As our industry deals with increasingly difficult lead generation and closing concerns, we see more of our clients using the “free gift” concept in the home. A tried-and-true marketing concept, the free gift is generally used in our business to mean the contractor is giving something of value (such as a coupon, a free camera) to a prospective customer and, in exchange, the contractor is able to demonstrate the product, conduct a sales presentation, or close the sale.
However, many states restrict or even prohibit the use of gifts during the sale process or in order to get a consumer to listen to a sales pitch. As with most issues in our industry, it’s important to understand the laws of the state or states in which you are selling before you try to use the free-gift structure.
In Maryland, for example, a contractor is allowed to give the consumer a gift in order to make a sales presentation but only if the gift does not cost the contractor more than $25. On the other hand, Maryland strictly prohibits the contractor from giving the consumer any gift at all if the gift is an enticement to actually enter into the home improvement contract. In other words, be careful how you use the free gift in Maryland.
Similarly, in New York City, the Administrative Code makes it illegal for any contractor to give a homeowner a gift as an inducement to enter a home improvement contract. N.Y.C.’s Department of Consumer Affairs (DCA) likes to hand out the maximum statutory fine of $1,000 for each advertisement it finds that violates this law. For example, if you advertise a “Buy 1 window, get 1 window free” deal in New York City, be aware that the DCA will argue (if they catch you) that on every sale you made while that ad was running, you violated the statute — $1,000 for each sale.
Many times, a state’s prohibition on the use of free gifts can be complied with, but effective advertising can still be structured to accomplish the goal of increased lead generation. For example, the better way to structure the New York City sale is to change the deal to “Buy 2 windows, get 50% off.” Same result, but no $1,000 fine.
—D.S. Berenson is the Washington, D.C., managing partner of Johanson Berenson LLP (www.homeimprovementlaw.com), a national law firm specializing in the representation of contractors and the home improvement industry. He may be reached at firstname.lastname@example.org.
This article is for informational purposes only and should not be construed as legal advice.