On the face of it, marketers could be forgiven for taking a long,
hard look at their sales promotion budgets. In recent months, the
promotions industry has taken quite a bruising.
In July a court ruling threw the future of instant wins - one of the
most popular sales promotion mechanics - into doubt.
Earlier in the year, the government imposed National Insurance
Contributions (NIC) of 12.2% on non-cash vouchers, despite 18 months of
lobbying by industry bodies.
Add to that the threat to the UK’s self-regulatory system from
vociferous EU member countries, pushing for tougher sales promotion law,
and the future of the promotions industry could be described as
So what is the industry doing to safeguard its future? Does its fate
really hang in the balance or has it simply been subjected to a series
of knocks, none of which seriously jeopardise its health?
Europe has always been a thorny issue for the sales promotion
In 1996, a European Commission (EC) Green Paper laid out the objective
of ’harmonising’ all commercial communications across the EU.
There is currently a plethora of different legislation, governing what
companies can and can’t do in different countries. Although this doesn’t
prohibit pan-European sales promotion campaigns, it certainly limits the
activity of countries wanting to run Europe-wide campaigns.
Three years after the publication of the Green Paper, an expert group of
member states representatives is grappling with divergent sales
promotion law across Europe, hoping to harmonise them.
The fear for the UK promotions industry is that our liberal,
self-regulatory framework will be replaced by the restrictive one
favoured by countries such as Germany and Belgium.
’Our freedom here is a privilege. We have a very strong self-regulatory
system and it works but we mustn’t take it for granted,’ says Sue Short
general secretary of the Institute of Sales Promotion (ISP).
The ISP is lobbying the EC through Brussels-based firm Cabinet Stewart
and is writing to all its members this month to encourage them to
actively lobby their MEPs.
’This is a wake-up call,’ maintains Short. ’We have to keep banging the
drum and hope that the strength of our lobbying will convince
So, while the European Union does present a very real threat to the UK’s
SP industry, there is growing confidence that if agencies, clients and
industry bodies act now there is every chance of protecting our
In the meantime, agencies continue to run pan-European campaigns which
are adapted to divergent markets. Eighteen months ago, Interfocus
comprehensively reviewed promotional law in 18 European markets funded
by a range of pan-European clients, including Visa.
’In terms of Europe, you have to be flexible, nimble and educate clients
about what can and can’t be done,’ says Matthew Hooper, managing
director of Interfocus.
Last year, the company ran a campaign in Italy and Denmark to promote
Visa International’s sponsorship of the 1998 Winter Olympic Games.
Because of legal restrictions, the two markets ran different
While Italy’s relatively relaxed legal framework enabled Interfocus to
run a prize draw for cardholders, including VIP trips to the Olympic
Games, this mechanic is illegal in Denmark. There, activity focused on
educating customers about the benefits of having a Visa card supported
by themed point-of-sale and a staff competition to win Olympic
merchandise to increase product knowledge.
Even in the UK, sales promotion has always trod a legal tight rope
compared with the advertising industry.
’In terms of what is possible, the law and the mechanic are very closely
entwined,’ says Philip Circus, head of legal affairs at the ISP and
partner of marketing law consultant Lawmark.
Scratchcard promotions are particularly fraught with legal pitfalls.
To avoid the charge of running an illegal lottery, any scratchcard
promotion has to provide a clear means of accessing the competition
without having to make a purchase.
The recent judge’s ruling that a scratchcard campaign designed for
independent retailers was illegal, by failing to provide a genuine and
visible ’free entry route’ (see box), provided a sharp reminder to
promoters of the law.
Far from heralding the demise of instant-win campaigns, however, most
practitioners see the ruling as an alarm call to those who may have
become sloppy about the law.
’The law has given us a window within which we can operate and that
mustn’t be abused,’ says Graham Griffiths, director of planning at
promotions agency PCG.
’The judgement is a reminder to be diligent but we’re certainly not
going to stop suggesting instant wins as a mechanic.’
There is little evidence of any tail-off in scratchcard activity.
Sainsbury’s is currently running a millennium scratchcard campaign,
offering consumers the chance to win pounds 1m, while Carlsberg’s will
distribute around 100,000 scratchcards in a student campaign, through
PCG, launching at the end of this month.
This follows on from a similar sized campaign, Play the Equaliser, which
ran earlier in the year and featured heat sensitive instant win game
Available with purchase, the cards revealed a win or lose message when
placed against the pint glass.
Wimpy is another company which relies heavily on instant win
According to Katherine Young, marketing director, the company runs
around three kids’ promotions a year, which exploit ’the fun, excitement
and immediacy of instant win and generate anything up to 20% sales
Wimpy’s most recent Easter scratchcard campaign linked with Kinder Egg
and offered every child a prize, ranging from Toys ’R’ Us vouchers to a
giant Kinder Egg.
However, the company works hard to ensure that its promotional activity
is legally watertight. The free entry route is highlighted on the back
and front of the gamecard as well as on the POS. Any instant win
campaign is checked by the company’s solicitor as well as the ISP’s
legal service through Wimpy’s promotions agency Ignition Marketing.
While any threat to the future of the pounds 1bn scratchcard industry
can be side-stepped by close compliance to the law, the implications of
NIC on voucher schemes as well as the impending tobacco ban are having a
more immediate effect on business.
Research by the ISP following the publication of the White Paper
’Smoking Kills’ in December 1998 revealed that more than 20% of member
agencies and suppliers estimated the value of their business with
tobacco clients at more than pounds 1m.
With many tobacco manufacturers relying on below-the-line mechanics such
as loyalty schemes to communicate with the customers, the promotions
industry is already feeling the effects of tobacco ban regulations. Two
members of the British Promotional Merchandise Association (BPMA) -
Sales Link and TPL - have reported the cancellation of promotional
orders in the past month. The cancellation of one SP campaign can have
According to Marian Elliott, BPMA chief executive, one brand loyalty
programme alone involves more than 60 members and at its peak showed a
redemption value of about pounds 150m.
’Our members who supply goods and services are being hit very badly,’
says Elliott. ’Manufacturers are uncertain about what they can and can’t
do and are erring on the side of caution and cancelling orders.
’There is no clarity from the government about the extent and
implications of the ban.’
This is not the first time that the government has been in the firing
line from the promotions industry. The introduction of NIC on non-cash
staff incentive schemes was also characterised by a lack of clarity.
Although vouchers have been identified as the main area to be affected,
other incentives such as merchandise and holidays are likely to be hit
in the future.
But Graham Povey, managing director of Capital Incentives, insists that
clients, which include Abbey National, Texaco and Bass, have not
dramatically reined in their incentive budgets. ’Most clients have been
very quick to come to terms with the new legislation. We went to great
lengths to let them know in advance and most have adjusted budgets to
cope with the additional 12.2%,’ Povey says.
Severn Trent Water is one client which has decided to continue running
its current voucher-based incentive scheme despite the additional
With 7000 employees in the UK, the company runs three separate incentive
schemes including the ’Saying Thanks’ scheme, which empowers line
managers to reward staff on the spot with a cheque that can be redeemed
’Our staff incentive scheme has come under the spotlight but we will
continue to run it. Costs have to be contained but it is easy to
administer, the reward is given immediately and it’s worth doing,’
confirms payments manager Bob Cope.
Povey argues that the importance of staff motivation is now so firmly
ingrained in the culture of many companies, that the additional cost of
NIC will not have as great an impact on the industry as was
And with the Marketing sales promotion league table showing increased
investment in below-the-line activity, there is strong evidence that the
industry has weathered recent knocks with surprising ease.
LESSONS OF THE BRISTOL COURT RULING
By Philip Circus, head of legal affairs at the ISP, and partner of
marketing law advisory consultancy Lawmark
There isn’t at first sight an obvious link between the Bristol district
registry of the High Court and the sales promotion industry - but at the
end of June, a ruling in Bristol by Judge Jack looked as if it would
spell the curtains for a pounds 1bn sales promotions technique.
Certainly, early press reports suggested that this could be the
The case of Russell v Fulling and Page involved an instant win
scratchcard campaign designed by Russell for independent retailers. So
why should it end up in court?
Russell invested a substantial sum of money in the scratchcard
initiative, which never got off the ground, and he was subsequently owed
money by Fulling and Page.
However, what started out as a civil case for debt recoverage soon
became more complicated. The court deemed that the scratchcard scheme
was illegal so it could not enforce such a debt.
But what is illegal about selling a scratchcard scheme into independent
retailers to boost customer loyalty? Instant wins avoid the charge of
being an illegal lottery because people genuinely choose to participate
without having to make a purchase.
When the facts of this case became apparent, it was clear that there was
no such genuine choice.
The retailer directly controlled the free chances given away and very
few chances were given away free or were intended to be. A choice for
the consumer between purchase and non-purchase did not exist.
Does this mean that promoters had a fright for no reason? No. If recent
publicity has helped to highlight the need for free-entry routes that
give consumers a genuine choice between purchase and non-purchase, the
case and its surrounding publicity will have done the industry a great