Retail is an industry with a lot of detail, and it can be tempting to lose track of the fine print when you’re focused on the day-to-day realities of running a business. However, misleading your customers on product, pricing or their rights; selling unsafe goods, or selling illegal goods can result in serious consequences.
Last year, Bike Barn’s joint operators Bike Retail Group and Bikes International were given one of the largest fines ever handed down under the Fair Trading Act in New Zealand: $800,000. The two firms pleaded guilty to 16 representative charges brought by the Commerce Commission regarding marketing and sales conduct between 1 July 2013 and 30 June 2015. The conduct amounted to the use of misleading pricing strategies.
“Bike Barn used exaggerated discounting strategies that gave the impression to customers that they were purchasing bikes at significant mark-downs from the normal retail price – typically 50 percent off. It also advertised clearance specials that created an impression that the discounts were available for a limited time only,” Commerce Commissioner Anna Rawlings said.
“Neither was true. In fact, the discounted prices were Bike Barn’s usual selling prices. Out of nearly 6000 bike sales we analysed during our investigation, only 30 were sold at the so-called full price.”
Bike Barn also created a misleading sense of urgency for customers by incorrectly implying discounting would soon end with clearance sales and “final days” wording in its advertising. The products advertised were commonly available at the same price before and after these advertised sales.
Other illegal pricing strategies include: hiding extra charges in the fine print, stretching out sales with continual promotional pricing strategies, and drawing customers in with deep-discount marketing when in fact only a small proportion of goods are offered at that discount.
Rawlings says dodgy pricing practices are not only unfair to customers, but to other retailers who play by the rules and offer a fair deal.
“Consumers look out for sales and we know that sales can drive competition among retailers and value for consumers. However, when price claims are not accurate and discounts are exaggerated, consumers do not get the ‘bargain’ they believed they were getting. It is also unfair to other retailers who are offering genuine special prices and pricing their goods accurately.”
The Commerce Commission has released a video titled ‘Back it up’ aimed at helping retailers avoid mistakes like Bike Barn made and the resulting fines by complying with the law.
Besides misleading pricing strategies the video guides retailers on how to avoid making misrepresentations of consumers’ rights, misleading claims about products, selling unsafe products, and selling banned or illegal goods.
“As we say in the video, all the claims businesses make must be accurate, and they must be able to back them up. That’s especially true if they’re claims that consumers can’t check for themselves,” says Rawlings.
The video begins by explaining “unsubstantiated representations”. These are claims a retailer doesn’t have reasonable grounds to make at the time they make them – they can’t be backed up. Unsubstantiated representations are prohibited under the Fair Trading Act with effect from 2014.
“For example, if you’re selling free range eggs or organic chicken, or making similar claims, don’t just use those words,” Rawlings says. “Make sure you can back them up with facts from credible sources, such as from an independent certifier. The best proof might be to track the product back to the factory, but at least, retain records to show what you ordered and were promised.”
Other retailers who’ve recently been warned, had charges filed or been taken to court by the Commerce Commission include: Noel Leeming, which this year had charges filed against it for allegedly misrepresenting consumers’ rights; a solar panel retailer named New Zealand Home Services, which was warned for making unsubstantiated representations about the financial benefit of its products; and The 123 Mart, which ultimately went into liquidation as a result of fines incurred after it repeatedly breached product safety standards for children’s toys and nightwear.