By DVM Law - POPAI legal partner
When sales season rolls around, businesses will look to catch the wandering eyes of customers with flashy advertising promoting their product discounts. But advertisers developing “price-cut” or sales campaigns need to make sure the strategy does not backfire and result in unwanted attention from the Australian Competition and Consumer Commission.
A common sales tactic is ‘was/now’ or ‘strikethrough’ pricing, where a business makes comparisons between the new discounted price for a product and the old, higher price. Usually, the old price appears with a strikethrough to indicate that the product is now cheaper. For example: “$250 $100” or “Was $250 Now $100”
‘Was/now’ or ‘strikethrough’ pricing campaigns create a sense of urgency by representing to consumers that they will make savings on the product (i.e. the difference between the old and new price) if they buy the product during the sale period. However, many brands have fallen into the trap of exaggerating the extent of the savings. This can lead to breaches of sections 18 and 29(1)(i) of the Australian Consumer Law, which deal with misleading or deceptive conduct and false or misleading representations with respect to the price of goods.
When designing a was/now campaign, the key issues to consider are:
Would consumers have paid the “was” price or the “strikethrough” price for the product for a reasonable period of time immediately before the sale commenced?
Advertisers need to ensure that the ‘was’ price accurately reflects the price that consumers would have paid before the campaign. This could be difficult to prove, especially in businesses where discounts are frequently offered, and consumers rarely actually pay the listed ‘was’ price. It is recommended that businesses keep clear records to substantiate the ‘was’ price through a history of recent actual transactions, proving that consumers paid the ‘was’ price for a reasonable period.
What constitutes a “reasonable” period?
Determining how long a company needs to have sold its goods at the ‘was’ price will vary from case to case, depending on the type of product or market involved and usual frequency of price changes for that product or in that market. Generally speaking, a shorter period of time is more likely to be ‘reasonable’ if there has been a high volume of actual sales. In most circumstances, a period of several months would be considered to be the minimum.
Proceeding with a ‘was/now’ campaign without a verifiable history of sales is a risky path, and legal advice is recommended before proceeding to avoid creating misleading advertisements.
What if I get it wrong?
Was/now pricing claims have been well litigated and there is a body of case law where such claims have been found to misleading. For example, in ACCC v Jewellery Group Pty Ltd  FCA 848, the Federal Court (and later the Full Federal Court) found that Jewellery Group Pty Ltd (Zamel’s) had made false or misleading representations through the use of was/now pricing in catalogues, as the relevant items had not been sold at the ‘was’ price in the four months before the sale period, and even outside sales periods Zamel’s had a vigorous discounting policy that meant consumers would rarely pay the ‘was’ price in any event. In that case, it was found to be appropriate to have regard to a sales period of four months. Zamel’s was penalised $250 000 and the court also ordered that Zamel’s publish corrective notices and implement a trade practices compliance program.
More recently, Athena Solutions Pty Ltd trading as Froothie Australia (Froothie), the supplier of Optimum branded kitchen appliances, paid a penalty of $10,800 following the issue of an infringement notice by the ACCC.
The ACCC issued the infringement notice because it had reasonable grounds to believe that Froothie had made misleading representations to consumers. Froothie had advertised one of its blenders with: “PROMO PRICE: $579.00” directly below the strike through price statement “PRICE: $691.00”. However Froothiewas unable to show that the blender had been offered for sale, or sold, at the strike through price of $691.00 prior to the promotion.
Businesses should be aware that the ACCC has a broad range of investigative and enforcement powers and businesses can be compelled by the ACCC to substantiate advertising claims.
If there are no genuine savings to be made through was/now pricing comparisons, businesses are likely to be found to be misleading customers. Advertisers should make sure they have records which substantiate recent sales at the ‘was’ price for a reasonable period of time before embarking on this pricing strategy.
Article by DVM Law, marketing industry lawyers and POPAI legal partner. POPAI members receive free five minute phone consultation with DVM - just mention you're a POPAI member.
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