The ACCC has rules for businesses to follow when offering free gifts because the word ‘free’ is so attractive to consumers that they are easily misled.
The ACCC (Australian Competition & Consumer Commission) rules are found in its Advertising and selling guide and on its website. The ACCC issues fines (penalties) to offenders.
In this article, we cover:
- Using the word ‘free’ in advertising and selling
- A case study where advertising ‘free gifts’ resulted in substantial fines
- Correctly using an asterisk to make the conditions prominent
- The ACCC rules for offering free gifts
At the end is practical advice for businesses in a marketing commentary by Michael Field.
Using the word ‘free’ - The ACCC Advertising and selling guide
The ACCC Advertising and selling guide (A guide for business) was published in July 2021. It contains this commentary on the use of the word ‘free’:
‘Free’
Businesses should be particularly careful of the use of the word ‘free’. The idea of getting goods or services without charge can create keen interest in consumers. Consumers will usually think of ‘free’ as absolutely free – a justifiable expectation.
Simply put, businesses may get into trouble with free offers if they do not reveal the complete truth, including any conditions that the consumer must comply with.
Example: A business uses the phrase ’10% free’ – meaning the price to the consumer is the same but they receive an additional ‘free’ volume of the product. If the price of the product has been increased this could be misleading, because the additional volume is not actually free.
Example: A business makes a ‘buy one, get one free’ offer, but raises the price of the first item to largely cover the cost of the second (free) item. This is likely to be misleading or deceptive.
Case Study: ACCC fines business $56,340 for advertising free gifts without making the conditions prominent
The ACCC issued a Media Release on 10 January 2024 to warn that conditions attaching to free gifts must be prominent when free gifts are offered.
Dreamscape Networks International Pte Ltd (a Singapore based entity) owns and operates the Crazydomains.com.au website. The website offers a range of services including domain name registration, web hosting and web design.
‘Between October 2019 and July 2023, the website advertised that its ‘3-month website builder’ product and an ‘additional domain name registration’ were free. These products were automatically added to a customer’s shopping cart as ‘free’, ‘3 months free gift’ or ‘1 year free gift’ but had an auto-renewal feature that meant customers would be charged fees after the free period ended.
Dreamscape did not make it clear to consumers at the point of sale that the ‘free gifts’ were subject to auto-renewal and fees.
“In this case, consumers may have believed they were receiving a free product in addition to the one they were purchasing because they were not given clear information about ongoing subscription costs for these so-called free products.”
“Subscription traps are an area of concerning conduct and the ACCC will not hesitate to take action against businesses that utilise these tactics in breach of the Australian Consumer Law,” ACCC Commissioner Liza Carver said.
The ACCC pursued Dreamscape because these were false or misleading representations about two ‘free’ products automatically added at checkout, and about the benefits of its Domain Privacy product, in contravention of the Australian Consumer Law.
The ACCC issued three infringement notices to Dreamscape, and it has paid $56,340 in penalties. Dreamscape has also updated disclosure around the autorenewal and cost of its products, and the uses of its privacy products.
This is an image of an online shopping cart, which shows the offending ‘free gifts’ display:
Source ACCC Media Release - Web hosting business pays penalties for allegedly misleading customers about ‘free gifts’ 10 January 2024
Correctly using an asterisk to make the conditions prominent
When advertising free gifts, the business must make the conditions that apply prominent and accessible to the consumer. As the ACCC Advertising and selling guide states:
“It is common to see advertisements with limitations or disclaimers using an asterisk (*), ‘conditions apply’ or other requirements to limit the audience’s expectations. Fine print is often used in advertisements, contracts, labelling and signs.”
“These qualifications usually appear close to the lead selling point. If an asterisk appears near the word ‘free’, for example, a business may be trying to trade on positive reactions to the selling point, while trying to keep within the law by putting the conditions in the fine print. This may not protect that business from breaching the ACL.”
Analysis: Using an asterisk and fine print conditions will not work unless the conditions are prominent. The problem with the free gifts displayed on the shopping cart page of Crazydomains website was that the autorenewal condition and fees payable were not asterisked or displayed on that page. They were not prominent.
The ACCC rules for offering free gifts
The ACCC Gifts and prizes rules webpage has this advice:
It's illegal for a business to offer a gift, prize or other free item to promote the sale of goods, services or land if:
- the business has no intention of providing it
- the business fails to provide it as offered
- it isn't provided within the time specified, or
- if no time is specified, within a reasonable time.
A business won't be breaking the law if the failure was due to something beyond its control.
The business and consumer can also agree to a replacement gift or prize.
Also, it's illegal for a business to:
- offer a free gift without telling consumers that they must pay for the delivery of the gift
- tell consumers that if they buy certain goods they will win a prize when all they actually receive is the chance of winning the prize.
Marketing Commentary by Michael Field, EvettField Partners
FREE Advice for Marketers on the Use of the Word FREE in Advertising
The word 'free' has a fascinating history dating back to 19th century American merchants such as John Wanamaker who pioneered its use in advertising after recognising the psychological impact on consumer behaviour. The promotion of ‘free’ products encouraged consumers to buy more – and more often - for fear of ‘missing out’ on the free product.
Using the word ‘free’ in advertising and marketing is effective as it is built on the behavioural economics concept of loss aversion, which triggers powerful emotional drivers that can significantly influence consumer purchasing decisions.
However, it is imperative for advertisers, brand, and marketing managers to understand the risks associated with misusing 'free' in advertising. Deceptive advertising jeopardises brand trust and can lead to reputational damage and legal trouble.
To navigate this terrain effectively, advertisers, brand managers and marketers should approach 'free' promotions with caution, ensuring compliance with consumer protection laws and transparency with consumers.
Marketing Checklist
- Ensure Transparency: Clearly communicate terms and conditions associated with 'free' offers. Don’t hide the detail. Make the conditions prominent.
- Compliance Check: Regularly review advertising practices to align with the consumer protection rules on the ACCC website.
- Educate: Advise management on the rules and regulations of the responsible use of the word 'free' in promotions, and warn them of the associated legal implications for non-compliance.
- Monitor Industry Trends: Stay informed about evolving advertising regulations and consumer expectations.
- Build Ethical Campaigns: Foster trust by only including 'free' offers and promotions into campaigns with honesty, integrity, and transparency.
By incorporating these actions, you can harness the influential power of the word 'free' responsibly, foster long-lasting connections with consumers while mitigating legal risks.
And that advice is completely FREE!