Tanya Thomson is the principal of Tanya Thomson Law, a boutique law firm specialising in competition, energy and commercial law. This is the first in a four-part series of articles on trade practices law for SMEs, covering the main competition and consumer protection legislation and also looking at the value of compliance programmes.
"The recession has brought a steep rise in consumer complaints....Consumer officials say that every category of complaint tends to increase in a recession. People complain more when money is tight, businesses are less apt to make goodwill adjustments and advertisers are more inclined to stretch the truth. "
Although this sounds like doom and gloom for businesses, it's not all bad. First, these words from the New York Times were written in 1991, which should remind us that the economy is cyclical, and like the last one, this recession will end even if it doesn't feel like it at the moment.
If you need more immediate good news, it's also worth remembering that - unlike many consequences of recession - customer complaints are largely within a business's control.
Understanding your business's legal obligations under consumer protection legislation such as the Fair Trading Act is a good start in protecting your customer base.
Dealing with legal obligations is sometimes off-putting for businesses but in most cases compliance is aligned to common-sense, good business ethics and a focus on good customer service -all of which pay you back in years to come.
The Fair Trading Act
The Fair Trading Act prohibits misleading conduct in trade and is wide-ranging in its application, covering everything from advertising, pricing and displays to verbal information given to customers. Unsurprisingly, pricing is the most common issue, with problems including:
• not disclosing the full price of an item. Hidden costs, especially GST or other taxes are common issues.
• calling something "free" which isn't truly free. If the consumer is required to purchase something else first then any advertising must say so - it's OK to say "Buy a widget and get a free gadget", as long as the price of the widget has not been artificially inflated. "Interest free" means there must be no discount for cash.
Closely related to not disclosing the full price is not disclosing the full conditions of an offer. If special conditions fundamentally change the nature of the offer then they need to be disclosed upfront, in writing (for a print ad) that is legible and clear. A tiny asterisk with "special conditions apply" won't work if those special conditions are anything more than minor.
Prosecutions
The Commerce Commission prosecutes a number of retailers every year for breaches of the Fair Trading Act. Many of these breaches arise from unsubstantiated quality claims and are almost unbelievably blatant - cubic zirconias advertised as diamonds, energised water and bird flu remedies are recent examples. Honest businesses will have no problems avoiding these occurrences.
However, reputable companies also get caught - usually because of ambiguity in their advertising, inflated claims or because a mistake simply slips through. These issues can often be avoided by training and adopting (and sticking to) compliance programmes. Following successful prosecutions this year against The Warehouse and Xtra Ltd (a Telecom company), the Commission noted both times that training of staff and implementation of compliance programmes was inadequate.
Penalties for non-compliance can be significant - The Warehouse was fined over $200,000 for its recent breaches) but the biggest impact is a PR one. Financial penalties are usually less significant than the management time, tarnished image and ultimately lost customers arising from a breach.
How to protect your business
The Fair Trading Act is often criticised for allowing customers to "play dumb" and take advantage of ambiguous wording. However, the reality is that most businesses can protect themselves against Fair Trading Act claims by adopting good customer service policies, checking processes and staff training. While legal input is valuable (both in terms of developing compliance strategies and in reviewing material), businesses can help themselves to a large extent by taking simple steps, like double-checking advertisements before they run by asking "What impression would a customer get from this? Is that what we mean?"
If you understand your customers, and make the effort to ensure they understand you, your business will be well placed to meet its legal obligations - and more importantly, keep your customers satisfied.
Tanya Thomson
