Misleading price promotions: an open letter to New Zealand retailers

1:01 PM, 26 May 2017

Misleading pricing can lead to a misguided business future

As you put promotions and sales in place for your own company or on behalf of a client, be sure to consider your responsibilities under the Fair Trading Act of 1986. While this legislation is undoubtedly familiar to us all, there are still many complaints raised by consumers about misleading advertising.

As the enforcement agency for the Fair Trading Act 1986, the Commerce Commission want to share the following with advertisers:

Commerce Commission writes to New Zealand retailers

We receive a significant number of complaints from consumers who have been misled by, or are concerned about, discount sales advertising and price promotions both in-store and online. We also see a variety of these practices in the market ourselves.

Pricing concerns were the largest source of complaints to the Commission last year.

Sales promotions are an important marketing tool for retailers, and discounting strategies are commonplace in New Zealand. Consumers are attracted to discount sales and we know that discount 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.

Pricing, discounting and other advertising and promotional practices are a current area of focus for our compliance education and enforcement work. We are committed to improving trader compliance in this area through education and, where necessary, prosecuting traders for breaches of the Fair Trading Act.

Concerning practices we've observed

While the specifics of each case are different, we often see a range of concerning pricing practices including:

  • 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 the items never sold 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 though 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.

What are the risks?

There can be serious consequences for a business that a court finds has broken the law. Companies can be fined up to $600,000 for each breach and an individual up to $200,000. Where a company is a repeat offender, directors and those involved in the management of the company can be banned from involvement in the management of any company for a period of up to 10 years.

You may be aware of our recent prosecution that resulted in the New Zealand retailer, Bike Barn, being fined $800,000 for misleading discount sales and price promotions that breached the Fair Trading Act. This followed a $390,000 fine in late 2016 for Trustpower for advertising which was misleading about pricing and applicable contract terms. In the past, the courts have sentenced a number of other retailers prosecuted by the Commerce Commission in relation to misleading pricing practices.

What you can do to stay within the law

It is essential not to mislead consumers when marketing goods and services to them. Any claims a business makes about price must be:

  • Clear -- not confusing or misleading
  • Accurate -- discounts not exaggerated or prices understated
  • Unambiguous -- keep fine print to a minimum and make sure it does not confuse consumers.

We have produced a one page document 'Price Promotion Tips' [PDF] that outlines the top things that you should think about when using price to promote goods or services. We encourage you to share this with your team.

You can also find our more detailed fact sheets on pricing and fine print on our website. These fact sheets are updated from time to time and provide more detailed information and practical tips. We encourage you to review our fact sheets and to consider how they might apply to your business.

You should regularly review your compliance procedures and policies. If you are unsure about how to comply with the law, we recommend that you seek independent legal advice.

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