May 2009

Retailers to display component pricing - an update on changes to the Trade Practices Act

In November last year the Federal Government enacted amendments to the Trade Practices Act which will take effect from 25 May 2009.  These amendments will significantly alter the ability of corporations who advertise to consumers from being able to use the technique known as "component pricing". 

"Component pricing" occurs when businesses advertise their prices, not as a single all-inclusive figure, but in "component" parts (e.g. $90 + $9 GST + $10 postage and handling). 

Under the new law, section 53C is replaced with a new provision prohibiting (with some exemptions, discussed below) corporations from advertising component prices "if they do not also provide, in at least as prominent a way, a single figure price". 

What makes up a "single price"?

Sellers must prominently display the total amount which they wish consumers to pay for their good or services. 

How/where does the single price have to be displayed?

The single price must be displayed in a "prominent" way.  The legislation explains that this means that the single price must be:

  • "at least as prominent as the most prominent of its parts" and

  • stated at least as prominently as any other price in the representation, including  audio representations (i.e. advertisements on TV and radio). 

It is important to remember that component pricing is not prohibited - and that the new rules are about the need for the total price to be displayed and its prominence.

Examples:

$100 + $10 GST and other charges

 

Incorrect because the total price is not displayed at all

$100 + $10 GST*

 

* (Total Price $110)

Incorrect because the total price is displayed, but not with the same prominence as the components

$100 + $10 GST (Total Price $110)

Correct because the price components and the total price is displayed with equal prominence

Only those amounts quantifiable at the time of the representation must be added together to create a single price.  As a consequence of this:

  • If the price is dependent upon how much the buyer uses a service the price will not   be quantifiable at the time of the representation.

  • If price is dependent upon quantity purchased, a minimum price for a quantity must   be specified e.g. $20 per kg.

  • If some charges are not quantifiable at the time of the representation, the price   should be stated "from $X". 

Any taxes, duties, fees, levies or charges imposed on the corporation making the representation must be included in the single price, for example:

  • If a consumer can only pay by credit card and there is a surcharge payable on this,   that charge must be included in the single price.

  • If any taxes etc are passed on to the consumer they must be included in the single price e.g. the Passenger Movement Charge which airlines pay, but the price of which   is then included in the ticket - unless the tax is paid directly by the consumer to the taxing authority.

Any costs for other goods that must be purchased in addition to the goods of primary interest must be included in the single price.  If for example, when you buy internet services, you must also buy a specific modem, the price of the modem would have to be quoted.  "Bundling" goods in this manner can create other Trade Practices Act problems which will be discussed in a further Bartier bulletin. 

Penalties

Pecuniary penalties of up to $1.1 million for corporations and $220,000 for individuals per offence can be imposed for breach of the new section 53C. 

Exceptions

  • The cost of sending or delivering the goods to consumers (e.g. postage and packaging costs) does not have to be included in the single price.

  • Representations made exclusively to corporations (and other bodies corporate) are exempt from the application of the new s53C.  Care is needed here - if there is a possibility of any individual consumers, there is a risk of contravention of 53C. 

  • Service contracts that provide for periodic payment ? an obvious example is mobile phone advertising e.g. $49 per month for 12 months.  As long as the single price (i.e. $49 x 12 = $588) is displayed prominently, it does not have to be displayed as prominently as the periodic component price. 

  • Optional extras available for a good/service -  the costs of these do not have to be included.  However a single price must be stated for the primary functioning good/service e.g. a car that can be upgraded with optional extras can be advertised at the lowest possible price a consumer could purchase it for.

  • Goods and services not of a kind ordinarily acquired for personal, domestic or household use or consumption are exempt from the requirements of section 53C.  In other words, the new law is targeting "consumer goods". 

  • Section 53C does not apply in relation to "financial services".

Businesses, particularly those dealing primarily with "consumers" (in the Trade Practices Act sense of those words), should already be aware of the need to quote prices inclusive of GST.  The new section 53C adds to this rule.  The new law commences on 25 May this year.  Businesses need to address pricing, price ticketing and promotional material now if they are to comply with the new regime.