Taxing Times for Kogan: Court rules discount promotion was misleading
In July 2020, the Federal Court ruled that online retailer Kogan Australia Pty Ltd (Kogan) breached the Australian Consumer law when it made false and misleading representations in its advertisements about discounts it offered during the June 2018 end of financial year period. The decision provides a fantastic example of the complicated nature of on-line retail and risks associated with various common pricing and promotional strategies.
Kogan’s Tax Time Promotion
In July 2018, Kogan ran a promotion to the effect that consumers could receive a discount of 10 percent on selected items by entering the code ‘TAXTIME’ at Kogan’s online checkout (Tax Time Promotion). This promotion was advertised directly on Kogan’s website, as well as in emails and text messages to potential consumers. The advertising material described how Kogan’s prices had been discounted, which included two-price comparisons that compared the sale price for an item with its recommended retail price (RRP) once the offered discount was applied at checkout.
The ACCC alleged that price reductions were not genuine, and that therefore the advertising was false and misleading under the Australian Consumer Law (ACL), by reason of Kogan’s pricing practices. Specifically, prior to the Tax Time Promotion, Kogan increased the prices of more than 600 products by approximately 10 percent and then, soon after the promotion had ended, returned the prices for those products to pre-sale levels. The effect of Kogan’s conduct was that consumers purchasing one of those products from Kogan during the Tax Time Promotion paid the same, if not more, for that product, than in if they had purchased it before or after the sale period.
The ordinary reasonable consumer
It was accepted by both parties that an ordinary and reasonable consumer would have understood the effect of the 10 percent price reduction and how to use the online ‘TAXTIME’ discount code. The key issue in dispute was the meaning that a reasonable consumer would give to the ‘price’ to which the discount was to be applied. In that regard:
- The ACCC contended that an ordinary, reasonable consumer would have understood ‘price’ to be the amount for which the product was available for a reasonable period of time before and after the tax time promotion.
- Kogan argued an ordinary, reasonable consumer:
- would have understood ‘price’ to be the current price of the products available on its website without any comparison to the prices for such products at any other time
- was familiar with internet shopping and coupon codes, as well as being highly aware of the types of promotions run by Kogan, including knowing that prices often changed rapidly
- knew of the comparative price in the markets for the products they were interested in buying.Kogan’s arguments were based on its definition of the ordinary, reasonable consumer, whom it argued:
understood that the tax time promotion was a coupon code clearly designed to reduce the price of items at checkout and would not interpret the Promotion to refer to any saving from a previous advertised price.
The Court rejected Kogan’s arguments and agreed with the ACCC in that the relevant consumer would have some understanding of internet shopping, but could not be assumed to undertake the sophisticated approach to pricing as suggested by Kogan.
Statements were misleading and deceptive
The ACCC argued that Kogan’s use of time limiting statements, such as ’48 hours left!’ and ‘beat the price rise!’, implicitly conveyed to consumers that the price they would pay when using the code was lower than the one they would pay after the promotion ended. Further, the material contained references to the End of Financial Year (EOFY) promotion which was also run by Kogan in late June. This mixing of promotional information further contributed to the reasonable consumer being misled that these prices were only available before 1 July during the promotional period, after which they would likely rise.
Kogan did not deny that they had raised and lowered prices as described by the ACCC. However, they contended that the tax time promotion was not misleading or deceptive because it merely conveyed to consumers that they could use the code ‘TAXTIME’ to receive 10 percent off the current price of the goods, not 10 percent off as compared to prices at other times outside the Tax Time Promotion period. Kogan relied heavily on their submissions that the relevant consumer was aware of Kogan’s pricing strategies and had knowledge of online shopping and coupon code discount and, as such, once the Court had held against them on that earlier point, there was insufficient evidence to establish this claim.
Drawn into the web
In further support of its case, the ACCC argued that it did not have to demonstrate that each of Kogan’s express statements were misleading. Instead, the ACCC alleged that of all the promotions run by Kogan during the Tax Time Promotion period had the combined effect of misrepresenting the true nature of the discount being offered to consumers. Kogan defended this argument on the basis that the nature of any discounts were clear to consumers by reason of information provided during the checkout process: namely, that the Tax Time Promotion was a 10% discount off the price of items in their cart, not 10% off some other price (such as the price at which it was available from Kogan’s website at some earlier period of time). Fundamentally, it was Kogan’s position this later clarification of the amount of the discount (as the purchasing process progressed) was sufficient to negate any misrepresentations in its advertising material.
The Court found in favour of the ACCC applying the reasoning of the High Court in an earlier decision brought by the ACCC in 2013 against TPG. In the present case, the Court accepted the ACCC’s evidence that many consumers had directly clicked on Kogan’s initial advertising material to access the Kogan website, which the Court accepted showed that it was the initial misrepresentation that induced consumers to enter negotiation with Kogan. As such, even if the consumer became aware at checkout of the true nature of the discount being offered by Kogan (under the Tax Time Promotion), such awareness was insufficient to cure the earlier misrepresentation. In effect, the initial misleading advertising material was sufficient to drew consumer’s into Kogan’s ‘marketing web’ and this wasn’t cured by Kogan clarifying the true nature of the promotion later in the buying process.
Key takeaways for businesses
While Kogan’s conduct increasing prices shortly prior to then offering a discount on those same products may seem to be quite blatant conduct, the Court accepted that there were other reasons for this pricing strategy and did not find that Kogan’s conduct was deliberately misleading. The reality is that online advertising can be a tricky business and retailers need to give careful consideration to pricing and discount strategies – particularly, ones that overlap and impact one another – as they can have unintended consequences. There are three key takeaways for businesses:
- Businesses should not assume their understanding of the online market and promotional mechanisms, such as coupon codes, will be shared by their customers or (more importantly) the “ordinary, reasonable consumer”. Promotional claims need to be viewed through this less sophisticated lens.
- Businesses should ensure that when offering a discounted price, the price to which the discount is being applied is clear to consumers.
- Attempting to cure earlier misleading and deceptive conduct using fine print or statements late in the buying process is risky as it may not be not effective.
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