Businesses are increasingly utilising refer-a-friend promotions to maximise their customer base and use viral marketing strategies to increase customer engagement. These promotions can be an effective way to attract new customers. However, there are various legal concerns businesses must be aware of and account for in their terms and conditions before targeting ‘friends of’ customers. This article will explore how you can safely utilise a refer-a-friend promotion strategy for your business.
What is a Refer-a-Friend Promotion?
Refer-a-friend promotions are a marketing tool to grow your business’ customer base through promotion from your existing customers. The promotion involves your customers referring your business to their friends or people they know, usually for a customer incentive such as a discount or additional entry into a competition. The business then sends direct marketing material to these contacts.
Terms to Include in Your Conditions
1. Eligibility Conditions
Terms and conditions should provide users with clear eligibility criteria for the referral process to be successful and for the existing customer to receive their benefit. The eligibility criteria should include the following:
- the necessary details the customer needs to provide from the referral, such as name, email address, contact number and age;
- whether referrals are required to be new customers;
- whether existing customers are exempt from the promotion;
- whether only specific products/access to certain services are available for purchase via a referral link;
- what products do not form part of the promotion;
- whether the referee must buy products or services on the website or whether they just need to create an account;
- whether the referee is required to meet a minimum spend in a transaction on particular products;
- whether a unique promo code is to be entered at checkout or when finalising a transaction; and
- specifying a time frame in which the referee must make the transaction after receiving a promo code or promotional link.
2. Privacy
Collecting contact information and subsequent promotional material disbursement exposes businesses to significant privacy implications. As such, it is necessary to state how your business deals with its privacy obligations. For example, the Spam Act states that you must not send users unsolicited commercial electronic messages unless the recipient consented to receive the commercial electronic message.
The most effective way to protect your business and be in compliance with the relevant legislation is to require your existing customer to confirm they have sought consent. Accordingly, this means that the referrer (your customer) is responsible for seeking and obtaining the permission of the referee (your customer’s friend) before passing on their personal information to you.
So, for example, Business A may include this clause in their terms that says:
“if you provide Business A with personal information about your friend, including a referral, you represent and warrant that you have such person’s consent to provide the personal information to us.”
As the business will be collecting personal information, ensure you have a privacy policy that accurately explains how you use the information you are collecting.
Furthermore, if your marketing includes telemarketing calls, it is essential to ensure that the referee is not listed in the Do Not Call Register. Contacting someone who is on this register will be a breach of the Do Not Call Register Act 2006 (Cth).
3. Dates
The terms should identify specific dates for the promotion on the site. Dates should also acknowledge the period in which promotional codes or links will expire after the promotional period ends. Generally, businesses will provide the referees with a period in which they must make their account or purchase their product. The terms should specify that the existing customer may not receive their benefit if the referee does not complete the transaction within the stipulated time frame.
4. Incomplete Accounts
The terms should ensure that a referral link cannot be incomplete for a referral to be accepted and for a customer to receive their benefit. For example, the terms can specify that a referee must complete all the required steps to validate their account or purchase. This could mean the referee must complete their profile or finalise their transaction by purchasing.
5. Fraud
The terms should specify that any attempt to use a referral link or promotional code not in line with the business’ promotion may constitute fraud and a breach of the terms. A breach of the terms may allow the business to end the relationship with the customer and referral concerning the promotion.
6. Validation
A business must be able to verify its customers and referrals. The terms should include a clause that reserves the right to validate the eligibility of any referral to determine if any referral is ineligible.
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Key Takeaways
Refer-a-friend promotions are an effective marketing strategy but can have profound implications if the terms set out in the promotion do not address certain aspects. For example, refer-a-friend promotions generally need to have regard for and comply with the Privacy Act and the Spam Act. In addition, businesses must ensure they have the consent of any new referrals to whom they send electronic communications.
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Frequently Asked Questions
Refer-a-friend promotions are a marketing tool to grow your business’s customer base through promotion from your existing customers. The promotion involves customers referring your business to their friends or people they know, usually for a customer incentive.
Yes. Collecting contact information and subsequent promotional material disbursement exposes businesses to significant privacy implications. As such, it will be necessary for your terms to state how your business deals with privacy obligations.
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