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.

Boys fishing in a bayou, Schriever, La. Cajun children in a bayou near the school. Terrebonne, a Farm Security Administration project (LOC)

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.

Comments are closed.

Powered by WordPress.com.

Up ↑

%d bloggers like this: