Referrer beware: proceed with caution when contemplating "refer a friend" promotions

Businesses are increasingly harnessing the power of "refer a friend" or "send to friend" campaigns to implement viral marketing strategies and to create a database for use in future campaigns. These campaigns can be an effective form of marketing to increase customer engagement, but there are potential pitfalls you must avoid.

What is a "refer a friend" campaign?

In a "refer a friend" promotion, businesses seek to entice customers or website visitors to provide the contact details of their friends, to whom the business then directly sends, or causes to be sent, marketing material.

"Refer a friend" promotions can take several forms, but are typically conducted by either:

• providing a facility for individuals to submit the contact details of their friends for the purpose of those friends receiving information about a business' campaign or promotion; or
• inviting individuals to forward a message, link or other material about the campaign or promotion to their friends.

In most cases, businesses provide an incentive for the individual to distribute the information. For example, the individual may receive an additional entry into a competition, or a discount on their next purchase, or a finder's fee if the referred friend becomes a customer.

Problem No. 1: the Spam Act

Under the Spam Act 2003 (Cth), businesses can only send "commercial electronic messages", such as emails or SMS messages, which meet three conditions.  They must:

• be sent, or caused to be sent, with the consent of the recipient;
• identify the sender; and
• include a functional unsubscribe mechanism.

A key challenge with "refer a friend" campaigns is the need to demonstrate that the friend has consented to being contacted by the business before being contacted via an electronic message. The difficulty is that a business cannot assume that the person has consented to being contacted simply because that person’s friends or family members have given the business that person’s contact details, or have sent a link to webpages to the person.

For example, in December 2012, Australian Communications and Media Authority (ACMA) issued a formal warning to McDonald's Australia Limited over its "send to friends" facility on its Happy Meal web-page. The promotion encouraged visitors to email links for McDonald's-themed games and activities to friends of users. ACMA's view was that McDonald’s had caused those messages to be sent by providing the facility, in circumstances where ACMA was not satisfied that the recipients of those messages had consented to receiving the messages. The messages were also sent without an unsubscribe facility, contrary to the requirements of the Spam Act.

Compliance issues are important. Financial penalties for breaches of the Spam Act are significant and the maximum penalties for ancillary liability are the same as those for direct liability. Repeat offenders, however, will be more severely penalised, with organisations liable to pay up to $1.8 million per day.

Problem No. 2: the Privacy Act

Additionally, "refer a friend" campaigns contemplate the collection and handling of personal information by businesses, such the friend's name, address, date of birth, telephone number, being information that can be used reasonably to ascertain the identity of an individual. As such, most businesses will be required to ensure that they comply with the Australian Privacy Principles under the Privacy Act 1988 (Cth). Particular attention should be paid  to APP 7, which requires that, where a business has collected personal information about an individual from a third party, the business may only use or disclose that personal information for the purpose of direct marketing if:

• either the individual has consented to the use or disclosure of the information for direct marketing or it is impracticable to obtain that consent;
• the business provides a simple way of opting out of direct marketing, such as an unsubscribe facility;
• in each direct marketing communication, the organisation includes a prominent statement that the individual may make a request to opt out of direct marketing or otherwise draws the individual's attention to the fact that he or she may make such a request; and
• the individual has not already requested to opt out of direct marketing from the organisation.

Civil penalties for breaches of privacy principles which are serious and repeated can include a financial penalty of up to $360,000.

Problem No. 3: Do Not Call Register

The Do Not Call Register Act 2006 (Cth) prohibits the making of telemarketing calls to personal telephone numbers listed on the Do Not Call Register, which is a secure database where individuals and organisations can register, check or remove their Australian telephone, mobile and fax numbers to opt out of receiving most unsolicited telemarketing calls. Any businesses engaging in direct marketing should always check the Do Not Call Register before disseminating information.

What you need to do to make your "refer a friend" campaign a (legal) success

To avoid being viewed as spam or breaching other legislation, there are a couple of ways in which businesses can structure their "refer a friend" campaigns.

One option suggested by ACMA is for the marketing material to contain a tick box next to a statement such as "I have the consent of my friend to send them this message from me" or "I have asked my friend if they wanted this referral and they agreed to receive it." However, if the customer or website visitor is mistaken in believing that the friend has consented to being contacted by the business, there remains a risk that the business will have inadvertently breached the law.

A safer option is to structure a  "refer a friend" marketing campaign so that referring customers or website visitors are provided with a promotional code, which they can be pass on to friends and which those friends can choose to use when signing up with the business.

In all cases, businesses must ensure that the direct marketing material includes a functional unsubscribe facility to allow the recipient to opt-out of receiving messages from that source in the future. The unsubscribe request must be honoured within five working days.

Include clear and accurate information about the person responsible for sending the commercial electronic message. On receipt of the forwarded marketing communication it must be clear to the end recipient that the message has been sent by the existing contact (not the business). This could be achieved by ensuring the "from" field of the message shows the name and contact details of the existing contact.

Include clear and accurate information about the person responsible for sending the commercial electronic message. On receipt of the forwarded marketing communication it must be clear to the end recipient that the message has been sent by the existing contact (not the business). This could be achieved by ensuring the "from" field of the message shows the name and contact details of the existing contact.

It is also worthwhile having terms and conditions for your "refer a friend" campaign, which include, amongst other things, a statement to the effect that:

• your business discourages spamming;
• the referrer must only send referral messages to close family and friends and other individuals with whom they have a close relationship; and
• (if adopting the tick box consent approach) the referrer must ask the friend or family member for their permission to send them an email or SMS about your business' marketing campaign and that sending emails or SMS to people without permission is considered spam.

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