As a business, it is essential that you know how to legally advertise the pricing of your products. For example, a car dealership that advertises a car for $18,000 and later informs a customer that there are ‘on-road costs’ in addition to the advertised price. In this instance, the final price a customer will pay is much higher than the initial $18,000. 

This type of advertising involves presenting the price in component parts. That is, you first show the advertised price of one part and later disclose the additional costs. Under the Australian Consumer Law (ACL), Australian businesses are permitted show their prices in different components. However, they must not misrepresent to consumers that the cost of a component is the total price of the goods or services. This article explains what component pricing is and when businesses are allowed to engage in component pricing.

Why Use Component Pricing?

Often, businesses advertise a price in component parts to create the impression that goods or services are cheaper than they actually are. The component parts are any charges the customer must pay, including:

Of course, this is more attractive than showing a single price, which is the total amount of all of the component parts. A customer is more likely to be attracted to the car if it has an advertised price which does not include the stamp duty, registration, compulsory third party insurance and dealer delivery charges.

What Do Businesses Need to Know?

It is illegal to represent to consumers that the price of a component is the total price they will have to pay to acquire the goods or services. If you are a car dealer, for instance, you can advertise the component price, but you must also display the full cost of the car as a single total price.

Thus, businesses must explicitly include:

  • a description of any charge payable by the consumer to purchase the goods or services. For example, administration fees; and
  • all taxes, duties, fees, levies or charges that can be calculated at that time.

If you are unable to calculate a particular component of the price – that is, there is no dollar amount readily available – you must ensure that consumers know this. Further, if you are unable to calculate a total price but a minimum total price is known, you must disclose that minimum total price to the consumer.

These requirements apply across all advertising media, and more broadly to all “representations” of the goods or services, including:

  • invoices;
  • quotations;
  • tenders;
  • estimates; and
  • any other documents which display your prices.

Businesses should ensure they understand the ACL’s component pricing provisions, as any breach of the provisions of the ACL may incur:

  • civil remedies, such as injunctions, declarations and corrective advertising orders; or
  • criminal penalties, including fines ranging from $220,000 for individuals up to $1.1 million for corporations.

How Should You Display Your Prices?

When you display your prices, the single price figure must be as or more prominent than the most prominent component price in any advertisement. For example, a business that advertises curtains as “$800 plus $100 installation: Total cost $900” complies with the legislation.

When prices are advertised, the consumer must be able to identify the single price. For example, if the business selling curtains were advertising in print, the visual representation must not confuse or mislead the consumer. Things that could confuse or mislead a consumer include:

  • small font size;
  • colours that are hard to read; or
  • confusing placement of the different component prices.

Are There Any Exceptions?

There are some limited exceptions to the component pricing provisions of the ACL. For example, the single total price need not be advertised where a representation is made exclusively to corporations.

Additionally, in the case of a periodic payment option, the single price must be displayed but does not need to be very prominent. For example, a television infomercial may advertise a blender for four payments of $20. They must also advertise the single total price of the blender, but it does not need to be as large on the screen.

Further, some components do not need to be included in the advertising, such as:

  • optional charges, such as gift-wrapping;
  • optional extras, like breakfast included at a hotel;
  • delivery charges, for example postage or courier fees; and
  • fees or charges that consumers do not pay.

Restaurants, cafes and bistros have exceptions to component pricing rules in limited circumstances. For instance, restaurant menus do not need to display the total minimum price for food or beverages, provided that the menu includes the words “a surcharge of [percentage] applies on [specific days]”. The restaurant must display these words at least as prominently as the most prominent price on the menu. This will allow a reader to easily identify the surcharge.

Key Takeaways

Given the significant penalties that can be imposed for a breach, it is vital that businesses incorporate all component prices into a single total price that a consumer will have to pay to buy their goods or services. The single total price must be displayed prominently. While optional charges can be separately listed, mandatory costs should be included in the single total price.  

If you have any questions, contact LegalVision’s advertising compliance lawyers on 1300 544 755 or fill out the form on this page.

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