The Competition Commission has examined the market practice in Pakistan's paints industry of placing redeemable coupons in paint packaging. The commission observed that the coupons were affixed to the base of the packaging and were not referred to elsewhere on the packaging or in television advertisements for the product. The commission was concerned that because attention was not drawn to the coupons, most consumers might be unaware of the discounts available, which might result in consumers paying a higher price for the product. The benefit of the coupons was more likely to be enjoyed by purchasers who bought the paints regularly and would be more likely to be aware of the discount.
The commission issued show cause notices to 16 companies for entering into deceptive marketing practices in contravention of Section 10 of the Competition Act 2010, which covers the communication of false or misleading information to consumers, including price-related information. The commission sought clarification in respect of disclosures made regarding the coupons, as well as information pertaining to the value of the coupons and the benefit to consumers.
From the submissions, it transpired that most of the undertakings involved did not advertise or otherwise disclose the existence of the discount coupons.
Among other things, the paint manufacturers contended that including redeemable coupons inside paint packaging had been the industry norm for almost two decades, and that the practice was well known within the trade and among purchasers of paint products. The manufacturers did not disclose the value of the coupons because this varied over time. Furthermore, it was submitted on behalf of certain companies that the coupon was an incentive to purchase, made necessary by the fact that the market leaders included coupons in their packaging.
On the question of whether the benefit of the discount passed to the consumer, it was submitted that in Pakistan, most paint products are purchased not by the general public, but by professional painters who provide their services on the basis of a contract for labour plus cost of materials, and that such professionals normally factor in the redeemable coupons in setting a price. On this analysis, a consumer who does not directly purchase paint products nonetheless derives an indirect benefit from the coupons by virtue of being able to negotiate a better price for a painter's services.
Certain undertakings submitted that they had started drawing attention to their use of the coupons as a gesture of goodwill, while others expressed a willingness to make disclosures. However, opinion was divided on whether the industry-wide practice of placing coupons inside paint packaging should continue.
Counsel for two companies argued that in order for a practice to constitute deceptive marketing, it must involve important information being consciously withheld - this, it was argued, was a necessary condition of finding the practice to be misleading and to have been undertaken in bad faith. Moreover, it was submitted that the criteria of Section 10 cannot be met where no advertisement is made public.
The commission found that most of the paint companies inserted coupons into the packaging of paints intended primarily for sale to households, which were part of a category defined as 'decorative paints'. Annual sales of paints in this category totalled 210 million litres (according to the Pakistan Paint Manufacturers' Association), and professional painters were generally employed to apply such products. As such, the prima facie beneficiaries of the coupons were painters, rather than consumers from among the general public. Therefore, the question was whether the practice of inserting coupons into paint packaging without due disclosure constituted a deceptive marketing practice under Section 10 of the act.
The commission concluded that the undertakings had a duty to disclose information about such coupons and to take all necessary measures to ensure that the benefit accrued to the consumer; failure to do so would unreasonably place a greater onus on the consumer than on the undertaking, which would be contrary to the law.
The commission stressed the importance of accurate disclosure of significant terms and conditions, so as to allow consumers to compare the services and products on offer and the various terms of such offers. It considered that without information on the value of the rebate available, the ordinary consumer could not be expected adequately to compare the available products within the range of paints, as the true price differential would be unknown at the time of purchase. The commission looked to the guidance available on the UK Consumer Protection Regulations 2008. Applying this, it found the existence of a price advantage in respect of the product meant that the fact that a coupon was included in the paint packaging qualified as material information. Therefore, failure to disclose the inclusion of a redeemable coupon constituted deceptive marketing under Section 10 of the act.
All of the undertakings involved agreed to disclose the presence of redeemable coupons in their packaging and to comply with the commission's directions. Therefore, the commission imposed no penalty for the violation. However, the commission gave certain directions to the companies, which included requirements to:
- modify the packaging of paints that fall primarily into the decorative paints category within 60 days, so as to disclose the presence and value of the coupon;
- ensure that this message is displayed using bright or otherwise conspicuous colours that are distinct from the colour of the packaging, and clear, bold and legible print;
- publish four advertisements or public notices, within 60 days and at 15-day intervals, regarding the inclusion of coupons and their value, as well as the category of products in which they can be found - the text and other content of the advertisement must be submitted to the registrar's office for clearance by the commission; and
- file a compliance report with respect to implementation of the directions by March 30 2012.
For further information on this topic please contact Fehem Hashmi at Vellani & Vellani by telephone (+92 21 3580 1000), fax (+92 21 3580 2120) or email ([email protected]).