When a business advertises prices to its customers, the advertisement must state the total price as a single figure. This is the minimum total cost that is able to be calculated, and includes any tax, duty, fee, levy or other additional charges (e.g. GST or airport tax).
The promotion of goods or services by dividing them into a number of components and quoting the price of one component only is known as component pricing. It is used to attract customers by drawing attention to the price of the item they are interested in and ignoring the other costs and charges they will have to pay. For example:
- quoting the price of a new stove as $1000 without including the $100 GST the consumer will be charged
- quoting the price of a flight without including the taxes and other charges for which the consumer will have to pay.
Component pricing creates the false impression that the goods or service are available for a lower price than they really are. It is prohibited by section 48 of the ACL unless the business specifies in a prominent way and as a single figure the total amount the consumer must pay to obtain the goods or services being sold or promoted.
- A stove is advertised for '$1000 + $100 GST'. This would be unlawful as the total amount consumers must pay is not stated as a single figure.
- A stove is advertised as 'Stove, $1000 + $100 GST = Total $1100'. This would be unlawful as the total amount consumers must pay is not specified as prominently as the price of the stove component.
The requirement that a business engaging in component pricing must specify a single price applies only to consumer goods or services. It does not apply to:
- certain delivery charges
- representations made only to firms
- optional charges the consumer can choose to avoid
- charges that cannot be quantified at the time of contract, as long as the formula for calculating additional charges is made clear
- the supply of services under a contract allowing them to be paid for periodically.