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.

Complicated promotional competitions under the Consumer Protection Act

Promotional competitions are a terrific way to create a better awareness about a product, service or brand and generate some buzz. These competitions are on Facebook Pages, dedicated microsites and on company websites. They can be a lot of fun and the prizes are often terrific. Unfortunately for marketers, these competitions are about to become a lot more complex from a legal perspective when the Consumer Protection Act comes into force on 1 April 2011.

Marketers or promoters have historically used a pretty short list of rules to govern competitions in the past but this is going to change. Section 36 of the Consumer Protection Act deals with Promotional competitions and will impose a series of requirements for not only what should be included in competition rules but also what information and documentation should be retained after the competition comes to a close. This section is informed by the draft Consumer Protection Act regulations and regulation 14 in particular which sets out important detail. The regulations are not yet final and are subject to change but they give strong indications of what lies ahead for promoters.

For starters, the competition rules (actually, terms and conditions may be a better description) must be prepared and made available to prospective contestants at the beginning of the competition and must be made available at no cost to contestants. Promoters are also required to retain the competition terms and conditions at the end of the competition. I understand the time period to be 5 years but I stand to be corrected. Other information the promoter must retain for "at least five years" will likely include the following (this is not a complete list of information the promoter must retain):

• the promoter's full details;
• a copy of the offer to participate in the competition (this must set out the competition benefits, steps to accept the offer and participate in the competition and more details commonly found in competition rules used today);
• names and identity numbers of persons responsible for conducting the competition;
• a representative selection of materials marketing the competition (this could include screenshots or other screen captures if the competition is marketed online);
• a full list of prizes;
• declarations by people responsible for conducting the competition that winners were not excluded from being winners in terms of the Consumer Protection Act; and so on.

Promoters may also be required to report on various aspects of the competition to effectively establish compliance with the Consumer Protection Act and furnish the Consumer Commission with this information on demand.

To add to all of this, the regulations currently envisage competitions being conducted under the supervision of a chartered accountant, registered auditor, admitted attorney or commissioner of oaths and must be reported on through the promoter's internal audit reporting procedures. This requirement, alone, adds quite an overhead to competitions and its not clear what must be audited: individual winners or the process used to determine the winners.

Conducting competitions under the Consumer Protection Act is not a simple matter. I have just barely scratched the surface with this post. The rules themselves begin to resemble detailed terms and conditions, particularly when you factor in the myriad disclosures marketers and their clients will have to include to comply with other aspects of the Act. The traditional half page rules just won't do anymore.