Pricing in the Digital Era

This article was co-authored with Jessica Markabawi.

In a time of increasingly complex competitive pricing online, a decision by Justice Davies of the Federal Court of Australia could have significant implications for the way retailers employ digital pricing tactics. On 17 July 2020, Kogan Australia Pty Ltd (Kogan) was found to have made false and misleading representations about a tax time sales promotion in contravention of sections 18 and 29 of the Australian Consumer Law (ACL).¹

Background

Kogan is an online retailer known for selling electronics and appliances. Enforcement actions have been brought previously by the Australian Competition and Consumer Commission (ACCC) against Kogan and its related entities in 2009 and 2016.² Both of those actions also related to false and misleading conduct in relation to prices and consumer savings. The past action that the ACCC took against Kogan, which resulted in the issuing of infringement notices, related to very similar conduct to that which occurred in this case.

In May 2019, the ACCC launched proceedings against Kogan alleging that in a tax time sale which took place from 27 to 30 June 2018, “Kogan represented that consumers would receive a 10% discount on a number of products during the sales promotion, when in fact it had increased the prices of those products immediately before the promotion and decreased those prices soon after the promotion, in many cases by at least 10%”.³ The ACCC argued that the representation that consumers would receive a 10% discount, and the related representation that it would only be for a limited time, contravened sections 18 and 29(1)(i) of the ACL.⁴ They alleged that the change to prices before and after the promotion “eroded any real discount offered to consumers by the promotion.”⁵ As a result, the ACCC said that “consumers were or were likely to have been misled about the value of the purported discount offered on Affected Products through the Tax Time Promotion”and suffered “the loss, or serious distortion, of genuine consumer choice.”⁶ Further, the ACCC noted that Kogan's conduct may also have unfairly disadvantaged its competitors.

False and misleading representations

Taking into account a number of consumer complaints provided by the ACCC,⁷ Davies J found that the prices of the 621 affected products “were intentionally increased the day before the Tax Time Promotion and intentionally decreased on 2 July 2018, thereby eroding a genuine 10% discount.”⁸ Additionally, Davies J found that the ordinary and reasonable consumer in the relevant class was misled as they “would be likely to have understood that the Tax Time promotion offered a 10% discount at checkout on past prices or future prices for the products to which the coupon code could be applied.”⁹

Justice Davies rejected Kogan’s argument that ordinary and reasonable consumers knew that Kogan’s prices were subject to regular change, for whilst this variability might be expected, “the ordinary and reasonable consumer who saw the advertisements would not have understood the “price” to be a price increased by Kogan so as to offset any genuine 10% discount from the promotion”.¹⁰ It was therefore reasonable to “infer that the representations enticed those consumers to visit the Kogan website and, where purchases were made, to purchase the products from Kogan.”¹¹ It made no difference that the affected products represented a mere 0.8% of the 78,111 products on the Kogan website at the time.¹²

Her Honour described this contravention as having arisen out of Kogan’s “aggressive price discounting strategy”.¹³ We will need to wait to see what this conduct, as part of a wider strategy, means for Kogan when the Court hears submissions on penalties and other relief at a later date.¹⁴

Looking forward

Conduct such as this has drawn attention in the past, including the ACCC’s previous actions against Kogan itself (as referred to above), but this is the first time the ACCC has successfully pursued a Court proceeding in this space. Establishing that a company is engaging in large scale re-pricing of its products before and after a promotional sale, to remove the supposed benefit to consumers from the promotion, is not a straightforward exercise. But the ACCC has demonstrated it can be done.

As the ‘human’ element is further removed from pricing changes on websites in favour of automation, online retailers will need to be careful about ensuring their pricing strategy and methods do not result in misleading consumers about savings, whether intentional or not.