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October, 2004 |
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Legal Side |
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Cash Prizes in FMCG
How Fair to Consumers? By Anup Raj Upreti Lately the noodles market is flooded with
various kinds of tempting offers. Most of the noodle brands produced in
Nepal have one or the other kind of gift schemes. Moreover, all these
schemes have something in common. All schemes are about cash prizes with
the amount offered as high as 1.1 million rupees. Most commonly, scratch
cards are used for these schemes. In almost all of the schemes, free
noodles were also offered on a collection of certain number of coupons
or for a match of certain coloured coupons. Some also had a funny claim
that on matching certain coupons one could go away with as much cash as
s/he could carry. Almost every day we get to read the news that someone
or the other has won cash prize from one noodle producer or the other.
It also seems that these schemes are very popular amongst the consumers.
But, these schemes beg serious
consideration from two aspects: First, from the point of view of the
interest of the consumers as a whole and second, from the point of view
of fair competition. Consumer’s Interest Are the consumers benefited by these
money prize schemes? Unfortunately, no. Only those very few lucky prize
winners benefit. These prize schemes lure the consumers towards the
product. Most often than not, the quality and need of the product is
ignored by the consumers. These kinds of cash prizes do not provide
direct benefit to the consumers. How may packets of 2PM noodles have the
million rupee cash prize coupons? Maybe only 1. Therefore, only one
consumer (and few others in relation to other small cash prizes) of 2 PM
noodles would benefit from the scheme out of the total number of
consumers of 2 PM. Number of consumers benefited from the
scheme depends on how many prizes are involved in the scheme. The added
cost involved in printing coupons, commission to be given to
participating retailers, added cost on advertisement etc. benefit the
associates of the companies, not the consumer. The consumers would be
best served if, instead of incurring such costs, the money so saved is
used to improve the quality of the product or to reduce the price of the
product. The Consumer Protection Act 2054 provides
certain rights to the consumers. It states consumers have the right for
compensation against the unfair trade practices. Section 10 of the said
Act restricts everyone from, amongst others, misleading the consumer by
copying of any product, selling poor quality products and committing
unfair trade practices by misleading consumers regarding effectiveness
and usefulness of any product. The Act also provides definition of
unfair trade practice. However, and unfortunately, the definition of
unfair trade practice does not address currently used cash prize schemes
in any way. Also, giving away of cash prizes does not come under any of
the restrictions under section 10 of the Act, however loosely section 10
is interpreted. In short, though cash prize schemes are detrimental to
the interest of consumers and bring about unfair competition, it seems
that nothing can be done to stop this trend. Until effective laws are
enacted in the form of competition law or necessary changes are made to
the existing Consumer Protection Act 2054, there is no stopping to these
schemes. The solution comes if the Revenue Office disallows the practice
of showing exorbitant cost as business expense used to run such schemes.
Fair Competition The cash prize schemes encourage
unhealthy competition. Unless there is a fair competition in the market,
only the big corporations will be on the lead always. The big
manufactures who can afford to continue to provide cash prizes can wipe
out the small manufactures from the market without having to compete
fairly on the basis of quality and price of the product. For example,
there is no cash prize scheme offered by RARA noodles and thus
manufacturer of noodles that cash prize, for example, A-One noodles,
have unfair advantage over manufacturer of RARA noodles. Arguments like
why not RARA noodles also offer cash prize scheme may arise. However,
this argument is against the very cardinal principal of competition law,
the main objective of which is to provide fair competition and prevent
distortion of competition in the market. How are unfair trade practices dealt
abroad? At the international level similar kinds
of cash prize schemes offered in consumer products are considered unfair
trade practices. In India, under the Monopolies and Restrictive Trade
Practice Act 1969, offering free gifts and promotional contest are
considered unfair. Other unfair trade practice as per the Act are as
follows: (a)
offering of gifts or prizes with no intention of providing them or
giving false impression that something is given free though actually the
cost is covered by price of the transaction, (b)
conducting contest, lottery or game of chance or skill for the purpose
of promoting directly or indirectly the sale, use or supply of any
product or any business interest, According to the settled law in India the
promotional contest tempts people to buy products on consideration other
than the cost, quality or need and therefore, affects competition
adversely. Therefore, the promotional contest, lottery etc. where the
consumers are required to buy the product to participate in them are
held to be against the interest of consumers and thus they are regarded
as unfair trade practices. The cash prize schemes currently used by
various noodles manufactures are more like lotteries or the games of
chance. Further, the purchase of the product is necessary to participate
in the schemes. Conclusion Marketing experts have warned that such
exercise does not help build a strong brand name. It is reported that
the buyers once lured by lucky prizes easily switch over to the next
brand which offers even more prize money. Then, why are cash prize
schemes very popular in Nepal? The simple reason is the fact that the
consumers are not aware that they are being cheated. Nepal does not have
a very effective consumer law and the laws against unfair competition is
yet to be enacted. This has created a favourable environment for the
manufactures to push their products in the market by using any means
that mistreat Nepali consumers. (Upreti is an Associate with Pioneer Law Associates and can be reached at Anup@pioneerlaw.com) |
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