The $800,000 fine issued to Bike Barn in February for misleading advertisements apparently hasn’t deterred Kiwi retailers from continuing to sail close to the wind when it comes to dodgy discount sales advertising and price promotions. The situation is so concerning that the Commerce Commission has issued an open letter warning retailers to comply with the law.
In the open letter, the Commerce Commission says pricing concerns were the largest source of consumer complaints to the Commission in 2016. It acknowledges the importance of discount sales in attracting consumers, and that these sales can create value for consumers by driving competition, but notes that inaccurate price claims and exaggerated discounts are unfair to consumers and other retailers.
Pricing, discounting and other advertising and promotional practices are a current area of focus for the Commerce Commission’s compliance team.
A range of concerning pricing practices it has noted include:
- Exaggerated discounts: giving consumers the misleading impression that they are getting significant discounts from usual selling prices when in fact the items have never sold, or do not normally sell, at the price which is being compared with the advertised discounted price.
- ‘Was/Now’ discounts: giving consumers the misleading impression that items had been offered at a previous price, and are now being offered at a lower price when in reality, the items have never sold, or do not normally sell at the price advertised as the previous price.
- Continual promotional pricing: continually selling products at an advertised promotional price giving consumers the misleading impression that the promotional price is less than the price they would usually pay. If a business continually sells a product at a promotional price then the promotional price becomes the usual selling price.
- Fine print: giving consumers the misleading impression that the advertised price is the total price they need to pay for the good or service when additional unavoidable charges must also be paid and they are contained in the fine print.
- A sale is in its ‘Final days’ or items are at ‘clearance prices’: creating a sense of urgency for consumers to act to get the discount, when in fact the items continue to be offered at the same price after the ‘final days’ or ‘clearance sale’ finishes.
- Limited stock at discount prices: using ranges which give consumers a misleading impression that a promotion is more attractive than it is. For example, claiming goods are on sale “from $9.99” or have “up to $50 off”, when only a small proportion of goods are on sale at $9.99 or have $50 off.
Companies found in court to have breached the Fair Trading Act 1986 can be fined up to $600,000 for each breach, and an individual up to $200,000. Repeat offenders can have their directors and managers banned from managing any company for a period of up to 10 years.
The Commerce Commission advises retailers to stay within the law by avoiding any misleading marketing claims. Any claims a business makes about price must be clear; accurate, with no exaggerations; and unambigious, with fine print kept to a minimum.
More information is available from the Commission’s fact sheets: