How to Use Contests, Sweepstakes, and Giveaways as Marketing Tools - While Staying Within the Law

In a tough economy, small businesses need to get creative in order to stretch marketing dollars. Sweepstakes, contests, and giveaways are some creative methods that have become increasingly popular among businesses, as the Federal Trade Commission estimates that more than half of all American adults entered sweepstakes within the past year. Before you capitalize on this marketing trend, there is specific guidance from the government how to hold a legitimitate promotion.

Deceptive Marketing Laws

The FTC receives thousands of complaints from consumers each year regarding the abuse of contest promotions. The following laws have been set in place to help protect consumer rights. If you plan to hold a contest, sweepstake, or giveaway, make sure you are in compliance with these regulations:

* The Telemarketing Sales Rule prevents telemarketers from abusing prize promotions. If you plan to promote a contest over the phone, you must disclose specific information, including the odds of winning (or the factors used to calculate the odds), and how to participate in the contest without buying in or paying any fees. More FTC rules about complying with the Telemarketing Sales Rule are available on their website.

* The Deceptive Mail Prevention and Enforcement Act regulates promotions sent through the mail. Among the mail promotion rules, the Act prohibits deceptive and fraudulent claims that announce “You’re a winner,” unless the recipient has indeed won a prize, and requires fake checks to clearly state they have no cash value and are non-negotiable. Read on for more details about the Deceptive Mail Prevention and Enforcement Act from the Library of Congress.

* Most states have additional laws that govern contest and sweepstake promotions, including some that allow wronged consumers and competitors the right to sue advertisers over deceptive advertising. Since state laws vary, check with the Attorney General's Office in the state(s) in which you plan to hold a contest.

How to Run a Legitimate Contest, Sweepstake, or Giveaway

Contests, sweepstakes, and giveaways can be a powerful marketing tool for your business, if done correctly. Keep the following guidance from the FTC in mind when planning a contest promotion for your business:

* No “Pay to play” rules: The concept behind a legitimate contest is that winners are selected purely by chance – meaning, customers don’t have to pay or buy something to either enter into the contest or improve their odds of winning. This includes requiring customers to pay taxes or shipping fees to claim their “prize.” An exception to this rule is a skills-based contest - if your contest prizes are awarded based on a skill, knowledge, or talent (like in a trivia contest or singing competition), you may legally require participants to make a purchase for entry.

* Identify your business: If you are sponsoring a contest, make sure that your customers can clearly identify your business’s name and contact information prominently, and offer your customers a clear and easy way to remove themselves from your contest solicitation.

* Remember the small print: Be clear and upfront about the terms, conditions, rules of entry, and odds of winning the promotion.

* Be truthful about endorsements: It is illegal to misrepresent endorsement or ties to well-known organizations and government agencies.

Still have questions?

You can talk with someone at your FTC regional office about specific questions on complying with these rules.

Learn more about deceptive advertising on Business.gov:

* Bloggers Subject to New Advertising Guidance
* The CAN-SPAM Act and Beyond: Improving Email Compliance, Deliverability, and Readibility
* New Rule Bans Telemarketers/Sellers from Making Pre-Recorded Calls
* Made in the USA Labels: Advertising Information for Manufacturers, Retailers, and Consumers

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