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How Using Pricing in Advertising Can Be Considered Illegal

The Australian Consumer Law (ACL) contains laws that regulate what you can and what you cannot advertise. Put simply, engaging in activity (including advertising) that would mislead consumers is prohibited by law and carries penalties. In today’s blog we’ll unpack what constitutes ‘misleading’ information, and how you can take steps to protect your communications.

For businesses, this can be tricky because advertising is about emphasis and, to some extent, exaggeration. You’re naturally inclined to make your business, product or service look as attractive as you possibly can. It’s tempting to assume a little misdirection or subterfuge is acceptable – and that ‘everybody’s doing it’. 

It isn’t, and the penalties for overstepping the line can be costly. 

The Australian Competition & Consumer Commission (ACCC) is vigilant in monitoring misleading conduct and penalising transgressions. These laws are important, as consumers rely on the accuracy of advertising to get the best deals. As a business, you also rely on your competitors advertising honestly and not pushing you out of the market with false information to get ahead.

Is ‘was/now’ pricing legal?

An example: the ACCC recently came down on furniture retailers Plush, Koala Living, Early Settler and Oz Design following an investigation into ‘savings of’ price claims. These furniture retailers were advertising deals such as a ‘Roller Ottoman now $539, save $360’. 

When determining whether this kind of pricing is misleading, the ACCC considers whether the customer would actually have paid the ‘before’ price within a reasonable period before the sale being advertised.  

In other words, would the customer really have paid the ‘before’ price within a period of time close enough to make the comparison relevant? How recent this is will vary from product to product. A recent Federal Court decision put the timeframe at four months, but this could vary. Essentially, if the ‘before’ price was not enforced immediately before the sale, advertising it as a ‘before’ price is entering into uncertain territory. 

Substantiating ‘before’ prices

If, for example, the business was able to provide an instance in which the ‘before’ price was applicable, it may not be a defence if the item was priced at that figure for only a short time or was sold at that price only rarely. This can be a problem for businesses such as furniture or car dealerships, who often discount their products at sale. 

Returning to the four furniture retailers, these businesses were unable to point to an instance in which a consumer would have paid $539 for a ‘Roller Ottoman’ within a reasonable timeframe. In fact, although the ‘before’ price was quoted as being $539, it was available for $499 directly before the sale. In reality, the saving was only $41 cheaper than the sale price, and a saving of $140 less than the consumer was led to believe. 

The rules above also apply when the ‘before’ price remains unlisted. If retailers advertise a price and ‘Save 60%’ (or words to that effect) they must be able to substantiate that number by pointing to a previously asked for price that correlates to the saving that is being claimed. 

In other words, claims about consumer savings must be accurate. 

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Using wholesale, RRP and competitor prices in advertising

Similarly, comparing sales prices to wholesale prices can be considered misleading if it does not accurately represent what the customer stands to save. Exaggerating or misrepresenting the RRP is misleading. The ACCC considers the wholesale price as the amount the business actually paid for the product. Listing it as higher than this, even if that figure can be substantiated in other ways, will be considered a misrepresentation and potentially misleading. 

Advertisements often compare sales prices to the recommended retail price (RRP). According to the law, the product must have actually been sold at the referenced RRP in the past in order to justify your claim. What’s more, RRPs fluctuate over time and between markets, making price comparisons even more risky. Substantiating a price comparison by pointing to an obsolete RRP will not be a defence against misleading conduct. Claims of this type must reflect the current market price. 

This also applies to price comparisons between businesses. Comparing your low prices to your competitor’s prices for the same article requires that that price is both current and within the same market. 

ACCC penalties for misleading advertising

The ACCC required separate penalties of $12,600 from the four furniture retailers for misleading advertising. The ACCC can issue an infringement notice if it has reasonable grounds to believe that a business’s actions fall outside the Australian Consumer Law. These penalties are partially designed to send a message to other businesses, but the effect on consumer confidence and industry reputation can be a bigger long-term problem. Challenging penalties can involve a court battle and more negative publicity than it’s worth.

How to avoid ACCC penalties

Slick advertising can attract customers and give you an edge on your competitors – but taking things too far can land you in hot water with the law. The message here should be clear. If the customer isn’t going to be saving money, don’t tell them that they are. 

If you’re making ‘was/now’ pricing claims, make sure you can substantiate those claims if required by the ACCC. Keep your figures honest and retain records of your previous prices to prove you’re playing by the rules. If you’re unsure if your pricing claims are misleading, seek legal advice before setting out. If you’re unsure how your website and pricing fares in the eyes of the law, sign up for Pod Legal’s $29 Website Legal Audit. We’ll identify any potential issues on your website, and present you with a full no-obligation legal report. Sign up here.