Caution needed with price reduction advertising

The recent Federal Court decisions of Australian Competition Consumer Commission v Jewellery Group Pty Limited and Australian Competition Consumer Commission v Jewellery Group Pty Limited (No 2) illustrate why caution is needed when advertising price reductions.

Case facts

Between November 2008 and May 2010 Zamel’s Jewellers (who operated between 93 and 101 jewellery stores) published and distributed six catalogues and a flyer. The catalogues were distributed nationally by a letterbox drop, with copies also available at the stores and online.

These catalogues advertised a number of individual items of jewellery. The advertisement for each item of jewellery included an image of the item and a statement of two prices. The higher of the two prices was struck out (higher price) with the lower price described as the ‘sale price’ or the ‘now price’.

The Australian and Competition and Consumer Commission (ACCC) brought an application in the Federal Court of Australia seeking a declaration that Zamel’s had contravened the Trade Practices Act 1974 by engaging in conduct that was misleading and deceptive.

The ACCC’s case was that by each price comparison Zamel’s represented that consumers would save the amount that was the difference between the two prices. The ACCC submitted that, in reality, consumers would not have saved that amount because the jewellery was not sold at the ‘higher price’, or was only sold at the ‘higher price’ in very limited numbers.

The ACCC relied on Zamel’s ‘price negotiation policy’ to show that employees were encouraged to offer or negotiate discounts with customers. The result of the ‘price negotiation policy’ was that majority of purchases were at a price less than the ‘higher price’ before the relevant sales commenced.

Decisions

The issue for the Court was whether the catalogues contained representations that were or were likely to be false or misleading. The representations in the catalogues were that a customer would have paid the ‘higher price’ before the sale started.

By reviewing Zamel’s sale history it was found that for all items except one the number of sales that occurred at the higher price was less than 10% of the total sales for each item.

The Court viewed the advertising as a way to encourage customers to buy within the specified ‘sale period’. This was done by bringing a potential customer’s attention to the stark difference between the ‘higher price’ and ‘sale price’.

The Court found that the savings representations were false and that Zamel’s had engaged in conduct that was misleading and deceptive or, at least, likely to be misleading and deceptive, in contravention of the Trade Practices Act 1974.

The penalty imposed on Zamel’s included that they pay $250,000 and publish corrective advertising throughout Australia.

Implications

Care needs to be taken when advertising price reductions to make sure any statements made accord with what is actually happening day to day – not just that the actual words used in any advertisements are (in a strict sense) correct.

It may be prudent to implement legal review procedures on this type of advertising to avoid the risk of significant penalties like those involved in this case.

If you would like more information on these type of issues, please contact Miranda Bird or Rocco Russo on +61 7 3231 2444.