Monday, 24 September 2012 – LawFuel.com – Law Newswire Service –
Marking down products for a limited period, and highlighting the savings to be made, can be a highly effective strategy to drive sales. A recent decision of the Federal Court (ACCC v Jewellery Group Pty Ltd) has confirmed that, when determining whether a business can use the previous ticketed price as a base to calculate a saving (commonly known as “was/now” pricing) it is not enough to look solely at the previous ticketed price. Businesses with a strong discounting culture must also check the “was” price against actual past sale prices for the product, which may be very different on average to the previous ticketed price.
The ACCC has been very aggressive (some might even say “obsessive”) in policing “was/now” pricing. A round of litigation against the jewellery stores Prouds and Zamel’s that was completed in 2009 gave the ACCC mixed results. The ACCC immediately began looking for further targets and, in early 2010, it commenced another investigation into Zamel’s pricing practices.
Although Zamel’s had changed ownership since the previous litigation, it still operated under the same business model of promoting heavy discounts during sale periods. The ACCC investigation focussed on 44 items of jewellery across six catalogues and a flyer between November 2008 and May 2010. Each of these items was advertised using dual price advertising statements, such as “$99 $49” or “Was $99/Now $49” to promote savings.
In the court proceedings, Zamel’s argued that the “was” price merely represented that price at which an item was ticketed prior to the sale. However, the ACCC argued, and the Court agreed, that the “was” price represented the price that a customer would have expected to pay for the item if it was purchased prior to the sale.
In considering the impression created by comparing sale prices with “was” prices, the Court found that there was a small but significant number of customers who were not aware of the ability to negotiate a discount at Zamel’s during non-sale periods. The Court found that these customers would understand the “was” price as the price they would have had to pay if they purchased prior to the sale. It followed that such consumers would understand the difference between the “was” price and the “now” price to be the saving to be made by purchasing during the sale period. This was incorrect, as the evidence showed that Zamel’s was an aggressive discounter and rarely sold any product for the full ticketed price. The Court found that it was likely that even customers who didn’t haggle would not have paid the “was” price. This meant that the actual savings during the sales event were not as significant as those implied in the advertising. The Court said:
A significant number of the unaware readers of the catalogues and the flyer would not have paid the strike through or was price and achieved the represented savings, if they had purchased any of the 44 items of jewellery advertised in the catalogues or the flyer before the relevant catalogues or flyer were published and before the sale period. They would not have done so because the items were sold at a non-sale price, which was less than the strike through or was price, or because of Zamel’s price negotiation policy, which provided discounts to customers in respect of all of the items of jewellery for sale. The savings representation was false and thereby the respondent engaged in conduct that was misleading and deceptive or, at least, likely to be misleading or deceptive.
This decision doesn’t mean that businesses cannot give negotiated discounts to customers during a ‘price establishment’ period. The crucial aspect was Zamel’s aggressive discounting policy. The Court looked both at actual sales data and Zamel’s internal policies and staff instructions and concluded that ‘discounts are given so the customer does not leave the store without the goods.’ A customer who merely opted not to purchase a product would be offered a discount to try to change their mind, even if they didn’t ask for it.
It was this aggressive discounting that caused the “was” price to be misleading because almost no-one paid it.
The ACCC has stated that will seeking civil pecuniary penalties in relation to the misrepresentations made by Zamel’s in the May 2010 catalogue, together with orders for corrective advertising, the imposition of compliance training and costs (civil pecuniary penalties are only available for conduct occurring after 15 April 2010). The penalties will be decided at a later hearing.
The decision raises important issues for businesses which provide discounts to secure sales and for industries where discounting from the ticketed price is endemic, such as whitegoods, consumer electronics and furniture. Businesses with a widespread discounting culture should review their price establishment policy to ensure that actual sales data are checked before advertising a “was” price and the policy does not solely rely upon the ticketed price.