Tension in the direct marketing industry over opt-in requirements

The Consumer Protection Act sparked quite a bit of interest in direct marketing and consumers' rights to opt-out of receiving direct marketing communications. It has also highlighted a tension between direct marketers and consumer orientated initiatives to protect and enhance consumer rights. Some of these initiatives have been undertaken by two industry bodies, the Internet Service Providers' Association and the Wireless Applications Service Provider Association which are self-regulatory bodies focused on ISPs and mobile service providers, respectively. The ISPA and WASPA Codes of Conduct contain provisions which are somewhat more stringent than the Consumer Protection Act, although more in line with the draft Protection of Personal Information Bill when it comes to regulating direct marketing.

I took a closer look at the relevant provisions in the Code as well as related provisions in the Consumer Protection Act and the current Protection of Personal Information Bill which is expected to be enacted in late 2011 in order to how these regulatory frameworks deal with direct marketing and what effect they seem to have on the industry. This post is an overview of these regulatory frameworks.

The ISPA Code

The ISPA Code binds Internet Service Providers directly, and direct marketers that use ISPs to host their services, indirectly. Section E of the ISPA Code states the following:

E. Unsolicited communications

1. ISPA members must not send or promote the sending of unsolicited bulk email and must take reasonable measures to ensure that their networks are not used by others for this purpose. ISPA members must also comply with the provisions of section 45(1) of the ECT Act, and must not send or promote the sending of unsolicited commercial communications that do not comply with the provisions of section 45(1) of the ECT Act.
2. ISPA members must provide a facility for dealing with complaints regarding unsolicited bulk email and unsolicited commercial communications that do not comply with the provisions of section 45(1) of the ECT Act originating from their networks and must react expeditiously to complaints received.

ISPA's members generally adopt a fairly firm approach to unsolicited bulk email for a variety of reasons, and for good reason in many instances. We are all familiar with the deluge of spam that clogs our mailboxes on an ongoing basis. Unfortunately well meaning direct marketers are often caught in the cross-fire largely because they are reliant on ISPs to operate their businesses.

The WASPA Code

WASPA is a self-regulating industry association that watches over mobile service providers. Its members include most mobile service providers and marketers in South Africa as well as a number of foreign mobile content providers. If you market to customers by SMS, the odds are you are using a WASPA member to distribute your messages.

The current version of the WASPA Code is 11.0.  The section in the Code dealing with spam is section 5 which is titled “Commercial communications”.  Section 5.1 deals with “Sending of commercial messages” and specifies certain minimum requirements such as the requirement that WASPs terminate commercial messaging services when a recipient responds to a commercial message with the “STOP” instruction or similar words such as “END”, “CANCEL”, “UNSUBSCRIBE” or “QUIT”.

The definition of “commercial message” is also relevant and it is the following:

A “commercial message” is a message sent by SMS or MMS or similar protocol that is designed to promote the sale or demand of goods or services whether or not it invites or solicits a response from a recipient.

Sections 5.2 and 5.3 deal with spam identification and prevention and are directly relevant.  These provisions state the following:

5.2. Identification of spam

5.2.1. Any commercial message is considered unsolicited (and hence spam) unless:

(a) the recipient has requested the message;

(b) the message recipient has a prior commercial relationship with the message originator and has been given a reasonable opportunity to object to direct marketing communications

(i) at the time when the information was collected; and

(ii) on the occasion of each communication with the recipient; or

(c) the organisation supplying the originator with the recipient’s contact information has the recipient’s explicit consent to do so.

5.2.2. Any commercial message is considered unsolicited after a valid opt-out request.

5.2.3. WASPA, in conjunction with the network operators, will provide a mechanism for consumers to determine which message originator or wireless application service provider sent any unsolicited commercial message.

5.3. Prevention of spam

5.3.1. Members will not send or promote the sending of spam and will take reasonable measures to ensure that their facilities are not used by others for this purpose.

5.3.2. Members will provide a mechanism for dealing expeditiously with complaints about spam originating from their networks.

When it comes to classifying a commercial message as not “spam”, the Code sets out a two part test.  A commercial message is regarded as spam if it is unsolicited except where -

1. The recipient has either requested the message or has a prior commercial relationship with the message originator and “has been given a reasonable opportunity” to opt-out of further marketing communications from the originator (this is implicit opt-in with an opt-out requirement); or
2. The recipient has given his or her “explicit consent” to receive the commercial message concerned.

The focus of this test is on unsolicited commercial messages and the default position is that such messages are spam and prohibited unless the originator can prove one of two scenarios (mentioned above), both of which are consent-based.  The first scenario is a combination of explicit opt-in and the second scenario involves a more implicit opt-in.  This is a departure from the current legislative position, although not necessarily of the anticipated legislative framework detailed in draft legislation.

The Consumer Protection Act

The Consumer Protection Act deals with “unwanted direct marketing” in section 11 of the Act.  Consumers’ right to pre-emptively block, refuse to accept or to require a person to discontinue direct marketing communications or approaches is specifically included in consumers’ broader right to privacy which is entrenched in the Bill of Rights.  While the Consumer Protection Act does not explicitly state that it operates on the basis of an opt-out paradigm, section 11(2) supports this conclusion:

To facilitate the realisation of each consumer’s right to privacy, and to enable consumers to efficiently protect themselves against the activities contemplated in subsection (1), a person who has been approached for the purpose of direct marketing may demand during or within a reasonable time after that communication that the person responsible for initiating the communication desist from initiating any further communication.

The direct marketing framework contemplated by the Consumer Protection Act is similar to the framework established for electronic direct marketing in the Electronic Communications and Transactions Act.  Both frameworks enable marketers to send unsolicited commercial messages (to use the basic term in the Code) directly to consumer provided they facilitate and honour requests from consumers to opt-out of receiving further commercial messages from those marketers.  The press release mentioned a Do Not Call Registry which section 11(3) of the Consumer Protection Act provides for.  This registry doesn’t exist yet, at least not in the form contemplated by the Consumer Protection Act, but such registries do exist in varying degrees.

The Direct Marketing Association of South Africa (“DMASA”) operates a National Opt Out Register which its members are bound to comply with.  This Register presently represents the closest registry of its kind to the registry contemplated in the Consumer Protection Act.  Unfortunately this Register is limited in its scope.  It binds DMASA members and its distribution is limited to those members.  It is also subject to exploitation (such an exploit was publicised in ITWeb on 30 May 2011) for illegitimate purposes in its current form although its distribution method is due to shift from email to an authenticated file transfer protocol.

Protection of Personal Information Bill

The Protection of Personal Information Bill deals with “unsolicited electronic communications” in section 66 of the current draft Bill.  This section begins with the premise than unsolicited electronic communications (including SMS and email) for direct marketing purposes are prohibited unless certain conditions are met (the Bill speaks of “processing” which has broader implications than simply sending marketing SMSes or emails but I will confine my discussion to direct marketing messages).  These conditions are, essentially, that the person whose personal information is being used (the “data subject”) has consented to receiving these commercial messages or where the data subject is a customer of the party sending the commercial messages.

This latter condition is a complex one.  In order for a business to market its products and services to a consumer under the Protection of Personal Information Bill, it must have obtained the consumer’s contact details in the context of a sale of a product or service for the purpose of directly marketing the business’s “own similar products or services” and the consumer must have been afforded opportunities to opt-out of receiving those marketing messages both at the time the contact details were collected and “on the occasion of each communication with the data subject for the purpose of marketing if the data subject has not initially refused such use”.

Going further, the Protection of Personal Information Bill requires that “any communication for the purpose of direct marketing” must contain the following information:

1. details of the identity of the sender or the person on whose behalf the communication has been sent; and
2. an address or other contact details to which the recipient may send a request that such communications cease.

This section of the Protection of Personal Information Bill appears to shift the current opt-out paradigm to something closer to an opt-in paradigm in that a consumer’s consent is required before a business may market products and services to the consumer or the consumer must be the business’s customer and the consumer’s personal information was collected for that purpose.  The first scenario entails an express opt-in and the second an implicit opt-in with the comfort of a subsequent opt-out option.  These provisions are similar to the provisions of the Code dealt with above and represent a departure from the current paradigm the Consumer Protection Act operates under.  While the Protection of Personal Information Bill is not a final Bill yet and there is still scope for these provisions to change before its finalization and adoption by Parliament, it is worth bearing its current provisions in mind.

Where does this leave direct marketers

Direct marketers are largely dependent on either ISPs or WASPs to conduct their businesses and this presents a number of challenges. The current business model relies on an opt-out paradigm to exist and the ISPA and WASPA Codes are precursors to the Protection of Personal Information Act which shift the paradigm to an opt-in paradigm which most direct marketers probably can't easily transition to. If the ultimate Protection of Personal Information Act will have the current opt-in provisions for direct marketers then the industry will have to change the fundamental basis on which it operates starting with its database development strategy.

Some marketers have already begun exploring more innovative models based on social media. One of my recent clients, Virtuosa, sent out an email in April informing its newsletter subscribers that it was discontinuing its newsletter and invited its subscribers to follow it on Twitter, Facebook and LinkedIn:

Newsletters are old-fashioned. Research and feedback from you has shown that overall the preferred means to receive updates and engage with us is via our social profiles. We will no longer be sending regular newsletters but rather communicate with you on Social Media. Please connect and engage with us via our social media profiles.

One of the advantages of social media as a broad marketing platform is that services like Twitter, Facebook and LinkedIn are built to be opt-in and have easy opt-out mechanisms built into the platforms. In a way, this model is an ideal direct marketing model because of its higher engagement levels and opt-in basis but shifting to this model basically means discarding existing email and SMS databases in favour of a relatively young channel. Even if marketers ignore social media, they need to seriously start thinking about how they will transition to an opt-in paradigm if the current Protection of Personal Information Bill is passed in more or less the same form it is currently in. As it is, they operate in an environment that is, at least partly, fundamentally opposed to their existing business model.

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Image credit: Tug of War by joshwept, licensed CC BY 2.0

Sorry, no iPads allowed in your promotion

The iPad must be one of the hottest consumer devices at the moment and are popular prizes in promotional competitions. Unfortunately Apple forbids companies from using iPads, iPhones and iPhone gift cards in their promotional competitions. Apple's promotional guidelines which date back to April 2010 open with the following clause:

If you choose to give the product away in any form of promotion or use Apple products in promotional materials such as advertising, you must follow these guidelines. Strict adherence is essential because you and/or your company may be held responsible if your use of Apple products for promotional purposes do not conform with the following guidelines. In any event, we reserve the right to revoke our consent to your use of Apple products in your promotion at any time and for any reason. For purposes of this Agreement, "Apple products" include: iMac, Mac Pro, MacBook, MacBook Pro, MacBook Air, iPod shuffle, iPod nano, iPod classic, Time Capsule, Apple TV, Apple Gift Cards and iTunes Gift Cards. iPod touch is only allowed to be used in special circumstances and requires a minimum purchase of 250 units. iPad, iPhone and the iPhone Gift Card may not be used in third-party promotions. Please contact a sales representative for more information.

Did you notice the emphasized line in the quote: "iPad, iPhone and the iPhone Gift Card may not be used in third-party promotions"? This line, alone, presents a real challenge to companies like Afrihost (my DSL provider) which has become known for the vigour with which it promotes its services through giveaways like this iPad promotion:

Fortune magazine recently reported how an ABC affiliate gave iPads away as part of an effort to promote the station, not realising that its giveaway contravened Apple's Guidelines for Third Party Promotions. These Guidelines are clearly designed to protect Apple's brand and perceptions of its products. The Guidelines specify how Apple products may be represented and in which contexts. They prohibit the use of Apple's proprietary Myriad Set font (Apple owns a variation of the Myriad typeface) and requires that promotions using Apple products be approved by Apple beforehand.

What could happen to companies that ignore Apple's Guidelines? For one thing Apple could contend that its trade marks are being infringed by the unauthorised use of its products and brands. The bottom line for any company looking to lean on Apple's attention grabbing products to promote its services or products is that it should pay very careful attention to Apple's Guidelines, in addition to other rules and guidelines it may already be subject to.

Competition rules and the Consumer Protection Act

Update: This post was prepared on the basis of the draft Regulations. The final Regulations were issued on 1 April 2011 and differ from the draft Regulations in some important respects including the requirement to report on various issues which are highlighted in this post. I'll work on an update to this post in light of the final Regulations as soon as possible.

Competition terms and conditions must be carefully prepared under the Consumer Protection Act. They govern consumer's relationship with competition promoters and form a contractual basis for that relationship. They can also be fairly tricky to develop given the myriad factors promoters must take into account. Section 36 of the Consumer Protection Act and the proposed Consumer Protection Act Regulations address how competitions should be conducted and, indirectly, what the relevant terms and conditions should contain. The Consumer Protection Act mentions two sets of documents used in connection with “promotional competitions” which it defines as follows:

any competition, game, scheme, arrangement, system, plan or device for distributing prizes by lot or chance if—
(i) it is conducted in the ordinary course of business for the purpose of promoting a producer, distributor, supplier, or association of any such persons, or the sale of any goods or services; and
(ii) any prize offered exceeds the threshold prescribed in terms of subsection (11), irrespective of whether a participant is required to demonstrate any skill or ability before being awarded a prize.

In the first place the Consumer Protection Act prescribes what needs to be set out in an “offer to participate in a promotional competition”:

(5) An offer to participate in a promotional competition must clearly state—

(a) the benefit or competition to which the offer relates;
(b) the steps required by a person to accept the offer or to participate in the competition;
(c) the basis on which the results of the competition will be determined;
(d) the closing date for the competition;
(e) the medium through or by which the results of the competition will be made known; and
(f) any person from whom, any place where, and any date and time on or at which—

(i) a person may obtain a copy of the competition rules; and
(ii) a successful participant may receive any prize.

Section 36 alludes to three further sets of provisions which are meant to be set out in the Consumer Protection Act Regulations (currently draft Regulations being edited following a comment period):

• A monetary threshold for the purpose of excluding so-called “low value” prizes from the “promotional competition” definition;
• Minimum standards for promotional competition record keeping; and
• Audit and reporting requirements in respect of promotional competitions.

The draft Regulations, published in October 2010, set the monetary threshold at R1. They also require the promoter ("a person who directly or indirectly promotes, sponsors, organises or conducts a promotional competition, or for whose benefit such a competition is promoted, sponsored, organised or conducted") to ensure that a -

“chartered accountant, registered auditor, admitted attorney or commissioner of oaths conducts the competition and must be reported on through the promoter's internal audit reporting procedures”.

Promoters must retain the following information for “at least five years”:

(a) full details of the promoter, including identity or registration numbers, as the case may be, addresses and contact numbers;
(b) the rules of the promotional competition;
(c) a copy of the offer to participate in a promotional competition contemplated in section 36(5);
(d) the names and identity numbers of the persons responsible for conducting the promotional competition;
(e) a full list of all the prizes offered in the promotional competition;
(f) a representative selection of materials marketing the promotional competition;
(g) a list of all instances when the promotional competition was marketed, including details on the dates, the medium used and places where the marketing took place;
(h) the names and identity numbers of the persons responsible for conducting the selection of prize winners in the promotional competition;
(i) in the case of a prize exceeding R 1.00 (One Rand) in value, determined by reference to what a consumer would in the ordinary course of business pay to purchase the prize, an acknowledgment of receipt of the prize signed by the prize winner, and his or her identity number, and the date of receipt of the prize;
(j) declarations by the persons contemplated in paragraph (d) made under oath or affirmation that the prize winners were to their best knowledge not employees, agents or consultants of the promoter or marketing service providers in respect of the promotional competition, or the spouses, life partners, business partners or immediate family members;
(k) a copy of the report contemplated in subregulation (6).

The promoter is further required to prepare a submit a full report referred to in (k) in the document retention list on -

… the conduct and outcome of a promotional competition, detailing as a minimum-
(a) the basis on which the prize winners were determined;
(b) the summary describing the proceedings to determine the winners, including the names of the persons participating in determining the prize winners, the date and place where that determination took place and whether those proceedings were open to the general public;
(c) whether an independent person oversaw the determination of the prize winners, and his or her name and identity number;
(d) the means by which the prize winners were announced and the frequency thereof;
(e) a list of the names and identity numbers of the prize winners;
(f) a list of the dates when the prizes were handed over or paid to the prize winners;
(g) in the event that a prize winner could not be contacted, the steps taken by the promoter to contact the winner or otherwise inform the winner of his or her winning a prize; and
(h) in the event that a prize winner did not receive or accept his or her prize, the reason for his or her not so receiving or accepting the prize, and the steps taken by the promoter to hand over or pay the prize to that prize winner, and must record the name, identity number and contact details of the person compiling the report and the date thereof.

Many of these provisions and section 36 itself inform what should be contained in competition rules. These provisions should deal with a variety of issues including relevant dates, competition mechanics, prize details, communication channels and how and on what basis competition participants' personal information may be collected and used in the competition and for marketing purposes which may follow the competition's conclusion.

Its important to bear in mind that competition terms and conditions are contractual provisions and the document is an agreement between the promoter and the participant. These terms and conditions must be carefully prepared to ensure they are complete and comply with applicable law and legal requirements including the Consumer Protection Act’s plain language requirement. Another important consideration is that consumers acquire a right, protected by the Consumer Protection Act, to participate in a promotional competition when they -

• Comply with any conditions which must be satisfied to earn the right; or
• “[acquire] possession or control of the medium, if any, through which a person may participate in that promotional competition”

This right, like other consumer rights, is protected by the Consumer Protection Act which imposes certain restrictions on promoter's actions in relation to the competition itself and elsewhere in the Consumer Protection Act where consumers acquire rights. The fact that consumers acquire and may exercise rights, alone, is likely to have a profound impact on how the Consumer Protection Act is applied. These rights are explicit and are protected. Their explicit introduction has the potential to change our consumer oriented paradigms, which was probably the idea.

Zappon, coupons and the Consumer Protection Act

Zappon, a South African coupon site and competitor to the likes of Groupon and Wicount, launched this week to some excitement on Twitter. Coupons are pretty hot commodities these days and coupon site valuations have soared with Groupon famously being valued recently at $6 billion. The phenomenon is global and it is increasingly competitive. Zappon, an Avusa Limited initiative, is the latest entrant to the local market and a sizable one at that. It is backed by three of South Africa's most popular publications: the Sunday Times, the Times and the Sowetan.

Essentially, for those who haven't come across these sites before, these sites promote coupons offering discounts on products and services offered by third party providers. One example is an offer by popular restaurant JB's of R160 worth of food for only R50. There are a limited number of "zappons" (Zappon's name for a coupon) available and for a limited time period. Its all pretty exciting, particularly if you find an offer that is a great deal.

These offers are not made by the coupon site itself, but are rather made by the provider and communicated to the public by the coupon site. In a way, the service is fairly similar to the coupons people still cut out of newspapers or pick up in stores for specified items. What is new is how these coupons are marketed to the public and obtained.

With April looming, the Consumer Protection Act is very much on everyone's mind so one question that comes up in the context of these coupon sites is what the Consumer Protection Act has to say about them? Section 34 of the Consumer Protection Act deals with "Trade coupons and similar promotions". The section does not apply to franchise agreements, customer loyalty programmes, loyalty credits or promotional competitions. The Act does use the term "promotional offer" which means the following:

an offer or promise, expressed in any manner, of any prize, reward, gift, free good or service, price reduction or concession, enhancement of quantity or quality of goods or services, irrespective of whether or not acceptance of the offer is conditional on the offeree entering into any other transaction.

Essentially, the section requires providers to give consumers what the coupon promises and not to change the offer terms or introduce artificial constraints after the coupon is purchased. Like many provisions of the Consumer Protection Act and the Consumer Protection Act itself, providers are required to be fair and not mislead consumers. If a provider is going to make an offer, it must do so with the intention of fulfilling the offer on the terms communicated to the consumer.

When it comes to the coupon itself and communications regarding the offer's details:

Any document setting out a promotional offer must clearly state—

• the nature of the prize, reward, gift, free good or service, price reduction or concession, enhancement of quantity or quality of goods or services, or other discounted or free thing being offered;
• the goods or services to which the offer relates;
• the steps required by a consumer to accept the offer or to receive the benefit of the offer; and>
• the particulars of any person from whom, any place where, and any date and time on or at which, the consumer may receive the prize, reward, gift, free good or service, price reduction or concession, enhancement of quantity or quality of goods or services or other discounted or free thing.

In the JB's offer example I mentioned above, Zappon and JB's must take care to ensure that the copy on the Zappon offer page and the coupon itself set out all the requisite information mentioned above. When it comes to redeeming the coupon, JB's is obliged to offer the consumer precisely what it offers, namely "any food from the JB's menu, to the value of R160." The terms on the offer page limit the offer somewhat by excluding drinks, tips and require consumers to redeem the coupon for sit-down meals during a single visit and the participating restaurant appears to be the JB's Corner in Melrose Arch. The coupon further has a fixed time period within which it can be redeemed (between 28 March 2011 and 28 April 2011). The limitations are set out in a column prominently titled "Fine Print" which catches a visitor's eye.

The copy on the Zappon page doesn't contain all the information the Consumer Protection Act requires to be disclosed to the consumer. Some of this information (particularly regarding coupon redemption) is detailed in the site terms and conditions, and hopefully on the coupon itself. If not, this is obviously a deficiency Zappon would have to address (as would any other coupon site operating in South Africa). On a related note, the Zappon terms and conditions could use tweaking. The terms and conditions don't appear to comply fully with the Electronic Communications and Transactions Act and the privacy policy referred to in the terms and conditions doesn't appear to have been published yet (at least not as I write this on 22 March 2011) (Update: Derek Abdinor, one of the Zappon development team members, pointed out that the privacy policy is published and it is linked to in clause 11) does not have its own prominent link where a consumer would expect to find it at the bottom of the page. It should also be linked to earlier in the terms and conditions where it is referred to and not just in clause 11. This is more of a usability and accessibility issue which becomes important when the privacy policy isn't accessible alongside the terms and conditions where a consumer would probably expect to see a link (this paragraph was updated on 22 March 2011 at roughly 17:30 in response to feedback from the Zappon development team in the comments - thanks for the feedback!).

A consumer, redeeming the coupon, can expect to receive the same products or services he or she would receive were he or she obtaining those products or services in the usual way. In other words, and using the JB's offer as an example again, a consumer can expect to receive the same quality food when redeeming a coupon as he or she could when walking in and paying the usual price as a non-coupon redeeming customer. JB's must also make sure that it covers the demands of all the issued coupons or offers a reasonable replacement for items ordered where there is legitimately a supply issue of the items ordered. Again, the restrictions on the provider effectively require the provider to offer the consumer the same products or services it would offer a consumer using another form of tender. A coupon consumer should not have to contend with, for example, a smaller size pizza just because she redeemed a coupon giving her a discount on the meal.

One potential challenge could arise where the coupon site uses the term "voucher" instead of "coupon". I noticed a few instances of this on the Zappon site, both on the offer page and in the terms and conditions. The reason why this is potentially problematic is that the Consumer Protection Act distinguishes between coupons and vouchers. A voucher, as far as the Consumer Protection Act is concerned, is something more akin to store vouchers you may buy from a bookstore or shopping mall. Vouchers are alternate forms of tender, not necessarily discounted promotional offers such as the ones the coupon sites promote. One of the interesting features of a voucher is that the Consumer Protection Act states that a voucher only expires either when its full value is redeemed or after three years. That expiration term doesn't work well in the context of coupons and, in the interests of maintaining a clear distinction between vouchers and coupons, Zappon should change its references to vouchers to coupons. Unless its intention is to issue vouchers, of course.

Update: Kerry-Anne Gilowey from August Sun Projects was part of the team that developed the Zappon site content and she pointed out that Zappon actually makes both vouchers and coupons available on the site. Take a look at her comment to this post for more information.

While this post points out potential challenges, Zappon is the latest iteration of an exciting trend for consumers. Zappon and its competitors must ensure that they comply with the Consumer Protection Act, bearing in mind that they could be construed as the providers' agents in promoting these offers.