Comparative pricing
When sales items are promoted by comparing a sale price with a higher price, the Commission considers most people are likely to understand that the higher price is the price at which the item is normally available.  The difference between the two prices will be seen by the customer as the saving to be made by buying the item during the sales promotion. 

They are likely to believe the higher price is the price at which the item is available during the non-promotion periods.

When comparing prices to prices offered by other businesses, there are two main questions that a business must be able to answer ‘yes’ to:

1. Is the comparison based on a price at which the item is offered for sale in the local market?
2. Is the basis of the comparison clear?

Markdowns – Usually $X now $Y
It is relatively common for businesses to compare the prices of their goods or services with the usual price of those items in order to indicate to consumers that they can obtain a bargain by purchasing the item now.  Where the ‘usually’ price used is genuine, the bargain being advertised can be a true bargain.  There are two primary ways in which the advertising of former prices can be misleading:

1. The ‘usually’ price is an artificially inflated price established for the purposes of enabling the subsequent offer of an apparent large reduction.  A comparison price should be one which is based on the regular mark-up, not an inflated one, and be a realistic market price at which sales are regularly made.  If significant sales have not been made at the ‘usually’ price, then this is likely to indicate that the comparison price was not genuine.  Any price comparison, when closely examined, will need to be supported by the actual facts of the particular case.
2. The ‘usually’ price is out of date. The comparison prices should be ones at which the items have been sold sufficiently recently and have applied for a reasonable period to meet the description ‘usually’. What is a reasonable period may depend on factors such as the type of product or market involved and the usual frequency of price changes.

Once a price has been charged for a reasonable time, it then becomes the normal price and comparisons should not be made with a previous original price unless the basis for the comparison with the original price is made very clear.  For example, if a retailer advertises a product as ‘was $15 now reduced to $10’, and the product has recently been available for $12, the ‘was’ price quoted may be misleading, even if the product was originally sold at $15.  This is because the actual saving is only $2 not $5.  A way to overcome this would be to advertise ‘originally $15, previously $12, now $10’.

Likewise, an introductory special should be a genuine offer to sell an item for a lower price than the usual mark-up.  There must be a genuine intention to increase the price to the usual selling price once the period of the introductory special has finished.  Also, the introductory special should not apply for a prolonged period. 

A retailer advertised a massive half-price diamond ring sale.  The advertisement featured ‘was’ and ‘now’ prices.  However, no sales had been made at the ‘was’ prices on 18 of the items advertised.  The retailer was convicted and fined.

Elsewhere $X here $Y
If a business compares its prices with those of a competitor (for example, ‘Their price $X, our price $Y’), the business should be able to identify where in the local market the goods or services are available for purchase at that price.  The goods or services compared should be exactly the same, not just similar.  If the ‘elsewhere’ price is not in fact charged in the local market, then the suggested bargain is not genuine.

The local market is the area in which an average person would travel to buy the advertised product in question.  It may, therefore, vary depending on the product being sold.  For example, people may be willing to travel further for an upmarket stereo system than they would for a packet of Easter eggs.

Businesses who advertise ‘elsewhere’ prices in nationally distributed flyers, need to be sure that the ‘elsewhere’ or ‘was’ prices are valid for all the areas the flyers are delivered to.  It would be misleading to use a high ‘elsewhere’ or ‘was’ price in the flyer that was not a true representation of the saving in the relevant market where the flyer was distributed.

Recommended Retail Price
In the Commission’s view, many consumers might consider that the recommended retail price is the normal price goods are offered for sale at in the local market. 

When consumers see an advertisement that uses a recommended retail price as a price comparison they might think that by purchasing the goods at the lower price they will make a genuine saving as they are paying less than the normal price.  Because of this consumer perception, comparisons with recommended retail prices may be misleading unless these are the prices at which the item is normally available in the local market.

Duty-free
The term ‘duty-free’ implies to consumers that there is a price advantage in comparison to prices charged by other retailers.  Tourists and people travelling overseas are entitled to assume that they will get the benefit of this price advantage.  Businesses need to take care when using this term that the goods described as duty free would usually attract duty, and that the duty-free price advantage is passed on to the consumer. 

The range of goods attracting import duty has declined considerably in recent years, and it is common for duty-free stores to have a mixed stock of dutiable and non-dutiable goods available both for export and for retail sale.  Businesses claiming to make duty-free sales should clearly identify those goods which do not usually attract duty so as not to give customers the impression that there is an advantage in buying the stock from their store because in another store it would attract duty.

‘Free’ goods or services
If something is advertised as free, it must be truly ‘free’.  This means there must be no extra cost to the customer above the normal price of the goods, whether up-front or built into the price.  The same applies to the use of words and phrases such as ‘extra’, ‘give-away’ or ‘two for the price of one’.

Promotions where customers are offered a free gift for buying a certain item will breach the Fair Trading Act if the cost of the item being sold is inflated to cover part or all of the cost of the ‘gift’.  Likewise, if a free item is replaced by a discount for those who don’t want the item, this may also breach the Act, as it can indicate that the cost of the free item is actually built into the price.

If there are any limitations on the offer, such as ‘only with orders over $100’, then these should be clearly stated.  Items should not be advertised as free if they require the purchase of installation services or additional features.

Advertised promotional bonuses such as free items should be provided automatically, not on the basis of customers having to specifically request them.

A cycle shop advertised a ‘buy one get one free’ promotion.  The shop increased the selling price of the bicycles involved for the length of the promotion.  If a customer did not want the ‘free’ bicycle, they paid a lower price.  The court said that if the price of the good purchased had been raised to cover the cost of the free good, then the good was not free.

Goods and Services Tax (GST)
When consumers see advertised prices for goods or services, they are entitled to assume that those prices are the total price and include GST.  The Commission considers it best practice for retailers to include GST in the price of all goods and services sold to consumers.

Attempts to advise in fine print that GST is additional are unlikely to prevent consumers from being misled.

It is misleading to compare a GST-inclusive price with a GST-exclusive price, as this is likely to give a false impression of savings.

A company used graphics and voice-overs in television advertisements to promote prices for various cellphone accessories.  It was only stated in small print in the last frame of the advertisement that prices excluded GST.  The company was convicted and fined.

Hidden or additional costs
Businesses must clearly identify all the costs or charges that the buyer of the goods or services will have to incur at the time an offer or representation is made.

Hidden or additional costs that consumers will incur as a result of a purchase must be clearly specified.  These might include legal fees, administration charges, postage and packaging of mail-order or similar goods, essential parts, etc.

In the Commission’s view, consumers are entitled to consider that any price quoted for a good or service is the price that they will be asked to pay in order to purchase it.

The Commission considers it best practice for the full price that a consumer has to pay to be clearly specified.  It is the initial impression created by an offer that is likely to be important.  Any fine print disclosure of additional costs to be paid, or disclosing the true costs of the purchase when a customer is about to make the purchase is unlikely to prevent a breach of the Act.

An airline promoted national flights in newspaper advertising and on its website.  The advertising failed to disclose an additional Civil Aviation Authority (CAA) levy as part of the cost.  On its website, the CAA levy was only displayed on a separate and subsequent ‘terms and conditions’ page.  The company was convicted and fined.

Price displays
The Commission encourages businesses to price goods clearly.  When consumers see price stickers on goods or shelf prices, it is reasonable for them to expect that those prices will be what they are charged at the checkout. 

A business that displays prices which are lower than the actual price at which they are selling goods or services will breach the Fair Trading Act because they are misleading consumers about the true cost of goods.

Price ranges
Businesses must be careful not to mislead customers when advertising a range of prices.  A claim that goods are on sale ‘from $9.99’ or have ‘up to $50 off’, when only a small proportion of the items in the sale actually qualify for that description is literally true, but could mislead consumers into believing the sale is more attractive that it actually is.

In these situations, to avoid misleading consumers, it is important that as much detail as possible is given, for example, ‘$10 off men’s T-shirts, $20 off summer skirts’.  If there is not enough space to list individual prices, the most common saving should be indicated – for example, ‘up to 50% off, most items 30% off’. 

Promotional material should be kept up to date to reflect changes in price ranges.

Price ranges are commonly used in the advertising of property to indicate the range in which the vendor is likely to accept an offer.  While ‘price-banding’ or price range representations can be a useful practice if represented accurately, care must be taken by vendors and real estate agents not to be misleading. 

Where the advertised price is not one at which the vendor would consider selling at the time of the advertisement but is a false low price to attract potential buyers to properties which they might not otherwise have considered, the advertisement will breach the Fair Trading Act.

Quotes and estimates
Businesses must not mislead potential customers when giving quotes and estimates.  When a price is quoted or estimated, customers must be able to rely on that figure.  It is on the basis of that quote that customers decide whether to purchase the goods or services offered by the business. 

A quote is an offer to do a job for a certain price.  If accepted, then there is a contract for the work to be done for that price, unless the parties agree to a change in the price to cover extra work not covered by the original quote.

An estimate is the nearest price, or range of prices, that a business can give based on past experience.  If there may be any significant variation from the estimated price, the business should make this, and the nature of the possible variation, very clear to the customer.  All limits and conditions must be clearly spelled out.  The business must make the estimate honestly, based on reasonable grounds.

It is good business practice to put quotes and estimates in writing, however, the Fair Trading Act makes no distinction between an oral or written quote or estimate.

Any charge for giving a quote or estimate should be disclosed before agreeing to provide it.

Quotes or estimates should be inclusive of GST.

Reasons for price changes
Any representations made about the reasons for changes to the prices of goods or services should be accurate.  Businesses should not attribute price increases for which they are either wholly or even partly responsible to other organisations such as regulators or their supplier. 

The Fair Trading Act prohibits such practices because it is important that consumers are aware of the correct reasons for any price changes so that they can make informed purchasing decisions.

Sales – promotions, types and duration
In the mind of the ordinary consumer, the word ‘sale’ means an opportunity to buy goods at reduced prices for a limited time.

It is misleading for a business to use signs or advertisements saying ‘sale’ unless a substantial proportion of stock relating to the sign is being offered at lower prices than were charged before the ‘sale’ started.  Businesses should also take care when promoting goods ordered specifically as sale stock.  Such goods should not be promoted using ‘was’, ‘now’ prices, as the goods have not been sold by the business prior to the sale.

There are many different types of sales.  All sales, however, imply a lower price than usual is being charged.  To avoid breaching the Fair Trading Act, the goods or services being offered as part of the sale must be priced below normal levels.  Businesses must also be able to prove that the description of the sale is truthful.  ‘Liquidation’, ‘receivership’ or ‘fire’ sales imply that the stock is from a business that is closing down.  Advertising a ‘closing down’ sale with no intention of closing the store will breach the Act.

A sale represents a special buying opportunity which, if missed, cannot be reasonably expected to appear again in the short term.  For this reason, many buyers may change their ordinary shopping habits in order to take advantage of this opportunity.  To avoid misleading shoppers, a sale must be for a short duration and only for the period stated.  If advertising states ‘last three days of the sale’ for several weeks, shoppers would be misled about the opportunity available to them. 

Special offers
An advertisement referring to ‘special offers’ or ‘specials’ would be misleading unless there is truly something special about what is being offered – such as a lower price or additional features.

A special offer that is advertised widely when only a few people are able to take it up,  would be misleading.  An example is an advertisement for cheap credit by a finance company which does not specify that the offer is available only to those with incomes over $60,000 a year.

Any unpredictable limitation or qualifications to a special offer should be clearly shown, such as if the offer applies only to cash purchases, if there are limits on the number of items per customer, if it applies only to purchases over a minimum value, if there are limited stocks available, or if the offer is only for a limited time.