Over-selling, bait marketing and coupon sales

Retailers must find coupon sales an exciting opportunity to boost their business but they should take care not to engage in practices the Consumer Protection Act prohibits in the process. Two such prohibited practices are over-selling/over-booking and bait marketing and they could land retailers in hot water.

The temptation to over-promise is, perhaps, almost implicit in how coupon sites tend to operate. As I understand the business model (and I stand to be corrected Update: I was corrected and advised that at least some coupon sites do make money off each coupon sold, not just the ones sold and not redeemed), coupon sites make their money from people who buy coupons and don't redeem them. Retailers presumably make their money on numbers of customers and increased awareness from coupon related visits.

Over-selling and over-booking

One of the practices this section was probably designed to address was airlines' tendency to over-book flights and leave paid passengers without seats during periods where the airlines underestimated demand. As the name suggests these two activities involve retailers promising more than they can deliver. Section 47 of the Consumer Protection Act deals with these two activities and states the following:

• A supplier must not accept payment or other consideration for any goods or services if the supplier—
  • has no reasonable basis to assert an intention to supply those goods or provide those services; or
  • intends to supply goods or services that are materially different from the goods or services in respect of which the payment or consideration was accepted.

If a retailer does engage in over-selling and is unable to meet demand, the retailer will be required to refund the consumer the price paid, interest on that amount paid from the date the amount was paid until the refund is made as well as consideration for "costs directly incidental to the supplier’s breach of the contract".

The section does provide some relief for retailers. If they find that they are unable to meet demand and procure an equivalent or better alternative for the consumer and the consumer unreasonably rejects the offer, the retailer could be let off the hook.

The risk here in the coupon sales context is that with the number of coupons that tend to be made available through coupon sites, retailers should take care to ensure that they can meet the demand if those coupons are actually purchased and presented for payment. If they don't, they could be guilty of over-selling or over-booking and be liable not just for a refund but additional amounts I mentioned above. The retailer could also find itself being sanctioned for being in breach of the Consumer Protection Act itself.

Bait marketing

Bat marketing is a devious form of marketing and occasionally encountered through electronics and other sales. Brian Mdluli, the CEO of the Direct Marketing Association, recently recounted a story about his attempt to take advantage of a flat screen TV sale. The TV in question was offered at a bargain price and Mdluli arrived before the store opened to queue for the sale item. When the store opened he was informed the TVs he sought were sold out and he was invited to browse the store for another, higher priced, TV. He said he went back to his car and return to the store with his business card and a copy of the Consumer Protection Act and soon left with an acceptable TV at an acceptable price. It is a humorous story but not an uncommon one. Section 30(1) of the Consumer Protection Act states the following:

A supplier must not advertise any particular goods or services as being available at a specified price in a manner that may result in consumers being misled or deceived in any respect relating to the actual availability of those goods or services from that supplier, at that advertised price.

As with over-selling and over-booking, the retailer must make sure that it can deliver on its promises. If a retailer offers a certain number of items at a certain price then it must be able to deliver those items at that price when the conditions for the purchase are met. In other words, section 30(2) states the following:

If a supplier advertises particular goods or services as being available at a specified price, and the advertisement expressly states a limitation in respect of the availability of those goods or services from that supplier at that price, the supplier must make those goods or services available at that price, to the extent of the expressed limits.

If it can't deliver on its promises, it may offer to supply an equivalent or better at the advertised price and if the consumer unreasonably refuses the offer, the retailer could be off the hook.

Deliver on your promises

These two similar provisions essentially require retailers to deliver what they promise. If they participate in coupon sites they should do so bearing these prohibited practices in mind. The cost of non-compliance with the Consumer Protection Act can be steep and the reputational impact on a business could be devastating, especially given the social nature of many of these coupon sites. On the other hand, the rewards for becoming known as a retailer that delivers on its promises can be tremendous, both in terms of sales and reputation.

Zappon, coupons and the Consumer Protection Act

Zappon, a South African coupon site and competitor to the likes of Groupon and Wicount, launched this week to some excitement on Twitter. Coupons are pretty hot commodities these days and coupon site valuations have soared with Groupon famously being valued recently at $6 billion. The phenomenon is global and it is increasingly competitive. Zappon, an Avusa Limited initiative, is the latest entrant to the local market and a sizable one at that. It is backed by three of South Africa's most popular publications: the Sunday Times, the Times and the Sowetan.

Essentially, for those who haven't come across these sites before, these sites promote coupons offering discounts on products and services offered by third party providers. One example is an offer by popular restaurant JB's of R160 worth of food for only R50. There are a limited number of "zappons" (Zappon's name for a coupon) available and for a limited time period. Its all pretty exciting, particularly if you find an offer that is a great deal.

These offers are not made by the coupon site itself, but are rather made by the provider and communicated to the public by the coupon site. In a way, the service is fairly similar to the coupons people still cut out of newspapers or pick up in stores for specified items. What is new is how these coupons are marketed to the public and obtained.

With April looming, the Consumer Protection Act is very much on everyone's mind so one question that comes up in the context of these coupon sites is what the Consumer Protection Act has to say about them? Section 34 of the Consumer Protection Act deals with "Trade coupons and similar promotions". The section does not apply to franchise agreements, customer loyalty programmes, loyalty credits or promotional competitions. The Act does use the term "promotional offer" which means the following:

an offer or promise, expressed in any manner, of any prize, reward, gift, free good or service, price reduction or concession, enhancement of quantity or quality of goods or services, irrespective of whether or not acceptance of the offer is conditional on the offeree entering into any other transaction.

Essentially, the section requires providers to give consumers what the coupon promises and not to change the offer terms or introduce artificial constraints after the coupon is purchased. Like many provisions of the Consumer Protection Act and the Consumer Protection Act itself, providers are required to be fair and not mislead consumers. If a provider is going to make an offer, it must do so with the intention of fulfilling the offer on the terms communicated to the consumer.

When it comes to the coupon itself and communications regarding the offer's details:

Any document setting out a promotional offer must clearly state—

• the nature of the prize, reward, gift, free good or service, price reduction or concession, enhancement of quantity or quality of goods or services, or other discounted or free thing being offered;
• the goods or services to which the offer relates;
• the steps required by a consumer to accept the offer or to receive the benefit of the offer; and>
• the particulars of any person from whom, any place where, and any date and time on or at which, the consumer may receive the prize, reward, gift, free good or service, price reduction or concession, enhancement of quantity or quality of goods or services or other discounted or free thing.

In the JB's offer example I mentioned above, Zappon and JB's must take care to ensure that the copy on the Zappon offer page and the coupon itself set out all the requisite information mentioned above. When it comes to redeeming the coupon, JB's is obliged to offer the consumer precisely what it offers, namely "any food from the JB's menu, to the value of R160." The terms on the offer page limit the offer somewhat by excluding drinks, tips and require consumers to redeem the coupon for sit-down meals during a single visit and the participating restaurant appears to be the JB's Corner in Melrose Arch. The coupon further has a fixed time period within which it can be redeemed (between 28 March 2011 and 28 April 2011). The limitations are set out in a column prominently titled "Fine Print" which catches a visitor's eye.

The copy on the Zappon page doesn't contain all the information the Consumer Protection Act requires to be disclosed to the consumer. Some of this information (particularly regarding coupon redemption) is detailed in the site terms and conditions, and hopefully on the coupon itself. If not, this is obviously a deficiency Zappon would have to address (as would any other coupon site operating in South Africa). On a related note, the Zappon terms and conditions could use tweaking. The terms and conditions don't appear to comply fully with the Electronic Communications and Transactions Act and the privacy policy referred to in the terms and conditions doesn't appear to have been published yet (at least not as I write this on 22 March 2011) (Update: Derek Abdinor, one of the Zappon development team members, pointed out that the privacy policy is published and it is linked to in clause 11) does not have its own prominent link where a consumer would expect to find it at the bottom of the page. It should also be linked to earlier in the terms and conditions where it is referred to and not just in clause 11. This is more of a usability and accessibility issue which becomes important when the privacy policy isn't accessible alongside the terms and conditions where a consumer would probably expect to see a link (this paragraph was updated on 22 March 2011 at roughly 17:30 in response to feedback from the Zappon development team in the comments - thanks for the feedback!).

A consumer, redeeming the coupon, can expect to receive the same products or services he or she would receive were he or she obtaining those products or services in the usual way. In other words, and using the JB's offer as an example again, a consumer can expect to receive the same quality food when redeeming a coupon as he or she could when walking in and paying the usual price as a non-coupon redeeming customer. JB's must also make sure that it covers the demands of all the issued coupons or offers a reasonable replacement for items ordered where there is legitimately a supply issue of the items ordered. Again, the restrictions on the provider effectively require the provider to offer the consumer the same products or services it would offer a consumer using another form of tender. A coupon consumer should not have to contend with, for example, a smaller size pizza just because she redeemed a coupon giving her a discount on the meal.

One potential challenge could arise where the coupon site uses the term "voucher" instead of "coupon". I noticed a few instances of this on the Zappon site, both on the offer page and in the terms and conditions. The reason why this is potentially problematic is that the Consumer Protection Act distinguishes between coupons and vouchers. A voucher, as far as the Consumer Protection Act is concerned, is something more akin to store vouchers you may buy from a bookstore or shopping mall. Vouchers are alternate forms of tender, not necessarily discounted promotional offers such as the ones the coupon sites promote. One of the interesting features of a voucher is that the Consumer Protection Act states that a voucher only expires either when its full value is redeemed or after three years. That expiration term doesn't work well in the context of coupons and, in the interests of maintaining a clear distinction between vouchers and coupons, Zappon should change its references to vouchers to coupons. Unless its intention is to issue vouchers, of course.

Update: Kerry-Anne Gilowey from August Sun Projects was part of the team that developed the Zappon site content and she pointed out that Zappon actually makes both vouchers and coupons available on the site. Take a look at her comment to this post for more information.

While this post points out potential challenges, Zappon is the latest iteration of an exciting trend for consumers. Zappon and its competitors must ensure that they comply with the Consumer Protection Act, bearing in mind that they could be construed as the providers' agents in promoting these offers.