Businesses must be careful when advertising “was/now” prices or pay the price

16 December 2019

Four furniture retailers pay the price

The Australian Competition and Consumer Commission (ACCC) has issued an infringement notice to four furniture retailers following an investigation into their use of “was/now” price comparisons in their advertising.

The ACCC determined that there were reasonable grounds to believe that four retailers had made false or misleading representations to customers by stating they would save money on particular pieces of furniture which were not accurate.

The retailers that received the infringement notice were Plush – Think Sofas Pty Ltd, Koala & Tree Pty Ltd (trading as Koala Living), ESR Group Holdings Pty Ltd (trading as Early Settler) and Oz Design Furniture Pty Ltd. Each retailer paid a fine of $12,600.

What is “was/now” pricing?

Two-price comparison advertising is often used by businesses to demonstrate the difference between prices they are charging for a product compared with a previous price for that product (for example, “was $300/now $200” or “$300 now $200). This approach is also referred to as “dual advertising” or “strikethrough” pricing.

“Was/now” advertising is permitted, provided that such claims do not mislead customers about the savings they may achieve. Some key factors in determining whether the advertising is false or misleading are:

  1. Whether the goods were previously offered for the “was” price;
  2. How long the goods were offered at that price, and whether that was a reasonable period of time before any reduction in price or sale of the goods; and
  3. Whether customers would actually achieve a saving.

What is considered to be a reasonable period will vary depending on the circumstances of each case, the type of product that is being sold, the market and the nature and frequency of price changes in the specific industry.1

What did the four furniture retailers do?

The retailers made claims such as “was $2599, now $2049”, and “$799, save $200” in their advertising, when the piece of furniture had never been advertised at the higher price, or had only been advertised at the higher price for a short period of time.

One of the retailers advertised a ‘Roller Ottoman’ at a price of $539 with the words ‘save $360’, even though it was available for $449 directly before the sale, while another retailer advertised an occasional chair with the words ‘$799, save $200’, when its usual price for the previous six-months was $699, $100 cheaper than the sale price.

ACCC Commissioner Sarah Court emphasised the importance of customers being able to rely on comparative pricing. She noted that “if there are no genuine savings, businesses are misleading customers”2.

Zamel’s Case

In a 2013 case, The Jewellery Group Pty Ltd (Zamel’s) v Australian Competition & Consumer Commission,3 the Federal Court ordered Zamel’s to pay a penalty of $250,000 for misleading customers regarding savings made on 44 jewellery items. This decision followed action brought by the Australian Competition and Consumer Commission.

It was held that Zamel’s had engaged in conduct which was misleading or deceptive, or was likely to mislead or deceive customers and contravened Australian Consumer Law (at the time, sections 52 and 53(e) of the Trade Practices Act 1974 (Cth) which has now been replaced by sections 18 and 29(i) of the Australian Consumer Law (ACL)).4

In the Zamel’s case, the retailer used “was/now” pricing in some of its catalogues by striking out the higher prices with a line, and placing the lower price in larger and heavier typeface in other catalogues. In the period leading up to the relevant catalogue sale periods, the 44 items of jewellery were sold either not at all, or only in very limited numbers, at the “was” or “strikethrough” price. In addition, Zamel’s had adopted and implemented a price negotiation policy, under which its representatives were authorised to sell items of jewellery at prices less than the “strikethrough” price that appeared in the relevant catalogue and that an ordinary or reasonably unaware customer would not have purchased at the “was” or “strikethrough” price if the items has been purchased before the sale period.5

The Court noted that there had been so few sales made at the “was” or “strikethrough” price which indicated that almost all customers, whether aware or unaware, would have purchased the particular item for less than the “was” or “strikethrough” price.6 The savings representation was held to be false as the “was” or “strikethrough” price was rarely paid by a Zamel’s customer7 and thereby Zamel’s engaged in conduct that was misleading and deceptive or, at least, likely to be misleading or deceptive.8

Lessons to retailers

Businesses must ensure that statements relating to price comparisons are not misleading about the savings that a customer may achieve. If a retailer is planning to use comparison pricing in its business advertising materials, it should consider the following:

  1. Has the product previously been offered for sale at the “was” price?
  2. Did your customer have a reasonable opportunity purchase the product at the “was” price?

If the answer is no to either or both of the above questions, careful consideration should be given and legal advice should be sought to ensure the advertising materials are compliant with the ACL. The same careful consideration should be applied to any percentage discounting on any products (for example, 50% off).

It is also important that businesses only have discounted prices or “sales” for goods for a limited time. If a product is on sale for a longer than a reasonable period of time, the discounted price will effectively become the new selling price and therefore it may be misleading to label it a discount.9

Any claims made by a business in relation to savings that a customer may have the benefit of must be accurate and based on a “before” price which has been offered for a reasonable period when using comparison advertising.

Penalties

Businesses that fail to comply with the ACL may suffer penalties. The ACCC may issue an infringement notice for an alleged contravention of the ACL as an alternative to proceedings for an order for the payment of a pecuniary penalty.10 The ACCC may issue an infringement notice where it believes there has been a contravention of the ACL that requires a more formal deterrent but where the ACCC considers that the matter may be resolved without legal proceedings.11

The ACCC can issue an infringement notice where it has reasonable grounds to believe a person or a business has contravened certain customer protection laws.12 The penalty amount in each infringement notice will vary, depending on the alleged contravention, but in most cases is fixed at:

  • $12,600 for a corporation (or $126,000 for a listed corporation); and
  • $2,520 for an individual,

for each alleged contravention.

The ACCC may take legal action where, having regard to all the circumstances, it considers that litigation is the most appropriate way to achieve its compliance objectives.13 The penalties for making false or misleading representations under the ACL are not more than $500,000 for individuals and for corporations, the penalty will be the greater of:14

  • $10,000,000;
  • three times the value of the benefit received; or
  • 10% of annual turnover in preceding 12 months, if court cannot determine benefit obtained from the offence.

This article was written by Teresa Torcasio, Partner and Ruth Trevenen-Williams, Solicitor.


1 https://www.accc.gov.au/consumers/prices-surcharges-receipts/price-displays.
2 https://www.accc.gov.au/media-release/furniture-chains-pay-penalties-for-making-alleged-misleading-was-now-price-claims.
3 The Jewellery Group Pty Ltd v Australian Competition & Consumer Commission [2013] FCAFC 144.
4 The Jewellery Group Pty Ltd v Australian Competition & Consumer Commission [2013] FCAFC 144, [1]
5 The Jewellery Group Pty Ltd v Australian Competition & Consumer Commission [2013] FCAFC 144, [37].
6 Australian Competition and Consumer Commission v Jewellery Group Pty Limited [2012] FCA 848; 293 ALR 335, [151].
7 The Jewellery Group Pty Ltd v Australian Competition & Consumer Commission [2013] FCAFC 144, [29].
8 Australian Competition and Consumer Commission v Jewellery Group Pty Limited [2012] FCA 848; 293 ALR 335, [152].
9 https://www.accc.gov.au/business/pricing-surcharging/displaying-prices.
10 Competition and Consumer Act 2010 (Cth), section 134(1).
11 https://www.accc.gov.au/system/files/2019%20Compliance%20and%20Enforcement%20Policy%2019%20February.pdf.
12 Competition and Consumer Act 2010 (Cth), section 134A.
13 https://www.accc.gov.au/system/files/2019%20Compliance%20and%20Enforcement%20Policy%2019%20February.pdf.
14 Competition and Consumer Act 2010 (Cth) schedule 2, section 151.

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