Misleading discount promotions in COVID-19, beyond the Kogan decision - Lexology

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The Federal Court issued a stark warning to online retailers when it ruled in July 2020 that Kogan Australia Pty Ltd (Kogan) breached the Australian Consumer Law (ACL) by making false and misleading representations in a 'tax time' sales promotion.

Background

Kogan's promotion ran online in June 2018 and, with online sales currently front of mind for many sales teams facing the impact of the COVID-19 pandemic, this ruling is a timely reminder that care needs to be taken when strategising online sales, especially those pushing heavy, time-sensitive discounts for consumers purchasing through a website.

From 27 to 30 June 2018, Kogan offered customers a 10% discount on selected items by entering the code 'TAXTIME' at checkout. It was advertised with website banners, electronic direct marketing by email and SMS messages all of which used variants of 'use code TAXTIME to reduce prices by 10% at checkout' and some of which said '48 hours left' and 'Ends midnight'.

The ACCC alleged that the statements represented to consumers that if they used the code they would receive a 10% discount off the price products were available for sale for a reasonable period before the promo started and that the discount was available for a limited time.

Kogan had increased the prices on affected products immediately before the promotion started and decreased prices immediately after it finished. Kogan argued that the promotion was a coupon code promotion that applied to the price displayed 'at checkout', rather than a discount on historical or future prices.

Justice Davies focused on the context of the promotional statements – in particular that Kogan's online checkout showed a two-price comparison, which compared an item's sale price with a higher price (either a prior price or recommend retail price (RRP)) and referred to 'EOFY deals'. Some emails and SMS claimed this allowed a further 10% reduction on 'Already Huge Discounts'.

It was found that the time-specific and time-limited theme of the promotion would have led consumers to understand that there was a limited opportunity to obtain the reduced price.

The decision

In the result, the Court agreed with the ACCC's argument that the tax time price reduction was not a genuine sale, and that therefore the promotions were 'misleading or deceptive' (s 18 of the ACL) and 'false or misleading' (s29(1)(i) of the ACL). The ordinary reasonable consumer, it was held, would have understood that this promotion offered a 10% discount on past or future prices.

How much this conduct will cost Kogan is due to be determined at a separate hearing in November 2020 and is set to be the subject of some argument, with both the ACCC and Kogan having filed a number of further affidavits on the question.

In any event, this case highlights that promotions for online sales must offer genuine savings to consumers as advertised and manipulation of prices in and around such promotions is inherently risky.

Key takeaways

With the Kogan ruling in mind, retailers focusing on online sales and promotions should also note the ACCC's published enforcement priorities for 2020. With respect to the ACL, the ACCC is keeping an eye on: consumer guarantees, misleading or deceptive conduct, and unconscionable conduct, with a particular focus on price-gouging and misleading advertising.

In addition, the ACCC has subsequently announced that their specialist 'COVID-19 Taskforce' will focus on issues affecting consumers during the pandemic. For example, the ACCC engaged with Amazon, Facebook, eBay and Gumtree to understand what measures, if any, these companies have in place to monitor and prevent price-gouging, particularly in respect of personal protective equipment like face masks and hand sanitiser.

The ACCC have demonstrated that its enforcement priorities are anything but lip service. In a pandemic economy where online sales have become increasingly important, retailers should be particularly alive to the potential pitfalls of online price promotions.

This article was published as part of Gadens' featured publication, FMCG Express | October Edition.

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