The competition watchdog has started legal proceedings against online group buying site Scoopon in the Federal Court.
The Australian Competition and Consumer Commission alleges Scoopon engaged in misleading and deceptive conduct and made false and misleading representations to businesses and consumers.
The ACCC is pursuing Scoopon after receiving a “significant number of complaints” about the group buying industry which mainly involves “daily deal” or “deal of the day” sites.
The watchdog claims Scoopon represented to businesses that there was no cost or risk involved in running a deal with Scoopon, when a fee was payable to Scoopon.
It claims Scoopon misled businesses by claiming that between 20% and 30% of vouchers would not be redeemed when there was no reasonable basis for this representation.
The ACCC also alleges Scoopon misled consumers regarding their ability to redeem vouchers, their refund rights, and the price of goods advertised in relation to some of its deals.
ACCC chairman Rod Sims said online competition and consumer issues are a compliance and enforcement priority for the watchdog.
“Businesses must have reasonable grounds when making representations to consumers and to other businesses,” he said in a statement.
The ACCC is seeking declarations, injunctions, community service orders, pecuniary penalties and costs.
Telsyte senior research manager Sam Yip told SmartCompany group buying sites are a new marketing channel for businesses, so they need to be aware of what is at risk when they are doing a deal and weigh this up against the potential rewards.
“There are explicit costs around margins that need to be considered and implicit costs about what it means for a brand for staff and customers,” Yip says.
“It’s not a simple marketing solution; it can be very complex and often it is a lot more complex than advertised.”
Yip says group buying sites are often advertised to businesses as having no upfront costs and bringing in a lot of consumers.
“Even when this is true, it is certainly a very powerful tool but it should be used with caution,” he says.
“It’s like drinking from a fire hose.”
SmartCompany contacted Scoopon for comment but did not receive a response prior to publication.