The Commerce Commission has issued a formal warning to online gift-box retailer, Occasion Box, for making false and unsubstantiated claims that were likely to mislead online shoppers on its website between May and December 2021.
This follows the sentencing of prominent online retailer, 1-Day, owned by The Warehouse Group, that was fined $840,000 for promotional claims on its online store, which were liable to mislead consumers about how long its daily deals would run for and the quantity of stock available.
With rapid and continuing growth in online shopping by New Zealanders, General Manager of Fair Trading, Vanessa Horne, says one of the Commerce Commission's key focus areas is ensuring pricing and promotional activities online are accurate and do not mislead consumers.
Occasion Box used "sales pops" (pop-up boxes), purchased from a third-party e-commerce provider, which generated pop-up notifications of fake purchases by fictional consumers supposedly from various locations around Aotearoa New Zealand. The notifications included links to products sold on the website and wording to say that it was a "verified purchase".
Ms Horne says that the claims by Occasion Box reflected a type of misleading conduct that created a false sense of demand and popularity of the goods to website visitors.
"The representations were clearly false and could not be substantiated or verified against the retailer's sales records, despite claiming to be 'verified purchases'," Ms Horne says.
In the case of 1-Day, the promotion of "daily deals" and use of a countdown timer between 2016 and 2020 gave the impression that goods were available at an indicated price for a limited time, and a stock level indicator gave the impression that stock was running out.
"In fact, often neither of these things were true and on many occasions the goods were available at the same price the next day."
Pricing and promotional activities are a priority area for the Commission, because of the strong influence they can have on consumer purchasing decisions.
"We know that Kiwi consumers are increasingly shopping online and rely on claims businesses make on their websites. In many cases, consumers cannot establish for themselves if these claims are accurate," Ms Horne says.
"Businesses marketing their products in new ways to reach more consumers and generate additional sales still need to understand their obligations under the Fair Trading Act so that they don't mislead their consumers. Our message is simple – if you can't back it up, don't say it."
Ms Horne says Occasion Box purchased an off-the-shelf product from a provider overseas, and in using the product, the business fell short of its obligations under the Fair Trading Act. Occasion Box took prompt action to address the Commission's concerns by removing the sales pops.
"We hope this warning serves as a reminder to the business and other small businesses that as they explore new, innovative ways to market their products, they understand and comply with their obligations under the Fair Trading Act.
"We have also engaged with the third party provider overseas that supplied the product to Occasion Box. As a result, the provider has taken immediate steps to fix identified issues, reducing the risk of other customers (including other NZ based websites) facing the same issues."
The Commission has published new guidance on its website about misleading online sales practices which can be read here.
A copy of the warning letter is available on the Commission's case register here.
Background
Occasion Box
The Commission found that Occasion Box's conduct was liable to mislead consumers about the characteristics and/or quantity of goods, and the information displayed in the sales pops was unable to be backed up. In the Commission's view, the conduct is likely to have breached sections 10 and 12A of the Fair Trading Act.
Social Proof
Research indicates that using social proof, such as representations that other consumers have recently purchased goods from a trader, increases the amount of trust that consumers have in the trader, and increases the trader's credibility, which in turn increases the likelihood of them purchasing from the trader. Essentially, they are used as a tool that can help a business convert more website visitors into customers.
More specifically, sales pop-ups like the ones used by Occasion Box give the impression that the site is busy, has active buyers, and that the referenced product is in demand. These factors assist in boosting the trust and credibility of the product and site, and therefore the likelihood that consumers, particularly hesitant customers, will purchase from the site.
This form of social proof works because consumers tend to trust something is good when they see others buying it. This creates a sense of popularity and sends a signal to visitors that people both like and trust the relevant product/brand.
While social proof techniques can be used legitimately, representations about other consumers purchasing from a trader are likely to breach the Fair Trading Act if the representations are not accurate.
