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If You Say It Is Free, It Better Be

The word “free” attracts attention, generates phone calls, brings customers to websites and can boost volume. In fact, some experts say the word pulls in more business than any other term in advertising.

Unclear Conditions

In one case involving a free offer, three major online merchandisers advertised free or low-cost computers in a print, television, Internet and radio campaign.

The FTC found that consumers had to pay more for the computers than advertised and they had to sign up for three years of Internet service to qualify for a rebate. If customers canceled the Internet service early, they lost the rebate and had to pay penalties. Moreover, some computers required customers to buy a monitor. These conditions were not clearly explained in the ads.

The companies signed consent decrees prohibiting them from making such offers without full disclosure in the future.

However, businesses are not free to use the word any way they want. Federal and state laws strictly regulate advertising that includes the word “free,” as well as phrases such as “2-for-1 sale” or “50% off when you purchase two.”

To illustrate the power of the word, the Federal Trade Commission (FTC) states: “Because the purchasing public continually searches for the best buy, and regards the offer of ‘free’ merchandise or services to be a special bargain, all such offers must be made with extreme care so as to avoid any possibility that consumers will be misled or deceived.”

Essentially, the FTC stand on free offers involves three points:

1. Businesses cannot recoup the cost of free merchandise. For example, you can’t raise the price of a 2-for-1 item to make up for the free product.

2. Conditions and obligations of the offer must be clearly and conspicuously placed in advertising.

3. An introductory offer must end after a limited time. And products offered as free, or free with a purchase, must go back to their previous prices.

In addition to the pricing of introductory items, FTC regulations cover the following situations:

Regular price. This is defined as the price you’ve charged for the same quantity, quality and service during the regular course of business for a substantial period of time. The price charged over the past 30 days meets this standard.

Fluctuating price. If prices ordinarily change, the regular price is the lowest charged during the 30-day period.

Negotiated price. If you usually arrive at prices by bargaining with customers, you generally cannot claim that another product or service is being offered free with the sale. This restriction also applies to regular prices when quantity, quality, or sizes are arrived at through bargaining.

Suppliers must follow a couple of additional regulations. If a free offer a supplier is promoting isn’t being passed on to consumers or is being used deceptively, the supplier must take steps to end the deception, including withdrawing the offer. Suppliers must also make offers equally to all competing resellers.

The number of free offers a company makes is also limited. In an effort to keep the concept “special and meaningful,” the FTC restricts the length of free offers of a single product or service to no more than six months in any 12-month period. In addition, 30 days should pass between offers and a free offer should not be promoted more than three times in a 12-month period.