist your business reward clients for their brand loyalty by incentivizing repeat visits, upselling a low-volume product, etc.

However, before holding a sale or offering a coupon discount, make sure you’re familiar with coupon rules and regulations to protect you and your customers. Here are a few legal considerations to consider before running a discount or coupon at your business.

Avoid Deceptive Pricing and Advertising

The Federal Trade Commission (FTC) and specific state authorities oversee discounts, sales, coupons, and other promotional pricing. The Federal Trade Commission’s rules are found in the Guides Against Deceptive Pricing. These guides protect customers by requiring firms to offer an item at a fair price for a reasonable period and in good faith before dropping the prices to stimulate sales. The Federal Trade Commission deems it dishonest to offer an item for purchase at a higher price for a limited time to support a claim that the item is discounted when the price is later reduced.

However, the Guides aren’t prescriptive. As a result, firms may face class action lawsuits or individual state regulations. In 2017, the consumer watchdog organization petitioned the FTC to investigate Amazon’s deceptive pricing practices. According to the consumer watchdog, Amazon’s reference prices were higher than prices for the same product in the preceding 90 days in 61% of products having reference pricing. The consumer watchdog contended that Amazon’s pricing appeared to be a bargain because of the deceptive list prices and sought the FTC to prevent Amazon from buying whole foods while the deceptive discounting was going on.

Staying away from previous price comparisons is one approach to avoid a misleading pricing lawsuit. Past price comparison is a type of pricing that exaggerates the value of a deal. Here’s an example of how this could work.

Austin David is a shoe vendor that sells Brand X shoes for $50 a pair. His standard markup is 50% above cost; therefore, his regular sale price is $75. Austin then started selling Brand X for $100 per pair to give an exceptional “deal.” He recognizes he will sell none or very few shoes at this inflated price. But he doesn’t mind because he only keeps that price for a few days. Then he “reduces” the price to $75 and advertises it as “Terrific Bargain: X shoes, were $100, now only $75!” This pricing is a deceptive claim. The stated “discount” is not genuine.

You can Find a Lawyer on Lawrina to help you with the legal ramifications of your proposed discount and coupon sales before you start your promotions.

The FTC also has particular guidelines for when the word “free” is used in a promotion. When offering a “free” offer, retailers must state all the coupon terms and conditions that a consumer must follow to get the free item clearly and conspicuously at the commencement of the offer. The offer should have “no reasonable probability” of being misinterpreted.

Again, the FTC has limited power to enforce its anti-deceptive price guidelines. However, you could face a lawsuit if customers believe you are using price inflation or confusing coupon terms and conditions to deceive people into buying more.

When running a sale or discount, the best option is to make sure you’re providing true value to your clients on the items purchased. The sale prices should be significant and relevant. If the consumer knew the extent of the price drop, they would assume they were getting a real deal.

Knowing the Purpose of a Law on coupon acceptance guidelines is fundamental. The law is a necessary component of any civilization. Legal norms and regulations keep our societies intact and functional. In a world where the powerful control the weak, chaos can readily arise without the law. Understanding the purpose of law in our society is critical because we can only recognize and value the functions that law serves and how it affects coupon acceptance.

The bottom line is that you do not artificially increase prices to appear to be offering a discount subsequently. Please make sure that discounts are only applied after the product has been available for a reasonable period of time at its regular price. When issuing coupon codes, make sure the terms and restrictions are clear and easy to comprehend.

Ensure Your Sales Promotion is not Violating Lottery Laws

Most states forbid businesses or people from engaging in gambling or lotteries. Only state lotteries are usually allowed, and state-run bodies control them. Your company could be fined or hauled to civil court if it runs a sales promotion that the state government interprets as a lottery. When you award a prize to a randomly selected person after they pay a promotional admission fee, you are conducting a lottery. For example, if you invite clients to contribute $5 to a contest in which you entered their names for a chance to win a year’s supply of laundry detergent, you are breaking lottery regulations.

Running Successful Sales Promotion Campaigns Using Rewards

What to Know About Bonuses/Incentives on Monetary Accounts

Companies, particularly banks, which offer sales pitch that include cash incentive for new clients are subject to federal laws’ interest payment requirements. The Federal Reserve forbids banking firms from paying interest or bonuses on deposit accounts without the right accountability. For instance, if your town’s bank offers $120 for new checking accounts established within a certain period but does not write off the $120 as a marketing expense, the bank could face civil fines from the Federal Reserve. There are state regulations guiding discounts, coupons, rebates, and other Incentives which you must familiarize yourself with.

Ability to Follow Through on Sales Promotion Promises

Someone might ask is it legal to sell coupons? Promotional contests are similar to lotteries in that lotteries demand an entry fee to be eligible to win a prize. However, contests are lawful since they require players to demonstrate some talent level to win. A pie-eating contest, for example, would necessitate pie-eating abilities. The principal legal ramifications of a contest sales campaign lie with the inability to fulfill promised prizes. For example, suppose a bakery offers the winner of a pie-eating contest 15,000 blueberry pies but cannot manufacture 15,000 pies. In that case, the winner may sue for damages in civil court for deceptive advertising.

Business Identity and Detailed Fine Print

The fine print of any sales promotion establishes the terms and conditions of your offer. Sales campaigns that do not adhere to the fine print clauses, definitions, and standards risk breaking the Federal Trade Commission’s regulations. For example, if you label your print “free” to enter but remove a certain cost from the contest winner’s rewards, you may face an FTC investigation. The Federal Trade Commission (FTC) has the jurisdiction to issue cease and desist letters concerning your company’s sales promotion, which may even result in civil fines.

In conclusion, when business is slow or you need to fulfill certain sales targets, sales promotions can help feed your revenue. Even while your company is free to give coupons, discounts, and other promotions whenever it wants, the laws limit the type of promotion you can offer. Before offering a promotional sale or coupon, familiarize yourself with the above-mentioned coupon laws by states to avoid unnecessary civil litigations

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