But in their pursuit of customers several businesses have recently found their advertising techniques skirting too close to the boundaries of the law, raising concerns with the Australian Competition and Consumer Commission.
At the heart of these concerns is the practice known as twoprice advertising. Also known as comparison pricing, it occurs when businesses seek to appeal to bargain-hunting customers by showing the old “was” price crossed out and replaced by a lower “is now” price, for example, “was $199, now $129”.
It is a powerful selling technique commonly used around annual or stocktake sales and when done correctly can be a legitimate and legal form of advertising. But like any other price advertising method, there is a significant potential to mislead customers if those advertising promises are not genuine.
In the case of two-price advertising, this means goods need to have been offered for sale for a reasonable amount of time before being marked down to the lower price.
The ACCC has heard reports that some businesses are attempting to create the illusion of a bargain by establishing an artificially high base price for certain products. Stock is ordered and placed on shelves in specific store locations at the base price for a brief period, in some cases, for as little as six weeks. The base price is then crossed out and the goods are offered at a much lower ‘sale’ or ‘is now’ price in all stores, sometimes for months, even years.
If accurate, this trend represents a disturbing development that is likely to bring more businesses to the attention of the ACCC.
Structured selling practices that rely on contrived base prices mislead consumers about the level of savings between ‘was’ and ‘now’ prices. Equally, it is misleading to offer goods for sale at a claimed discount price when those goods have been continually offered for sale at the discount price for long periods.
In early May 2008 the ACCC accepted a court-enforceable undertaking from Laura Ashley regarding problems with some of its two-price advertising. As part of its agreement with the ACCC Laura Ashley has published a separate article in this magazine outlining the regulator’s concerns.
In the same month the Federal Court ordered Prouds Jewellers to take out corrective advertising after it found the company had misled its customers through some of its ‘was/now’ catalogue advertising.*
Both these matters send a clear signal to retailers that the regulator and the courts will not tolerate advertising that pushes the boundaries and potentially misleads customers.
It is not the first time the ACCC has had to step in and take action in relation to comparison pricing. The jewellery industry is a heavy user of the selling technique and has been warned on several occasions not to make unsubstantiated claims.
The Trade Practices Act does not explicitly spell out how long and under what circumstances businesses need to sell goods before they can legitimately mark them down, instead it makes general prohibitions against misleading customers through false representations, bait advertising and range of other unconscionable acts.
In the Prouds case the Court ruled that it was misleading to represent a saving on goods if they had not been available at the higher price for at least two months immediately prior to being marked down. However, what is a ‘reasonable period’ may depend on factors such as the type of product or market involved and the usual frequency of price changes.
Businesses planning to mark down goods need to be aware of the potential to mislead customers. They must be able to prove that any items marked at a special price are a genuine saving and have been available to the same class of customers at the higher price. The same rules apply for comparing a retailer’s prices with those of a competitor or the recommended retail price – all comparisons must be accurate.
The ACCC has a number of publications to assist businesses get their advertising right, including brochures on comparative advertising and general advice for small businesses on how to comply with the Trade Practices Act. These are available through the ACCC’s web site www.accc.gov.au as a download or in hard copy from the small business helpline, 1300 302 021.
* The ACCC is appealing some aspects of this judgement.
