Kogan’s seven deadly sins: lessons for online retail
By Shaun Temby & Imogen Wurf• 11 September 2020 • 6 min read
Kogan’s recent troubles with the ACCC have been well publicised. In addition to the general message about the need for clarity in marketing, there are key lessons that can be learnt from the Federal Court’s analysis of the arguments made by Kogan in defending the case brought by the ACCC. Given that many of these same arguments are frequently raised by online retailers to justify their conduct, we have provided a breakdown of the Court’s approach to these arguments.
- 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).
- The Tax Time 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 once the offered discount was applied at checkout.
- The Court found that the advertised price reductions were not genuine as, prior to the Tax Time Promotion, Kogan had increased the prices of more than 600 of its products 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.
Key lessons to be learned
Kogan did not dispute that it had raised and lowered prices in the way alleged by the ACCC, but argued that consumers were not misled or deceived as they would have understood that the promoted discount was only to the price of goods in the consumer’s 'cart', not a discount from the price of those same goods outside the promotional period. In support of this defence, Kogan raised a number of unsuccessful arguments, which we examine below.
1. Don’t assume that your customer is sophisticated
Businesses should be wary of complex promotional mechanisms given that the Court’s recognise that large numbers of consumers will be unsophisticated.
Kogan argued that consumers generally have a good understanding of how ‘coupon code’ style promotions operate and therefore, were aware that the Tax Time Promotion was merely a reduction to the price of goods in their 'cart'. However, the Court agreed with the ACCC’s characterisation of consumers being much less sophisticated, which was evidenced by complaints from consumers who realised that the discount being offered was not genuine after having been misled by the Tax Time Promotional material.
2. A statement may be literally true yet still be misleading
Business should ensure that representations are clear and focus on how a consumer is likely to understand them, as opposed to focussing on technical arguments.
Kogan argued that the statements they made in the Tax Time Promotion material were technically correct, as consumers did receive a 10% discount when they entered the code ‘TAXTIME’ at checkout. However, the Court found that this did not cure the representations from being misleading and deceptive. The Court agreed the representations were literally true, but found that the only relevant inquiry was whether consumers were, or were likely to be, misled.
3. Good intentions are no defence
Even when the conduct isn’t deliberate, the Court is focussed on the understanding of the ordinary, reasonable consumer and whether or not they would be misled.
Kogan argued that the price variations on either side of the Tax Time Promotion were due to legitimate business reasons and that upcoming changes to GST law meant the consumer would expect there to have been price variability during the period such that they not have been misled by the promotion. The Court acknowledged Kogan’s behaviour was not intended to mislead, but ultimately found that this was not an adequate defence against a claim of misleading and deceptive conduct.
4. Overlapping promotions can create unexpected risks
Businesses should be careful to ensure that concurrent promotional activity does not combine to mislead consumers as to the true nature of any discounts offered.
The ACCC’s claim against Kogan’s Tax Time Promotion also referred to other concurrent Kogan advertising (particular focus was given to two-price comparative advertising) that compounded the misleading nature of the Tax Time Promotion. Kogan tried to argue that these other promotions were irrelevant and should not be considered, but the Court found that the whole context in which a consumer receives information is relevant when assessing whether representations were likely to mislead.
5. Size doesn’t always matter
Even a seemingly insignificant misleading statements can affect a significant number of consumers and therefore be misleading.
Kogan argued that out of the 78,111 products included in their Tax Time Promotion, only 621 (0.8%) of them were not offered at a ‘genuine discount’ due to the price changes before and after the promotion, and that this was too insignificant to warrant a claim. The Court disagreed, finding that whilst only a small subset of products were affected, that a not insignificant number of consumers were impacted, thereby meeting the requirement for a claim of misleading and deceptive conduct.
6. Pricing volatility won’t excuse misleading conduct
Businesses should take care to maintain stable prices on either side of promotional events so that the discounts offered are genuine.
Kogan argued that consumers are aware that online retailers adjust their prices frequently and, therefore, have no expectation that prices will remain stable for any sort of ‘reasonable time.’ Kogan further argued that the ACCC had failed to establish exactly how long prices would have had to be stable to be ‘reasonable’ so as to make the promoted discounts genuine. In those circumstances, Kogan asserted that the ACCC’s claim was ‘fanciful’ and had not been made out. The Court disagreed and found in favour of the ACCC, noting that the definition of a ‘reasonable time’ would depend on the product in question. The ACCC did not identify a precise time for which prices must remain stable in order to meet the standard of being stable for a ‘reasonable time.’ However, the Court accepted the validity of ACCC’s approach of only challenging the promotion of discounts for products that had price changes in the two weeks either side of the Tax Time Promotion.
7. Misleading promotions that are later corrected are still a problem
Once a consumer has been attracted to a site by misrepresentations, this will be difficult to cure with corrective or clarifying statements made in the buying process.
Kogan argued that even if consumers were misled into adding products to their ‘cart’ on the basis of misrepresentations made in the Tax Time Promotion statements, this was resolved later in the checkout process when it became apparent that the 10% discount was only applied to the price of items when the code ‘TAXTIME’ was entered by the customer. According to Kogan, this later clarification was sufficient to cure any misleading representations. The Court disagreed and held that the misleading representations were what led the consumers into Kogan’s ‘marketing web,’ and that attempts to resolve any confusion during the checkout process were not enough to cure the initial misrepresentation.
Virtual meetings for companies under the Corporations Act 2001 (Cth) and Australian Charities and Not-for-profits Commission (ACNC) registered charities
By Geoff Musgrove & Benita Williams
Updates to virtual meetings for companies and registered charities under the Corporations Act 2001 (Cth).
Before and after the proposed changes to the Franchising Code of Conduct
On 10 November 2020, the Commonwealth Government released for public comment, the draft regulations it proposes will...
ACCC’s 2021 enforcement priorities – what you need to know
ACCC’s enforcement priorities for 2021