Part of the market process or a non-market incentive
Nowadays, the trade companies have economic power, whereby they can affect the mind and the choice of each of us, the consumers. Among the ways they use are the promotional campaigns or the so called sales promotions, enabling them to promote a specific brand of products through the media, advertising materials in the retailers and not least through the websites.
Matter is basically regulated by the Law on Protection of Competition (LPC), and in the practice of the regulator in the field – Commission for Protection of Competition (CPC), whose task is to protect the fair market competition. The desire of a trader to increase the demand for their products through additional market incentives is a part of the sales process, part of the market competition.
However, in the last few years, the useful competition becomes increasingly unfair. Recently, one of the most important fields of action of the CPC is namely the unfair competition. This presentation is limited to a brief analysis of the prohibition of unfair solicitation, regulated by the LPC. The most frequently used commercial tricks of the market players to attract consumers:
Sale of random or the so called raffles/games
The organization of games in order to attract more customers and increase sales of products or services offered could be considered as normal commercial practice. Quite often, against participation in tombola/game, consumers are promised prizes, which can range from small prizes such as backpacks, hats, coffee pots to such on a significant value as camcorders, TVs, trips to exotic destinations, cars and others.
The conducting of a raffle/game breaks the law when there are cumulative two objective elements, namely: 1) the possibility of winning a prize to be bound by a purchase of a certain product, i.e. there is a gratuitous character, and 2) the value of the promised prize significantly exceeds the price, which consumers pay for the same product. The regulator in its practice has perceived that the prize exceeds the value of the offered product or service when its value is 100 times higher than that of the purchased good/service, but not more than 15 minimum wages.
Therefore, if the prize does not exceed 100 times the price of the good/service, the second correction criterion should be applied, namely the promised prize may not exceed 15 times the minimum wage for the country. Often the big prizes like trips, cars and others fall under the second criteria.
Sale package or the so called promotional packages
A part of the sales process is also the supplements’ giving, which include the sales package, the so called promotional packages, which can be the purchase of a shampoo and the receipt of a balsam to it, as well as the purchase of a prepaid SIM card and the receipt of additional free minutes to it. Usually the merchants offer the promotional package with a discount, as the discounts and the practices of the CPC, considered eligible, are within ten-twenty percent. They represent a normal commercial practice and are one of the major ways to advertise a product or service.
The LPC prohibits the offering or giving of a supplement to the sold product or service, free of charge or against a fictitious price for another product or service. Thus, the legislator intends to avoid such demand, which can distract the consumers from one product to another, not because of their merit, but because of the opportunity to get something for free or at a fictitious price.
The legislator has defined three exceptions to the prohibition: promotional items of little value and a clear indication of the advertising enterprise; items or services, which, according to the commercial practice, belong to the product sold or the service rendered; goods or services as a rebate for sales in larger quantities. A difference between a supplement and a belonging should be made, as there is a belonging when a functional link between the main good or service and the further proposed one can be found, which cannot be used alone, as for example a basic service – internet, a belonging – modem. More questions causes, however, the third exception, namely goods or services as a rebate for sales in larger quantities.
The practice of the CPC shows that the discount should be in the form of a discount from the purchase price or of a natural discount (additional quantities of the goods/services). In the event that a discount is offered as additional goods or services, they should be identical to the main goods or services, purchased in larger quantities, for example giving free bread on sales of large quantities of the same type bread, but not to be of different nature, which creates a real possibility to harm the interests of the competitors, for example a laptop as a discount on the sale of large quantities of bread. On the other hand, the CPC has a controversial practice in connection with the implementation of the third exception.
In one of its decisions (Decision №1445 as of 18.11.2010) the Commission considers that the offered to the consumers free products – a bottle of oil and a kilogram of sugar as a gift to the purchased one ton wood, although not of the same type, falls within the scope of the third exception, namely: a rebate for sale in large quantities in the form of additional goods. The CPC determines that in the present case a free supplement (a bottle of oil and a kilogram of sugar) is not of such nature, amount or value that harms the interests of the competitors and is not able to independently induce the consumers to purchase one ton of wood.
The aim of the commercial companies to win the consumers by manipulating the consumer demand by promising large rewards and “favorable” offers is so great that they often use non-economic means, which distorts the market process and turns the promotional campaigns in a non-market incentive.
The promotional campaigns, organized on a local or national level, reflect directly on the market on the territory of the whole country and even the conduction of short so-called seasonal promotions are able to divert the consumer’s demand. This creates preconditions the meaning of the economic competition to be displaced, as in the background are placed the qualities and the prices of the goods. The interests of the competitors are damaged, as their turnover decreases and they are forced to organize similar promotional campaigns.
The purpose of the promotional campaigns is namely the “pocket” of the user. However, the consumers despite the methods used by the merchants should be guided only by the characteristics of a certain product or service.
The article has been published in Bulgarian, in Capital Daily.