Sales promotions are an important tool in marketing. Consumers are often attracted to a ‘good deal’ or a ‘bargain’. Terms such as ‘50% off’ or ‘last days of summer sale’ grab consumers’ attention and as it turns out, not only consumers.
The New Zealand Commerce Commission (the regulator supervising New Zealand fair trading laws, among others) has recently written an open letter to New Zealand retailers. The purpose of the letter was to highlight the risks associated with sales promotions and pricing issues. Pricing concerns were responsible for the largest number of complaints to the Commerce Commission last year.
New Zealand’s Fair Trading Act 1986 prohibits a range of misleading and deceptive behaviours, including prohibiting making a false or misleading representation with respect to the price of any goods or services.
A number of risk areas were identified:
- Exaggerated discounts / ‘was/now’ discounts – this includes situations where the product was never (or has not been for a long time) at the price which it is advertised as being reduced from i.e. a $20 product is advertised as $10, being 50% off, however the product is never actually sold for $20, therefore the discount amount is exaggerated.
- Continual promotional pricing – continually selling products at a discounted price, giving a misleading impression that the promotional price is less than the price a consumer would normally pay.
- ‘Final days’ of a sale or ‘clearance prices’ – creating a misleading sense of urgency if in fact the sale is continuing or the price is not changing
- Limited stock at discount prices – advertising products on sale ‘from $10’ or ‘50% off’ when only a very small amount of products are actually at the price, or attract that discount.
- Contraventions of the Fair Trading Act can result in a number of enforcement measures, including fines of up to NZ$600,000 per breach for companies.
- Bike Barn was fined NZ$800,000 earlier this year after pleading guilty to 16 representative charges under the Fair Trading Act. Bike Barn had made representations that consumers were purchasing bikes at a significant discount from their retail price, which when investigated, only 30 out of 6000 bikes reviewed were sold at the ‘full retail price’. Bike Barn’s clearance sales and ‘final days’ marketing promotions also caused it problems with bikes often being the same price before and after the sale dates.
- Trustpower was fined NZ$390,000 for misleading advertising. Trustpower pleaded guilty to seven charges laid under the Fair Trading Act in respect of its advertising campaign for unlimited Broadband at a cost of $49 for 12 months. The main feature of this case was a heavily emphasised headline which was in fact extensively caveated by terms and conditions in the much smaller print. As it turned out, the offer was only available on a 24 months contract and the price increased to $79 a month in the second 12 months of that 24 months term contract, resulting in an average monthly cost of around $64 a month. There were also cancellation fees should a customer want to terminate within the 24 months. The advertisement took a number of forms, including TV, online and billboard advertising. While the statements made were technically true, the Judge commented that the way that they were presented was seriously misleading. Matters that were emphasised in the sentencing were:
- the disclaimers being in a much smaller and less prominent text than the headline message;
- no reference was made to the disclaimers in the voiceover;
- the disclaimers appeared while graphics of fireworks were going off on the screen which would have distracted consumers from attempting to read the fine print.
How to get it right
The Commerce Commission have provided a few tips in relation to pricing claims, specifically, that they should be:
- Accurate; and
Given the impact pricing often has on consumer habits, and prominence of claims relating to prices and sales in marketing campaigns, this is likely to be an area where we will see a few more cases yet. Careless retailers can end up finding out that the regulator has got a very bad deal lined up for them! Written by Julika Walhmann-Smith, first published in the Gala Gazette, 2nd August 2017.