Online retailer Kogan has been pulled up short by the ACCC for making false and misleading claims as part of a tax time promotion which it ran at the end of FY18.
From 27 to 30 June 2018, Kogan ran a sales promotion in respect of 78,111 products on its website, offering a 10% reduction off prices for consumers who purchased those products and entered the promotional code “TAXTIME” at the checkout. Kogan advertised the promotion via eDM to over 10 million customers on its mailing list, via SMS messages to more than 930,000 consumers, and on its website banners. Notably however, Kogan decided to increase the prices of 621 of the products involved in the tax time promotion immediately before the promotion commenced and to decrease those prices shortly after the promotion ended.
The ACCC took serious issue with this pricing strategy, claiming that Kogan had thereby made false and misleading claims in its marketing materials for the tax time promotion in breach of the Australian Consumer Law. The crux of the ACCC’s case was that Kogan needed to provide the 10% discount off the price at which the offered products: (i) had been available for sale for a reasonable period before the promotion; and (ii) would be available for sale for a reasonable period after the promotion.
In contrast, Kogan argued that its only obligation was to provide the 10% discount off the listed price of the product as it appeared immediately at the time of checkout.
On Friday, 17 July 2020, the Federal Court handed down its ruling against Kogan, with penalties to be determined at a later date.1 The ACCC has flagged that it will be seeking a raft of orders against Kogan, including declarations, injunctions, pecuniary penalties, corrective notices and costs in order to “send a serious signal” to businesses.
What does this mean for you?
So, where exactly did Kogan come unstuck in running its tax time promotion? And what do you need to watch out for when setting up your next online sales promotion?
1. Take care when running multiple sales promotions concurrently
Kogan maintained that there was a key difference between coupon codes and two-price comparisons, being that:
- coupon code promotions offer a reduction in the price at checkout and operate by requiring the customer to enter a code during the checkout process; and
- price comparison promotions offer a discount before checkout and operate by comparing the current price with another price (e.g. “was/now”, “% off RRP”).
According to Kogan, a reasonable consumer would have clearly understood this distinction and understood also that the tax time promotion was a coupon code promotion only, which did not purport to make any representations about savings on former prices.
The Federal Court declined to accept this view. Instead, the Federal Court ruled that, irrespective of whether consumers understood how discount codes worked generally, nevertheless a reasonable consumer would have been likely to understand Kogan’s tax time promotion as offering a 10% discount at checkout on past prices or future prices for products included in the tax time promotion. In coming to this view, the Federal Court had particular regard to the fact that Kogan had run the tax time promotion simultaneously with other promotions, including a “was/now” End of Financial Year sale, and had advertised the tax time promotion in such a way that consumers would be entitled to expect that the 10% discount would be provided in combination with other discounts. For instance, Kogan had used statements in its tax time promotion marketing materials such as “Already Huge Discounts – Reduce by an Extra 10%!” and displayed two-price comparisons which related to its End of Financial Year sale together with the statements “USE CODE TAXTIME TO REDUCE PRICES BY 10% AT CHECKOUT*” and “*using code TAXTIME”. As a result, the Federal Court held that Kogan had blurred the distinction between its tax time promotion and the price comparison promotions being run on its website at the same time.
The decision is a strong reminder that overall impression is paramount when reviewing marketing communications. That is, you need to have regard to the context for your claims and consider how claims might, when viewed together, be interpreted in a manner not originally intended by your marketing team. In particular, you should take care if you are planning to run multiple but unrelated sales promotions at the same time, to ensure that you do not create the impression that consumers will be provided with “bundled savings” across your entire product range, if this is not the case. For key tips on running “was/now” sales promotions, see our earlier paper here.
2. Dynamic pricing is not a licence for undermining a sales promotion
Kogan also sought to rely on the factual complexities presented by its dynamic pricing model to demonstrate why the breaches alleged by the ACCC were too vague to be accepted on the evidence. Kogan argued that the ACCC needed to articulate more clearly what the relevant time periods were for maintaining price stability in relation to each product, what “normal” price referred to (e.g. average price, lowest price, highest price), and substantiate those alleged breaches by adducing the pricing history for each relevant product. Further, Kogan pointed out, a reasonable consumer would know that Kogan’s prices changed regularly and were not stable. In these circumstances, Kogan argued, the notion of such a consumer being led to believe that a discount would be provided off some “unidentified, amorphous price” in a reasonable period before and after the tax time promotion was “fanciful”.
The Federal Court rejected these arguments. Taking a common-sense approach, the Federal Court accepted that price variability might be expected from time to time. Nevertheless, a reasonable consumer who saw the advertisements would not have expected those variations to effectively offset any genuine 10% discount from the promotion, as was the case here. Further, the Federal Court found that there was nothing on the evidence to suggest that the general price variability in Kogan’s products bore any resemblance in magnitude, direction or timing to the price changes which occurred in the two week periods before and after the tax time promotion.
The upshot of this is that even if you are a frequent discounter and/or engage in dynamic pricing, you should refrain from making any material changes to your regular listed prices in the period leading up to, and following, a sales promotion. Also, contrary to Kogan’s arguments, difficulty in interpreting or applying the law is not an excuse for failure to comply with the law. If you are uncertain about what a reasonable period might look like for your product pricing, seek legal advice before implementing your sales strategy.
3. Maintain strict protocols for compliance across your entire product range
Finally, Kogan attempted to argue that because the price variations only affected 0.8% of the total products involved in the tax time promotion, the statements in its marketing materials could not have misled a meaningful number of reasonable consumers.
According to the Federal Court, this argument “missed the point” entirely. A false claim is a false claim irrespective of however many products it affects.
We strongly recommend maintaining strict protocols to promote compliance across your entire product range, including preparing a spreadsheet to track price movements for individual products over time to justify your sales strategies. There is no excuse for allowing some products, even a bare minority of products, to fall between the cracks.
The decision may not be the end of the story as Kogan has announced that it is “currently reviewing” the Federal Court’s ruling. Watch this space.