At some point in our lives we have all been exposed to advertising. You may be sitting there nodding in agreement or completely oblivious to this fact!
Advertising can be conducted in many different ways, whether that is through television, the radio, the internet or print media. Places you may have come across an advertisement is on a billboard as your drive along the highway or even whilst watching your favourite vlogger on Youtube trying out a new skincare product. They are everywhere we look, whether we are aware of it or not.
No matter what it is being advertised, or how it is being advertised, there are laws that apply to advertising in Australia. Both the media practitioner and the consumer need to understand the legal obligations advertisements have. Often advertising has negative perceptions, however “consumers don’t hate ads; they hate bad ads” (Willner, 2018). Bad ads are usually viewed as “bad” because the company prioritise the pay check at the end more than the consumer of their product.
In today’s marketing world, many companies have landed in the headlines of news stories for breaking the law. Hotel booking website Trivago did just that and mislead consumers through their advertising tactics. It is paramount for companies to understand advertising and the law to avoid ending up in this situation. The laws in place will help consumers to avoid becoming victims of unlawful advertising and companies to not only avoid breaking the law, but also uphold a good reputation.
What is the purpose of advertising?
Undertsanding what advertising entails will help highlight the difference between good and bad advertising and its legal implications.
Advertising is a marketing activity used by most Australian businesses as a way to promote their goods and services. The purpose of advertising a business or product can be to:
- Create awareness
- Communicate information
- Educate your audience
- Enhance sales; and
- Create demand
How to determine what is an advertisement?
According to ad standards you can ask yourself the following four key questions to determine what is an ad:
- Is it something broadcast, published or done by an advertiser?
- Is it under the reasonable control of an advertiser?
- Does it draw the attention of the public to promote or oppose something?
- Is it advertising to Australians?
Once we know what an advertisement is, we can be more cautious of the ads we consume. Media Practitioners need to ensure they produce advertisements with a sense of obligation to the consumers and target market. According to the Australian Competition and Consumer Commission this can be achieved by ensuring the advertisement is legal, decent, honest and truthful.
Advancements in technology have allowed media practitioners to reach a significantly larger number of people through online platforms. Advertisements are increasingly in the public eye so abiding by the relevant laws and industry codes is more important than ever.
What Are The Laws That Apply to Advertising?
The Australian Consumer Law (ACL) is a national law that is part of the Competition and Consumer Act (2010). It came into effect on the 1st of January 2011 replacing the Trade Practices Act 1974. The ACL applies to any business in Australia to ensure they protect consumers and engage in fair trading within Australia. The regulators of the ACL are the Australian Competition and Consumer Commission (ACCC) and state and territory consumer protection agencies.
One key area in the ACL is Section 18, Misleading and Deceptive Claims or Conduct. This area aims to protect consumers from being exposed to conduct that is misleading or deceptive or is likely to mislead or deceive. Each circumstance is different, however “the entire advertisement, the medium in which the advertisement appeared, product packaging and any statements made by a sales representative will be taken into consideration” (ACCC, 2017). Regardless of whether an advertisement is online or in print media the same laws apply.
The Australian Competition and Consumer Commission (ACCC) provides an advertising and selling guide to highlight the types of conduct likely to breach the ACL for misleading and deceiving consumers . Common marketing techniques that may be susceptible to breaching the ACL include pricing strategies such as ‘was’/’now’ pricing and ‘strike through’ pricing, reviews and testimonials, and online group buying. If you have made or seen an ad that could be misleading or deceptive, refer to this guide for further advice.
The Department of Fair Trading outlines the penalties individuals and companies may incur for misleading and deceptive advertising. The maximum penalty for each offence is $500 000 for an individual and for a corporate can be up to $10 million, three times the value of the benefit received or 10% of annual turnover in the preceding year.
That’s a lot of money! Is it really worth it?
How Did Trivago Mislead and Deceive Consumers?
In 2018, The Australian Competition and Consumer Commission (ACCC) won a case against online hotel booking website Trivago. The company had made misleading representations on both television and online in regards to their hotel room rates. In January 2020, The Federal Court ruled that since December 2016, Trivago “misled consumers by representing its website would quickly and easily help users identify the cheapest rates available for a given hotel” (ACCC 2017).
However this was not the case, as Trivago’s selling technique of using strikethrough prices and text in different colours were deceiving consumers. The two pricing strategies implied to consumers that they were saving, but the price comparison was often between a luxury room and standard room at the same hotel.
“Trivago wasn’t comparing apples with apples when it came to room type for these room rate comparisons”
(ACCC, 2020)
Consumers were misled even more, as the company using an algorithm to prioritise the advertisers that were willing to pay the highest cost per click fee. The advertisers that paid the highest fee would appear at the top of the recommended results which did not highlight to consumers the cheapest available options first. If consumers had known this was how the booking site operated, they could have done some more of their own searching around to ensure they were getting what they were looking for.
“Trivago had misled consumers more than 66% of the time”
(Kahdem, 2020)
It is important for companies like Trivago to have some more transparency with how they operate. Consumers were given the false impression that they were getting great discounts, but instead they most likely booked into a hotel that paid Trivago the most for advertising. The judgement found that Trivago “manipulated data to suit its commercial best interests, rather than the consumers”.
What can we learn from this?
Trivago’s misleading and deceptive advertising is a bad marketing tactic which broke the law and cost them lots of money. Good marketing strives to develop and maintain a positive and long term relationship with consumers. Instead, Trivago have damaged the trust consumers have for their company and are left in a big legal mess!
Advertising practitioners need to be well aware of the types of misleading conduct. The law applies regardless of whether or not you intended to mislead the consumer and even if no loss or damage has occurred because of the conduct. You may be breaking the law without even knowing it, so remaining well informed of what can be perceived as misleading will help advertisers become better communicators. If you feel as though an advertisement you have made is deceptive, the disclosure of important information can avoid any legalities.
Put your target market as a priority in every decision you make. Knowing your audience will be a large determinant of how they receive your message. For Trivago, the nature of their business is to compare hotels and find the cheapest option available. If their main audience are busy working parents who need to book a hotel for a family holiday, they might not do a lot of research and rather put their trust in a company that will filter the best options for them. Trivago claims to find the hotels at the cheapest price but this was a misleading statement and they clearly took advantage of their consumers for their own financial gain.
Although the court is still to determine the final penalties Trivago will receive, Trivago have changed the way their website operates. There is no longer any confusing strike through prices with different coloured text that compare two completely different room types. The rate in green is the lowest priced room and Trivago provide information on their website to explain the algorithms they use.
Engaging in misleading and deceptive advertising can have many pitfalls for both the business and consumer. Breaching the Australian Consumer Act results in large penalties for the business, a decrease in reputation, and loss of trust from the consumer. Striving for accurate and truthful advertising will help you to steer clear of the harsh penalties that may apply and will produce more benefits for the business and the consumer in the long haul.
References
ACCC, 2020, ‘Trivago Misled Consumers About Hotel Room Rates’, Date viewed 04 April 2020, https://www.accc.gov.au/media-release/trivago-misled-consumers-about-hotel-room-rates
Khadem, N, 2020, Trivago Mislead Consumers on hotel pricing, court finds, as ACCC warns of wider crackdown, ABC News Article, Date viewed 25 April 2020, https://www.abc.net.au/news/2020-01-21/tirvago-mislead-consumers-on-hotel-pricing-court-finds-accc/11886096
Willner, M, 2018, ‘New data on why people hate ads’, Viewed 24 April 2020, https://www.vieodesign.com/blog/new-data-why-people-hate-ads
Bibliography
NSW Fair Trading, ‘Misleading Representations and Deceptive Conduct’, Viewed 05 April 2020, https://www.fairtrading.nsw.gov.au/buying-products-and-services/advertising-and-pricing/misleading-or-deceptive-conduct
Adstandards, ‘What is an Advertising or Marketing Communication?’, Viewed 05 April 2020, https://adstandards.com.au/issues/what-advertising-or-marketing-communication
Georgia Woods 