Online retail market darling Kogan is facing allegations it breached consumer law by price jacking customers during its end of financial year sale last year.
In a case likely to be closely watched by the legal fraternity, the Australian Competition and Consumer Commission (ACCC) is alleging Kogan made “false or misleading” representations to customers when it told them they could get a 10% discount on purchases from June 27-30 last year.
It is alleged Kogan increased the price of more than 600 products the day before the promotion, in “most cases” by at least 10%.
The practice has become known as “price jacking”, where retailers artificially inflate the original price of an item before putting it on sale, giving customers the impression they’re getting a good deal.
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It is alleged Kogan prompted customers via its website, emails and text messages to use the code ‘tax time’ to retrieve their 10% discounts during the promotion.
The ACCC has filed pricing details for 621 Kogan products throughout the promotion, appearing to show prices on many products were increased substantially on June 26, a day before the sale went live.
In one example, it is alleged the price of Apple iPad Pros were increased by 13% from $799 to $899 the day before the sale.
In another case, the price of Google Home bases (fabric and mango) were allegedly increased by 105%, from $19 to $39, one day before the sale.
The price of more than a dozen products are alleged to have been increased by over 20%, while the smallest increase was 2%
Phrases such as “48 hours left!” and “Ends at midnight tonight!” were used to promote the sale, but the ACCC alleges Kogan reduced the prices of affected products “shortly after” the promotion ended.
Kogan, which has more than 1.4 million active customers, has become one of the largest online retail brands in Australia in recent years, defying broader market gloom by consistently booking quarterly double-digit sales growth.
But these fresh allegations are just the latest round of ACCC scrutiny of the business, dating back to 2009 when the regulator raised concerns with its ‘non-genuine’ sales tactics.
Back in 2016, Kogan paid a $32,400 fine over similar price-jacking allegations, with the ACCC saying at the time it had “reasonable grounds” to believe Kogan made false or misleading representations to customers during a Father’s Day promotion a year earlier.
The ACCC is now seeking court penalties over its latest round of allegations, suggesting it is taking a harder line towards the business after issuing infringement notices previously.
In an application filed to the Federal Court today, the ACCC claimed Kogan’s conduct “eroded any real discount” available to consumers through the promotion.
“We allege that Kogan’s advertisements were likely to have caused consumers to think they were getting products below their usual prices. In fact, Kogan had inflated product prices which we say created a false impression of the effective discount,” ACCC commissioner Sarah Court said in a statement circulated on Thursday morning.
“Businesses must not make claims to consumers about discounts or sales unless they are offering genuine savings.”
In a statement, Kogan said it “strongly denies the allegations” and will defend the proceedings.
“The proceedings commenced by the ACCC ignore critical facts and matters which are in Kogan.com’s view highly relevant in assessing the overall impression of the promotion by consumers who are intimately familiar with online retailing and how a discount code functions,” the company said.
“Kogan.com’s marketing collateral in connection with the promotion was carefully considered and was drafted specifically to avoid the type of confusion alleged by the ACCC.
“Kogan.com at all times made clear that the price reduction applied at the time of checkout.
“At checkout all customers were made aware of the full price they would pay for the product and the price reduction that would be achieved by using the discount code,” the company said.
“There was no confusion caused.”
Kogan said it was disappointed the ACCC decided to go ahead with court proceedings.
“Kogan.com is disappointed that the ACCC has nevertheless decided to issue proceedings against Kogan.com — a highly procompetitive company that benefits consumers,” it said.
Richard Prangell of Viridian lawyers says the ACCC is trying to send a signal to online retailers.
“Price jacking has been on the ACCC’s radar for a very long time, so I’m not surprised to hear that they’re now looking more closely at the e-commerce industry,” he tells SmartCompany.
“By cracking down on Kogan, the ACCC are no doubt trying to send a signal to the rest of Australia’s online retailers that good behaviour is expected of them too.”
Kogan stock was trading down 1.92% in the hour following the ACCC’s release on Thursday morning.
Kogan has been contacted for comment.