‘Gift With Purchase’ Offers Are No Child’s Play8 Jan, 2013 By: Marc Roth
One of the most common and effective incentives used by DR marketers is a gift with purchase. While these types of offers may differ in some respects, such as, “Free gift, just pay shipping and handling,” the common element in all of these offers is the inducement to purchase an item with the lure of another item at no cost. Marketers that use these types of offers, however, must ensure they have sufficient inventory to meet demand, lest they find themselves subject to legal action. One large retailer recently learned this lesson the hard way, and is now facing a class action by aggrieved consumers who allegedly did not get what they were promised.
Just as the 2012 holiday buying season was heating up, Toys“R”Us sought to induce consumers to purchase certain advertised products with the promise of a free item. According to a complaint filed against the toy retailer in November, Toys“R”Us misled consumers by promising various free gifts, valued at approximately $15, with the purchase of a higher valued product. However, the retailer only stocked “an exceedingly limited” number of the premiums and instead provided most shoppers with items “of substantially lesser value that what was advertised.”
For example, rather than delivering a promised Barbie Clothing outfit or a Lego set (each valued at approximately $15) with the purchase of a more expensive item, the complaint alleges that Toys“R”Us instead delivered much cheaper items, like a Christmas tree figurine and magnet, each with a retail value of about $5.
As a result, consumers who received these lesser-valued items filed suit, alleging that Toys“R”Us, “as a matter of business practice, (had) no intention of providing consumers the free gift that (it) offered (or a comparable replacement gift). Rather, after an item is purchased, Defendant regularly notifies customers that it is only providing a free gift of substantially lesser value than that which was advertised or, in the alternative, no free gift at all.” The complaint concludes that “this business practice, thus, constitutes a modern ‘bait and switch’ scheme.”
In addition to the “bait and switch” claim, the plaintiffs allege violations of various state consumer fraud and unfair and deceptive trade practice laws and common law breaches of contract and of implied covenant of good faith and fair dealing. Obviously, Toys“R”Us will have an opportunity to deny such claims and attempt to defeat class certification, but if the plaintiffs’ allegations are true, and the class is certified, the toy retailer could face stiff penalties and be required to provide consumers with significant monetary redress, potentially wiping out any profits it may have realized from the campaign.
Moreover, if the suit goes to trial and it is proven that Toys“R”Us promoted the offer knowing that it could not meet demand and intended to fulfill the less expensive items, its actions could be found to be willful, which could implicate greater penalties. Further – and potentially more damaging – are the reputational effects that result from adverse publicity and customer dissatisfaction.
In order to avoid such lawsuits, before promoting a free gift with purchase, marketers must ensure that they have sufficient supply to meet expected demand. While there is no exact science or legally proscribed manner for making this determination, a generally accepted approach is to consider responses to similar past promotions, the nature and strength of the offer, and how “hot” the advertised product is. As long as supply decisions involve some intelligent thought process and are not made capriciously, the risks of a suit or regulatory action can be mitigated.
Marc Roth is a partner in the Advertising, Marketing and Media division of Manatt Phelps & Phillips LLP in New York. He can be reached at [email protected].