BRAND NEW phone!!  $199 – SAVE over 50%!!

Ads that show ‘two price’ or ‘was / now’ pricing are common, effective and legal … provided they’re not misleading. There are special rules about how to get ‘was / now” pricing ads right. While care needs to be taken, getting it right is relatively easy.

Getting it wrong can be costly, as the former owners of the Zamel’s jewellery chain have found – the ACCC took them to court over allegedly misleading ‘was / now’ price ads in one of their catalogues. In January 2009, the court handed down a fine of $380,000.

So, what are the rules? Well, the ACCC has actually published guides on issues to be addressed before running a ‘was / now” price promotion. Here’s a summary:

You should ensure that:

• products were actually sold at the ‘was’ price for a period of at least 14 days before the advertisement (note that this is the suggested minimum – a longer period may be reasonable in the circumstances)
• at least 75% of the actual sales of the product before the promotion were at the ‘was’ or higher price
• the ‘was’ price is not simply the RRP if the products were not actually sold at that price in sufficient quantities
• the promotion is intended to end or the intention is to remove the ‘was’ price by a specified date
• the products were sold at the ‘was’ price for a longer period of time than the period of the promotion
• there are reasonable grounds to believe that there will be stock at the end of the promotion (i.e. this is not a stock run out)
• if the promotion is a stock run out sale, that must be made clear to customers.

Prepaid Services Pty Ltd supplies phone cards that are resold by an independent company Boost Tel Pty Ltd. 

ACCC alleges that Prepaid and Boost were involved in false advertising.

 
The allegations

ACCC says that Prepaid and Boost falsely represented that:

• phone cards would provide consumers with a specified amount of call time (when they couldn’t really talk that long for the card price)
• only timed call charges would apply (when in fact other fees were charged)
• a rate per minute for calls would apply regardless of the number / length of calls made (when in fact that call rate is highly unlikely to be achieved in practice).

What ACCC wants

In court, ACCC is seeking orders for:

• declarations that Prepaid’s and Boost’s conduct breached the Trade Practices Act
• injunctive relief preventing repeat breaches
• corrective advertising
• community service orders
• costs of the proceeding.

What next

The case is filed in the Federal Court’s ‘fast track’ list.  The first court scheduling conference is due in Perth on 14 September 2009.

Our take on it

It’s a court case.  ACCC has allegations and the other parties are entitled to debate them.

But ACCC takes careful aim in these situations.  Don’t be surprised if this one comes to a head quickly.

Delivered in our trademark style … plain english guaranteed … the seminar offered practical and expert insights into living harmoniously with the new trade practices law.

We’ll offer a repeat session soon … keep watching.

No stranger to innovation – FunnyTel was Australia’s first ISP to introduce the random number billing that has since proved so popular with Telstra management – the FAT plans include Australia’s first internet unit pricing scheme.

‘We read about the Government’s idea for unit pricing with groceries,’ says FunnyTel spokesman Chad Blake.  ‘And we thought “This makes sense.”  Why should customers pay for an 80 gigs download allowance and not know exactly how many P2P movies they’ll get for their dough ?’

‘We’re actually thinking of applying to the ACCC for an award for this,’ said Blake.  ‘Our 2 New Hollywood Releases a Night’ plan is a revolution in truth-in-advertising.  ‘And that’s A-FACT !’ says Blake with a cheeky wink.

We asked Chad if he thought that other market leaders like iiNet would adopt the system. 
 
iiNet to be next ?

‘Not likely,’ he said.  ‘Pretty good operators at iiNet but they’ve been completely unsuccessful in attracting any customers interested in peer-to-peer movie downloads.  Haven’t you been following the court case ?

‘We can’t figure out where they’ve gone wrong, actually.  They seem to be offering all the right plans.  But somehow, they’ve only managed to sign up customers who need fifty gigs to spend between midnight and dawn for sharing home movies with the rellies in England. 

‘Must be very frustrating for them.  All the rest of us have to do is mention a big-gigs off-peak plan and we’re chockers with hungry pirates.  Poor bloody iiNet get stuck with a mob of Methodist parsons peer-to-peering their sermons around the world all night.  There’s no justice.’

FAT plans the NBT

‘Next Big Thing for sure.  Don’t want to give too much away, but you’re gonna love the Harry Potter Lovers’ Special and our new Parrot & Peg Leg package.’

We asked Blake whether marketing thought the ‘FAT’ tag would help customers get the message that the plans were ideal for super-sized downloading.  ‘Hadn’t thought of that,’ he said.  ‘Actually, it stands for Film And Television.’

Victor says that the seminar will explain the law as it applies to ISPs, telcos and other industries.  ‘This law applies over almost all retailing in Australia,’ says Victor.  ‘So every business needs to be across it.’  Victor and Peter both specialise in plain english explanations, so this will be an ideal chance for business people to learn these important new rules.

Bookings are free but places are limited.  There are only so many people who can fit into the Logie-Smith Lanyon board room

Here’s the seminar flyer.

How is it so ?  Simple.  Within Australia, the exchange rate is fixed.  A dollar in Perth is a dollar in Sydney. 

Only the dubious end of the telco sector gets away with saying ‘A dollar is worth whatever we say it is, for the purposes of any given plan.’

Two phone companies say ‘$200 included value !!!’  But one of them might charge calls at 50 cents a minute, the other at $1.  So the reality is that the ‘included value’ is 400 minutes of talk in one case, but only 200 minutes in the other.

Why do they headline ‘$200′ ?  Because they know that the public justifiably assumes that $200 means $200 … that there’s something absolute about a reference to the national currency.  Imagine we advertised ‘legal advice @ $300 an hour’ but it turned out that the ‘dollars’ were ‘CSP Central bucks’ that equate to $400 Aussie in the small print.

Theft ?  It’s no worse than a telco that shouts out ‘$300 included value’ when the only reason the ‘value’ is so high is the company’s self-appointed high rates pull the real deal back to the market.  If they offered the same rates as the telco next door, the ‘included value’ might be quite a bit less.

It’s misleading and deceptive to advertise ‘value’ in terms of a fixed standard – the country’s currency – and use the fact that charge rates are at your discretion to claw back some of the apparent ‘value’.

Under the new component pricing law that kicked in on 25 May, the single buy price of a plan like that must be ‘specified in a prominent way’.  If 3′s catalogue goes anywhere near passing that test, the new law is dead. 

ACCC really needs to kick off some enforcement action against retailers it considers aren’t complying with section 53C of the Trade Practices Act.  It’s hard to expect CSPs to follow the spirit of the component pricing law when their competitors seem to be getting away with feint micro-print.

Take a look at the Naked DSL advert in the top left hand corner of Dodo’s home page as at 4 June 2009.  In a few square inches, there are three TPA breaches. 

We’ll explain what they are.

The home page

The main message

Always start a TPA advertising analysis with the question:  ‘What’s the main message of the advert ?’

Here, the eye-catching points are:

• Naked DSL from $29.99 a month
• No phone line needed

What a bargain !  Where do we sign ?

The full facts

Look just to the right of the highlighted $29.99 per month text … that’s not a dead pixel on your monitor.  It’s a footnote number.  A tiny little feint number ’1′.

It references some small, dull text at the bottom of the page that grudgingly reveals that to get the $29.99 price, you must bundle the DSL service with a Dodo mobile service.

What’s wrong with that ?

Nothing, if it was prominently explained in a way that formed part of the main message.

But in this case:

• It isn’t prominent, and doesn’t form part of the main message.  In fact, it significantly changes the main message.  The main message gives no clue that the buyer has to buy a second service to get the low price.

Breach of section 52 of the Trade Practices Act

• There’s a real problem in claiming that a customer won’t need a phone line, but requiring them to take a mobile service.  The value proposition of naked is that you can factor out the cost of a phone service if all you want is DSL.  To tie in an alternative phone service in the small print makes a lie, for practical purposes, of the ‘no phone line’ claim.  It’s literally true but it’s still misleading.

Breach of section 52 of the Trade Practices Act

• The total price of the plan isn’t stated prominently, and the total price of the bundle isn’t stated at all. 

Breach of section 53C of the Trade Practices Act

As anyone in the telco industry knows, $100 worth of credit disappears far more quickly if the provider charges connection fees, bills by the minute instead of the second and builds in other costs. 

Cardcall’s advertising inferred that customers would get more air time than they really did, by keeping extra charges and unfavorable charging practices a secret.

For their trouble, Cardcall has ended up in the Federal Court, on the receiving end of a package of orders.  And ACCC has told the industry – yet again – ‘You’re on notice.’

And after all that, Cardcall’s web site still contains terms that breach the Trade Practices Act !

ACCC’s case

ACCC showed the Court that:

Cardcall engaged in misleading or deceptive conduct in relation to its Talk Tomato, Daybreak, Ozcall and Its Green pre paid phonecards and vouchers by representing that:

• no fees other than the timed call charges would apply (when in fact service fees, connection/disconnection fees and surcharges applied)
• a certain number of minutes was available on the products (when in fact the total number of minutes could, at best, only be achieved through one continuous call and calls were charged in incremental periods, service fees, connection/disconnection fees, and surcharges applied, thereby diminishing the number of minutes available)
• certain rates per minute were available on the products (when those rates did not take into account that calls were charged in incremental periods, service fees, connection/disconnection fees and surcharges applied resulting in a higher call charges).

And the Court’s orders …

The Court:

• made declarations that Cardcall has broken the law
• injuncted it from further such breaches
• ordered it to place a corrective notice in various foreign language newspapers, including Chinese, Philippine, Arabic and Indian, and on its website
• required it to produce a generic consumer guide to fees and charges on pre paid phone products and to change its advertising to clearly and prominently disclose any additional fees and charges
• ordered it to contribute $20,000 to the ACCC’s costs.

And ACCC read the Riot Act … again

ACCC Chairman Samuel said:

This matter together with the ACCC’s recent action against Tel.Pacific emphasises a fundamental flaw in the advertising of telecommunications companies that convey a headline message based on pricing, yet qualify it to an almost opposite effect.

This action is part of the ACCC’s ongoing commitment to stamp out these poor advertising practices and further puts the telecommunications industry on notice to change its practices. 

The ACCC will continue to take action against telecommunications companies who hide additional fees and charges in small print.

Companies need to ensure that consumers buying their products are aware of any additional fees and charges that may be associated with the use of the product.  These additional fees and charges must be clearly and prominently displayed to draw the consumers attention and not hidden in small print.

Our take on it

One of the commonest push-backs by telco and ISP marketers against regulatory compliance advice is that ‘everyone else is doing it’.  We’re sympathetic to that, but it doesn’t change the fact that ACCC is hunting out and bringing down a pack of CSPs for poor advertising practices.  Effective marketing often involves being clever, but there’s a line between ‘clever smart’ and ‘clever dodgy’.

PS:  Cardcall’s trading terms breach section 53(g) of the Trade Practices Act

For good measure, Cardcall’s trading terms (on its website as ay 30 May 2009) include:

If cardcall breaches any warranty implied by the Trade Practices Act, or any other warranty implied by law which cannot be excluded, cardcall’s liability for any such breach will be limited (at cardcall’s discretion) to:

• In the case of the Services, to supply the Services again, and
• In the case of a malfunctioning cardcall Phonecard replacement with a cardcall Phonecard having a stored value equal to the unused stored value of the malfunctioning cardcall Phonecard.

Now, that’s plain legally wrong.  As we’ve explained before, in the case of services that are ordinarily acquired for personal, domestic or household use or consumption, a supplier cannot use a contract to limit its liability for breach of warranties implied by the Trade Practices Act.

We don’t know that JB’s discounts off ‘ticketed price’ are not legitimate, but there’s certainly a reasonable basis for questioning them.  A campaign like that runs a real risk of misleading consumers. 

Any savings misrepresentations would be a hot topic right now, since the Full Federal Court confirmed the criminal conviction of the former operator of the Zamel’s jewellery chain for false savings claims, and a $380,000 fine.

What’s the issue ?

There’s an old story about a well known Melbourne used car dealership where a salesman would be bought drinks all night if he managed to sell a used car for more than new car price.

Well, we’ve always imagined it must be similar at JB HI-FI.  There’d be an extra shout on Friday night for any sales staff that managed to sell a plasma screen at the ticketed price.  In our experience, you only have to ask ‘What’s the price ?’ to score an instant discount off the ticket.  And that seems to be the experience of everyone we talk to.

If that’s the general case, then the ticketed price isn’t the true selling price.  It’s a theoretical price only.

The punch in the current campaign is the suggestion that customers will save 10% by buying during the sale.  But that 10% saving is – at least in part – imaginary if the ticketed price is not normally ‘enforced’ at other times of the year. 

An example

If a unit has a ticketed price of $1,000 and I could have picked it up before the sale for $950 with an instant’s ‘bargaining’, then 10% off the ticketed price really represents only $50 off the true non-sale selling price.  That’s a fraction more than half the ’10%’ figure that headlines the advertising.

Let’s test the point:  What does a JB sales staffer say ?

Of course, JB’s advertisements may still be legitimate if the 10% is in addition to normal discount off the ticketed price, not instead of it.  So we headed down to JB and asked the question.

We were told that the sale was actually good for buyers of some gear, where 10% discounts are not normally available.  Maybe 5% is normally available on some items, so the 10% off sale is 5% better than you’d do on those items a week ago or a week from now.

On many other items, we were told, you’d get 10% off or better at any time, and it was no different during the sale.  So what’s the point of the 10% off sale campaign ?  ‘It’s to get people through the door.’

Our take on it:  It’s the overall impression that counts

We think that the clear implication of the campaign is that shoppers will be 10% better off – but only if they buy by 1 June 2009 when the sale ends.

If that’s simply not true, then the advertisements are misleading and deceptive.  Of course, many buyers would be aware that JB’s ‘ticketed price’ is rather theoretical.  But many won’t, and they are the ones most at risk of being misled.

In December 2006, JB gave ACCC an enforceable undertaking not to make misleading claims about discounts off Recommended Retail Price.  That’s because RRP is so often a theoretical price rather than a true one.  It’s fair to ask whether ‘ticketed prices’ are not the new RRP.