In the race to gain market share, businesses need to succeed at two vital tasks: keeping their existing customers and attracting new ones.
The Internet has facilitated both tasks by providing businesses with tools to reach out to existing and potential customers. One tool that allows a company to accomplish both tasks simultaneously is a friend-referral program.
At first, friend-referral programs and similar tools were limited only by customer connectivity and a company’s ingenuity in implementing them.
Now, the effectiveness of these tools is continually affected by the ever-growing body of state and federal statutes and regulations that govern how companies collect, manage and use customer information. Because these laws are relatively new – and because they tend to trail developments in the technologies they seek to regulate – it is often hard to determine how a company’s business practices fit into a particular regulatory framework.
Friend-referral program basics. Friend-referral programs take several forms, but they almost always provide existing customers with some incentive to provide a friend’s e-mail address to the business operating the program. The nature of these incentives varies greatly and might include additional entries in a promotional sweepstakes or even a finder’s fee if the referred friend becomes a customer.
Similarly, what the collecting business does with these e-mail addresses also varies. As soon as the customer submits a friend’s e-mail address online, the collecting business’ Web site automatically sends an e-mail to the friend announcing the company’s products or services.
An increasingly popular variation of the friend-referral program is the e-mail this page to a friend feature. This allows site visitors to e-mail the contents of a Web page to a friend directly from the page. In both cases, the return address on the e-mail message is the e-mail address of the customer, while the content of the message is usually from the company (especially the Web page message).
The traditional friend-referral programs and the new e-mail this page to a friend features are effective because they permit collecting businesses to use existing customers to leverage the task of attracting new customers. Because friends often have similar interests, the names of an existing customer’s friends are great marketing assets. Some companies find friend-referral programs so successful that they base entire business models on this protocol.
Since friend-referral programs require sending e-mail messages to potential customers where there is no pre-existing relationship between the collecting business and the potential customer, responsible companies must reconcile their friend-referral programs with the growing patchwork of laws governing unsolicited e-mail messages.
Overview of anti-spam laws. At least 17 states have enacted laws that regulate the transmission of unsolicited e-mail messages. These statutes generally require the unsolicited e-mail messages to contain a valid return address and to provide recipients with a mechanism by which they can request not to receive further communications from the sender. Failure to honor such requests can lead to monetary penalties in many states. Some statutes set additional requirements and specify, for example, that the subject line of the unsolicited message must contain the letters ADV to alert recipients that the body of the message contains an advertisement.
Many of the unsolicited-e-mail statutes specifically regulate the types of messages that typically come to mind when a person hears the word spam, such as unsolicited e-mails that are sent out by a company in bulk for the specific purpose of advertising a product or service.
Some statutes, however, define the term more broadly. In Louisiana, a message is sent in bulk if it is sent to more than 1,000 recipients. In Idaho, a company need only send a message to two recipients contemporaneously for it to be considered bulk. Some states, such as Nevada, do away with the concept of bulk and deal with “item[s] of electronic mail that include an advertisement.”
Though there is no federal law regulating unsolicited commercial e-mail messages, one of the first bills introduced during the current session of Congress would do just that. House Resolution 95, recently reintroduced by Rep. Heather Wilson, R-NM, would require senders of such messages to clearly and conspicuously identify that the message is an unsolicited advertisement and to provide recipients with a mechanism by which they can opt out of receiving further messages. Failure to adhere to these requirements could result in action by the Federal Trade Commission or lawsuits filed by Internet service providers or the recipients of unsolicited messages.
Are messages sent through friend-referral programs spam? Given the scope of some of these statutes, is it possible that an e-mail message sent through a friend-referral program could be considered spam?
Though it is too early to tell how aggressively regulators will enforce these statutes, it is conceivable that some regulator could make such an argument. The company sponsoring the program has played a part in the transmission “of electronic mail that includes an advertisement.”
Most anti-spam statutes provide exceptions for e-mail messages sent between individuals with a personal relationship and for messages sent by a company to an individual with whom it has a pre-existing business relationship.
Because it is the customer (and not the collecting business) supplying the e-mail address and initiating the transmission, the relationship between the sender and the recipient probably removes the message from the definition of spam. The key to avoiding regulations under the state spam laws is to make certain that the individual supplying a friend’s e-mail address knows that this activity will result in an e-mail being sent to the friend.
Problem solved? This analysis should apply only when the collecting business clearly discloses that when the customer submits a friend’s e-mail address or e-mails a Web page, the friend will receive an e-mail message. Under this scenario, the customer will knowingly have sent an e-mail to his friend, thereby avoiding regulations under state spam laws.
Without an appropriate disclaimer to the individual supplying the e-mail, it could be difficult to argue that the customer, rather than the collecting business, sent the e-mail. Assuming there is no pre-existing relationship between the collecting business and the friend, the message probably would be considered spam in some states and thus would trigger statutory requirements.
Follow-up e-mails from the collecting business. While the initial message sent under a properly constructed friend-referral program is probably not spam, this conclusion may not be true for subsequent e-mail messages sent by a collecting business. Since subsequent messages are not sent at the customer’s request, they will not be covered by the personal relationship exception as the initial message was.
Unless the referred friend initiated contact with the collecting business in the interim, it is likely that the collecting business does not have a pre-existing business relationship with the friend as most statutes define that term. Under these circumstances, subsequent or follow-up messages to the friend could be considered unsolicited commercial e-mail messages and thus must comply with state spam laws.
Reconciling friend-referral programs with a collecting business’ privacy policy. Friend-referral programs also raise issues from a privacy standpoint. When a person visits a Web site and decides to submit his e-mail address, a responsible Web site will allow the visitor to review its Web site’s privacy practices before the visitor submits any information.
Friend-referral programs tend to bypass, and sometimes prevent, this opportunity, at least for the referred friend. The referring person, rather than the referred, makes the choice to give the collecting business possession of his friend’s e-mail address. Nevertheless, the information is gathered online and its use and any sharing of it with third parties must be addressed in the collecting company’s privacy policy.
Also, the e-mail sent by the collecting company to the friend should contain a prominent link to its privacy policy. As public sensitivity to privacy issues swells, it is arguable that a collecting business’ sincere effort to treat friend e-mails as the favors they are will positively affect friend-referral program usage.
Friend-referral and e-mail this page to a friend programs can be valuable assets to a company. Not only are these programs cost-effective ways of finding potential customers, but they also can strengthen relationships with existing customers and increase Web site traffic. Noncompliance with new laws, however, can turn these assets into liabilities and lead to both lawsuits and negative publicity. It is important that companies keep apprised of legal and regulatory developments and ensure that their practices are in compliance.
