The success of a business is ultimately determined by the ability to attract, and keep, customers. 

While savvy advertising can be extremely useful when it comes to attracting customers, retailers should beware the use of bait advertising. Not only does such advertising mislead customers, it is also illegal.

Section 56 of the Trade Practices Act 1974 (Cth)(“TPA”) prohibits corporations from advertising goods and services at a specified price if they are aware, or should have been aware, that those goods and services cannot be supplied in reasonable quantities over a reasonable period of time. What is reasonable depends on the nature of the market in which the retailer carries on business and the nature of the advertisement. This provision of the TPA is mirrored in the various state Fair Trading Acts.

More simply, Justice Spender of the Federal Court in Wallace v Walplan Pty Ltd described bait advertising as "the advertising of a product or service at a special price which the advertiser does not intend to honour". He went on to say "the deceit of the advertiser is in causing the prospective purchaser to seek the advertised bargain, which in a practical sense does not exist." He even went as far as to suggest that the "practice of bait advertising smacks of fraud."

Unscrupulous retailers use bait advertising to draw customers into their stores and, when the advertised special is not available, sell inferior or higher priced goods in place of the goods or services advertised.

However, the gains provided by bait advertising may be only short-term. Dissatisfied customers tell their friends, and may report the matter to the Australian Competition and Consumer Commission ("ACCC") or a state Office of Fair Trading or Consumer Affairs.

One business was found guilty of bait advertising when it advertised low cost, fully furnished cottages which did not in fact exist. On one property, instead of the furnished "blue ribbon investment seaside cottage" described, there stood a galvanized iron shed. The purpose had been to entice people to the area, where their attention would be switched to other blocks.

In another case, a corporation was accused of advertising a second hand car but refusing to sell it for the advertised price to a person believed to be an unlicensed car dealer.  There was evidence to suggest that it was common policy in the trade not to sell to unlicensed dealers and that the advertisement was not directed to the "whole world" but rather only retail purchasers. The court found that, given the nature of the market and the nature of the advertisement, there was no bait advertising.

More recently, the ACCC settled a four-year legal battle with a major retailer.  The retailer was accused of advertising a product for a price, with a bonus product worth much more than the product.  The retailer ran out of stock but failed to remove the advertisement from its catalogue.

What about where business genuinely misjudges demand or stock supply is unexpectedly interrupted? The legislation recognises that the intention of the advertiser must be assessed at the time of the advertisement, therefore a retailer who was not aware, and cannot reasonably have been aware, of circumstances preventing supply of the goods is not involved in bait advertising.

Cautious retailers would be well covered by issuing a public apology regarding their inability to supply, for example, in a national newspaper. Alternatively they could offer a 'raincheck' to customers, allowing supply of the goods at a later date. If a business continues to advertise goods and services after it becomes aware of circumstances preventing supply, the advertising becomes an offence.

To prevent allegations of bait advertising where demand is likely to exceed supply from the outset, businesses should include a disclaimer within the advertisement. Disclaimers should be clear and specific about the limitations applying to the advertised goods or services. It may be as simple as stating that stock is limited so “first in first served.”

Possible penalties for bait advertising include fines, injunctions, undertakings in respect of future advertising, requirements for corrective advertising or imposition of compliance strategies for the business to ensure that such a breach does not re-occur.

In the end, the legislation prohibiting bait advertising serves to protect the interests of both customers and competitors in the market place. It does not exist to alarm retailers who fear penalties may result from genuine unforeseen events relating to their stock or supply.   However, it exists as a warning that retailers should advertise their goods and services accurately and honestly.

 

For further information please contact Leneen Forde or Kathryn de Bont