Gift-Card Monte

Psst. Hey, Bud. Want a free $500 Target gift card? How about a $250 Victoria’s Secret card? Or a $100 card for Toys ‘R’ Us, no charge?

Just fill out this consumer survey. Oh, and this one. This one, too. And then you’ll have to sign up for two of these six credit cards. And four of these magazine subscriptions. Don’t worry, they’re refundable. Now, can you get three friends to sign up too?

Welcome to the wonderful world of incentive-based lead generation, where everything is promised, very little is actually delivered, and the word “free” always comes with an asterisk. It’s a place that lures consumers with the power of big brand names, and then — by design — sends the great majority of takers away disappointed, frustrated and possibly angry.

These lead-gen schemes initially used small electronics and mobile phones as bait. But the last holiday season saw a flood of e-mail, online banners and search ads offering a new category of incentive: high-dollar gift cards from well-known retailers which are in no way associated with the spammers or questionable advertisers.

That changes the game because consumers tend to complain sooner to retailers than manufacturers. After all, thousands of customers probably haven’t filed complaints with Apple because they failed to qualify for a free music player after clicking on “iPods 4 Free!” But disappoint enough seekers of a “free” Wal-Mart gift card promised by some unaffiliated company, and the phone lines can heat up in Bentonville, AR.

Using retailer names in lead-gen campaigns at the holidays is even more problematic, since many customers may already be shopping at these merchants and could be expecting to receive official e-mail from them.

The threat to these stores’ brand equity seems real. Yet the merchants contacted for this story chose not to speak. Maybe they’re hoping the problem will just go away, or that regulatory pressure will rein in incentivized lead generators. But both those hopes might be dashed.

The extent of damage to brands from this is hard to measure or confirm. Retail brands declined to take part in this article, and of course incentivized lead generation can be done properly. But the possibility for harm exists and should be monitored.

NUISANCE OR REAL PROBLEM?

In 2005, Wal-Mart was fed up enough to sue online marketing platform ValueClick when that company’s lead-gen division offered “free” $500 Wal-Mart gift cards.

The retail giant stated that ValueClick was abusing its intellectual property and customers complained when the premiums didn’t show up. ValueClick countered that the card it depicted in the offers was distinct from Wal-Mart’s and that the copy specified that the retailer was not associated with the promotion.

The case was settled in 2006, on terms neither party has disclosed.

Meanwhile, incentivized lead generation has proliferated because it’s human nature that people generally will want something for nothing.

When the Internet was young and the lead-gen business relatively uncrowded, the mission was to get people to give up their contact info for a consumer item typically worth less than $25.

Those days are gone. To cut through the mailbox and cyber clutter, lead-gen marketers have upped the ante with DVD movies to Razr phones and iPods to even bigger-ticket items. Offers for flat-screen HDTVs and Sony laptops are now common. And the retailer gift-card valuations have kept pace, with offers for $1,000 gift cards not uncommon.

The costlier the offers, the less lead-gen companies can afford to fulfill them, of course. So where companies once were content to have half or two-thirds of their applicants drop out on the way to qualifying for a premium, these new high-stakes offers require that the chances of completing the process and earning the gift be slim indeed.

That’s done through roadblocks in the qualifying process known colloquially as “breakage.” While different lead-gen companies impose varying levels of difficulty, it’s not unusual to see — in very small print — that in order to get your free gift, you need to:

1. Register with valid information.

2. Complete the user survey.

3. Complete at least two silver, four gold and six platinum offers.

4. Refer one unique household that also completes these requirements. Purchase may be required.

Purchase may indeed be required — most likely more than one. And those purchases probably will involve entering credit card data. Registrants are often faced with a time limit for completing offers and a further requirement that the lead-gen company must “certify” the completed offers.

ONE IN 1,000

Lead generation can be done properly with incentives. Both the Direct Marketing Association and the Interactive Advertising Bureau have produced guidelines for best practices. But the most aggressive companies in the field disseminate campaigns that come dangerously close to deceptive advertising, putting at risk the equity of the brands they piggyback on.

Jere Doyle is CEO of Prospectiv, a digital marketing company that does lead generation offers for big brands. His company doesn’t use incentives, and its premiums are more likely to be cents-off coupons on Pampers, but he’s conferred with other entrepreneurs whose ventures depend on dubious incentives.

“I’ve asked them, ‘How many of these applications do you wind up fulfilling?’” Doyle says. “And the answer I got was one in 1,000. That’s a lot of frustrated people.”

Not to mention irritation over more spam. Many incentivized lead generators resell the personal data they acquire to third parties. So registrants can find themselves both prize-less and buried in a blizzard of unwanted e-mail.

“In a way these companies don’t mind if you drop out of the registration process without taking the offers from their sponsors,” says Frederick Felman, CMO for MarkMonitor, a brand protection service. “If you enter your e-mail [address] on the first page and enter your personal data on the next, they’ve got you on their list. They’re able to make money off you.”

ALL ABOUT IMPRESSION

Do brands such as Wal-Mart, Visa, and Victoria’s Secret have any legal obligation when they’re linked to such unauthorized offers? Not at all. Most of the incentive lead companies are careful to state on their home pages that they have no affiliation with the offered brands.

On the other hand, that disclaimer is displayed in very small type at the bottom of the offer. Meanwhile, the marquee names usually are noted prominently near the top. If the offer comes via e-mail, those big brand names are sure to show up in the subject line to give the message a better chance of being opened. After all, it’s the drawing power of a Target or a Toys ‘R’ Us that gets the e-mail opened.

One Promo staffer received an offer from SurveyRewardsCenter.com for a $1,000 Target card that purportedly mailed from “Target Center.” In fact, the message came from a domain entirely unrelated to the retailer. Although the e-mail disavowed any connection with Target, that only became apparent far down the offer in exceedingly small type.

“These brands spend millions of dollars to create connections with consumers,” says Joe Broumand, co-founder and president of Opt-Intelligence, a lead-generation company that avoids incentives in favor of opt-in promotional offers. “And then for free, and in most cases fraudulently, those brand names are being used to lure people in to provide personally identifiable information.”

PROSECUTE, THEN SETTLE

Last year, federal and state regulators seemed poised to come down hard on lead-generation practices. The Federal Trade Commission and the Florida Attorney General were known to be assembling cases against several companies for their lead-gen tactics. And in May 2007 ValueClick revealed that it was under an FTC investigation. The news drove publicly held ValueClick’s stock price down 40% between May and September.

But that legal threat seems to be dissipating in a puff of settlements and small-scale fines. Last November Florida Attorney General Bill McCollum announced deals with AzoogleAds and another just last month with World Avenue. Without admitting wrongdoing, each company agreed to pay a $1 million fine to the state’s cyberfraud task force for misleading consumers with lead-gen offers of “free” merchandise and to amend their offers to read “free with purchase.” Meanwhile, ValueClick says it expects to reach a settlement with the FTC soon, and its financial rating has been upgraded.

“Regulators are concentrating on the easiest legal issue, the question of whether these premiums really are free,” says Doyle. “But they’re not addressing two other important issues: the standards for collecting and sharing consumers’ personal data, and the fact that the system is basically designed to make people fall out.”

The Online Lead Generation Association, an industry group founded by Opt-Intelligence CEO Dan Felton in 2005, is considering asking the brands involved in the promotions to get more aggressive about protecting their names. Such a task force would monitor incentivized lead-gen offers, note the URLs used and the brand names involved, and present that data to the trademark owners.

“These companies have lots of legal resources, and this information would make it pretty simple to send cease-and-desist letters or even to bring suit,” says Broumand. “I have to think Apple, Sony and Target would want to do that. These practices can’t be good for their brand equity.”