A company’s brand image and reputation are at the core of its consumer relationship. Although a business is not enforced to disclose any information in most circumstances, often businesses are trusted to avoid alluring in deceptive or misleading conduct. A business should acknowledge advice to a consumer where it is likely to conduct an ambiguous impression. This explainer highlights how two world-renowned companies, Trivago and Kogan mislead their consumers through faulty promotion claims and what you can do as a business to avoid deceptive conduct.
In January 2020, the Federal Court ruled that Trivago had misled consumers by showing how its website quickly and easily helped users identify the least expensive rates on any given hotel. Trivago used a faulty algorithm in which situated a substantial weight on the hotels booking site paid the highest cost per click fee to Trivago, breaching The Australian Consumer Law.
This act may be described as misconduct. Misconduct is defined by the Cambridge dictionary as ‘unacceptable or bad behavior by someone in a position of authority or responsibility.’ Although in the sense of the Australian Consumer laws, there is no set definition of the combined terms of deceptive or misleading conduct, the phrase has instead been explained by the court to indicate a policy that leans towards placing a consumer into error.
Trivago misled consumers into inaccurate prices. False advertising is not only a breach of consumer law but can also have detrimental consequences from a brand’s image. It is vital for a business to understand how the quality of its service can impact consumer perception. In the case of Trivago, one must decide if the conduct is misleading, deceptive, or even both.
To avoid deceptive conduct, any statement made by a company should be correct and have the ability to be sustained. Dating back to 2016, Trivago implied the website would efficiently help users identify the cheapest hotel room rates on the market for anywhere across the globe. Instead, Trivago serviced algorithms that placed invalid rates on their hotels first on their website, abusing the organisation's main source of revenue which is a cost-per-click payment. Mr Sims from the ACCC states rather than showing an ‘impartial and objective’ price correlation assistance, instead the company prioritised advertisers who were willing to pay the greatest click per cost fee. Trivago's very own data demonstrated the greater priced room prices were selected as their ‘top position’ rather than alternative lower priced offers in ‘66.8% of listings’
Trivago's deceiving conduct on the 1st of April, 2018 can be outlined below. It is evident the deal is highlighted as being cut from $420 (see in red) to its claimed cheaper deal of $299, a connection between prices that were displayed as an equivalent room category in the same Hotel. Whereas, if you clicked ‘More deals from AU’ you would get cheaper prices per night from a comparable hotel room ‘$227’.
Above, Trivago had been found disobeying the Australian Consumer Law - section 18 and The Competition and Consumer Act 2010. Section 18 of the act constrains a person from intervening in deceptive or misleading conduct within trade or commerce. This constraint is an economy-wide state of conduct, therefore is not defined as the supply of goods and services. Below you can see examples administered by the Australian Competition and Consumer Commission of what section 18 analyses.
Predominantly the Act covers:
Brand safety and labeling
Unjust market practices
Price checking
Industry codes
Business regulations
Mergers and acquisitions
This Act addresses many areas of the market such as the exchange between wholesalers, suppliers, consumers, and retailers. The objective is to complement the welfare of Australians by boosting competition and fair trading, along with providing constant supervision of consumer safety. Below shows the changes made on Trivago's website, adding a side tab that states:
‘How payments to us affect ranking - Ranking results reflect your search criteria and our assessment of the attractiveness of the offer compared to other offers available on our site. It also reflects the compensation paid by the booking site.'
In a decision of the Federal Court on 4 November 2020, the primary judges upheld its decision that Trivago portrayed false representations misleading consumers. Changes were made to the website to avoid any misconduct.
"This is a win for consumers and is an important warning to comparison sites that they must not mislead consumers about the results they recommend” ACCC Chair Rod Sims said.
As the case was recently heard in court, the penalty for Trivago has not been defined. However, the maximum penalty for a business showing faulty claims for each offense is $500, 000 for an individual.
Contrasting this, another display of misleading conduct can be highlighted through Kogan’s false advertising of a discounted sale.
In Kogan we Trust
In June 2018, one of Australia's premier online shopping stations Kogan was taken to court by the ACCC with accusations of violating consumer law by partaking in misleading or false advertising over a 10% discount promotion. Kogan ran a promotion through their network which offered customers a 10% discount on a range of products by applying the discount code ‘TAXTIME’. The promotion was run at the end of the 2017 financial year where an estimated 632,000 website visitors had examined the site on the promotional days from June 27 to June 31.
The organisation was suspected to be increasing the prices of 600 plus products by at least 10% in many cases, almost instantly prior to their promotion claims. Nearing the end of the sale period, emails were sent out by Kogan using claims such as ‘48 hours left’ and ‘Ends midnight tonight’ to approximately 25.7 million consumers. These examples demonstrate how Kogan promoted their fraudulent 10% deal, overall breaking the Australian Consumer Law.
The image illustrated below is an example of Kogan's deceptive Promotion strategy.
(ACC, 2019)
“Businesses must not make claims to consumers about discounts or sales unless they are offering genuine savings,” said ACCC Commissioner Sarah Court. This displays the misleading or false advertising within Kogan Australia, as consumers were wrongly deceived by incorrectly receiving the stated 10% discount off original prices. While this was arguably a less obvious case for consumers, it has an evident link towards Trivago's misleading advertising through faulty pricing claims whilst incorrectly expressing product prices.
How to avoid misleading consumers
To mislead consumers when advertising goods and services is illegal, you are to be expected to breach the Australian Consumer Laws if you demonstrate to an audience a deceiving impression. This could include through:
Pricing (demonstrated in the Trivago case study)
Value (demonstrated in the Kogan case study)
Quality
To avoid this, always be honest in your disclaimers and fine print. You must provide all necessary facts about goods and services to consumers. You are prohibited to hide them in the fine print.
Disclaimer prerequisites
Be prominent and visible
Do not overwhelm with graphics, images, or text
Never undermine or deny main offers.
Both cases above resonate with me as a consumer as when I was looking to travel to Europe, I often used Trivago and I often found myself scrolling Kogan for the latest deals. To feel these negative implications and find out it was ripping me off made me want to analyse this industry further. To close the case, it sends a powerful message to competitor search engines and websites that as a business you shouldn't rank or process prices based on the highest click-per-cost fee. You need to be upfront with consumers to avoid any altercations of misleading or deceptive conduct.
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