Tertiary education program

Unfair business practices

Unfair business practices are covered in more depth in module 8. In relation to social media, and the internet more broadly, some key things businesses need to be aware of are:

  • Offering rebates, gifts or prizes
  • Bait advertising
  • Pyramid schemes.

Offering rebates, gifts or prizes

It is illegal under section 32 of the ACL for a business to offer a rebate, gift, prize or other free item to promote the sale of goods, services or land if it does not intend to provide it. Further, where a rebate, gift or prize is offered, it must be provided within the time specified (or if no time is specified, within a reasonable time).

Example: A retailer posts on its Instagram that it is running a special promotion to celebrate the launch of a new product range. The post states that the retailer will randomly select one person from the comments section for a $200 gift card (provided they ‘follow’ the business). The retailer posts under a fictional account and announces the fake account as the winner. The result is that the prize offered isn’t given to any of the business’s actual customers. This practice is unlawful. 

Bait advertising

Many businesses offer items for sale at low prices in order to attract customers to the business. This is a legitimate form of advertising.

However, a business will breach the bait advertising provisions of the Competition and Consumer Act 2010 (see section 35) if it is not able to supply a reasonable quantity of the goods or services for a reasonable period of time at the advertised price. If the goods or services are in short supply or only on sale for a limited time, the business should make this clear in order to avoid breaching this section.

Example: An electronics retailer advertises on Facebook that it will run a week-long sale on 50-inch televisions at the special price of $799. The retailer usually sells about 30 televisions of this type every week. The retailer only stocks 10 televisions at the advertised price and refuses to take customer orders.

When customers attempt to buy the television at the advertised price, they’re told it’s out of stock and are offered a more expensive unit for $999. This is likely to be bait advertising as the retailer is not offering a reasonable quantity of the televisions at the advertised price.

Promoting participation in a pyramid scheme

Social media can be an effective tool for new or small businesses to increase their market reach. However, businesses need to be conscious of just what it is they are selling.

Pyramid schemes make money by recruiting people rather than by selling a legitimate product or providing a service. Pyramid schemes are illegal. A business or person must not participate in, or persuade others to participate in, a pyramid scheme (section 44 of the ACL).

Case study: A system which offered discounted accommodation and travel opportunities to members over the internet and also offered income earning opportunities was found to be a pyramid scheme. The main inducement to prospective members was the prospect of making substantial money by encouraging other people to join who would pay a membership fee.

Component pricing

'Component pricing' is the practice of promoting the sale of goods or services by dividing the total price into a number of components, for example: quoting the price of a new stove as $1000 without including the $100 GST.

Businesses presenting prices to customers must state the total cost (i.e. the minimum overall amount to be paid). If a business chooses to advertise a price that’s only one component of the total cost (e.g. the monthly fee of a two-year contract), the total price must also be displayed as a single figure at least as prominently as the part price.

The single figure must include any tax (e.g. GST), duty, fee (e.g. a storage or installation fee), levy or charge that is included in the amount the consumer will would be required to pay.