Advertising on a level playing field

In an industry accustomed to pushing the limits to be healthier, fitter and faster, it might also be tempting to stretch the truth in advertising to win new customers.

However, recent actions by the Australian Competition and Consumer Commission show this strategy is fraught with danger if you can’t back up your claims.

Under the Australian Consumer Law it is illegal for a business to engage in conduct that misleads or deceives consumers, or which is likely to do so. It’s also unlawful for a business to make false or misleading claims about their goods or services.

Advertising and franchising

Usually franchisees contribute to a marketing fund, with the franchisor taking responsibility for designing and implementing promotional campaigns. That said, it’s still important that franchisees also know where they stand, since the law applies to all promotional activities–including your own. The law extends to everyday consumer interactions like displaying prices, social media, online reviews as well as things you and your staff promise to customers.

Fair game

Rules around honest advertising are important for two reasons. Clear and accurate advertising allows consumers to make informed purchasing decisions, which is especially important when it comes to health and well-being. Truthful advertising also improves competition by giving businesses the opportunity to compete on their merits, not by cheating. The ACCC has taken a string of actions to ensure these objectives are realised in the health and fitness industry.

‘No Contracts’

We have warned gyms about using the phrase ‘No Contracts’ in advertising where consumers were required to sign membership contracts with conditions for termination and payment. We found ‘No Contracts’ advertising is an attempt by some gyms to distinguish their short-term membership from gyms which offer long-term memberships. However, using the phrase does not provide consumers with clarity about this distinction. The lesson here is to think about the overall impression created by your advertising. How would the average consumer view your headline claims? Have you left out or hidden important details in the fine print? Are there any contradictory statements or unnecessary jargon? Do logos, symbols and pictures create the wrong impression?

Walk the talk

In 2014, the Federal Court ordered Reebok Australia Pty Ltd to pay a penalty of $350,000 for making false and misleading representations about the benefits of Reebok EasyTone shoes. The court found Reebok’s claims that wearing a pair of EasyTone shoes would increase the strength and muscle tone of a person’s calves, thighs and buttocks more than traditional walking shoes were false and misleading. If you make claims that your products have certain performance characteristics and benefits, you have a responsibility to ensure those statements are accurate and supported by credible evidence.

Ab crunch

Here’s another example. Danoz Direct Pty Ltd recently acknowledged the ACCC’s concerns about possible misleading claims made during infomercials for the Abtronic X2. The Abtronic X2 is designed to be strapped around a person’s mid-section, providing electrical stimulation to the muscles. Danoz made claims about weight loss and fitness benefits of the device which it could not substantiate. For example, Danoz claimed use of the device without any other exercise or dietary modifications, will tighten, tone, sculpt and flatten the stomach. To resolve concerns, Danoz has provided undertakings to improve procedures and ensure they can substantiate claims. The outcome is reminder for all businesses to put in place stringent systems to vet and approve promotions.

Skewed reviews

Another key thing to know is that the same rules apply online as they do offline. It’s an area of growing importance as e-commerce and online consumer reviews take on more significance. Recently, Citymove Pty Ltd paid $30,600 after the ACCC issued three infringement notices  relating to allegations that the removalist company used fabricated customer identities to post testimonials on Google+ and YouTube. The laws also apply to your firm’s social media activities. Using social media such as Facebook, Twitter and YouTube as promotional tools brings with
it the responsibility to ensure all content on your pages is accurate, irrespective of who put it there.

Skinny on the facts

The laws around misleading claims also protect franchisees. The ACCC took court action against SensaSlim and the individuals involved in supplying an oral spray which they claimed could cause weight loss and was the subject of a ‘worldwide clinical trial’. The spray was distributed through franchisees to be onsold to consumers through retail outlets. The Federal Court found that SensaSlim (in liquidation) engaged in misleading or deceptive conduct by making false claims about the role of its officers, the ‘worldwide clinical trial’ and the earning potential of franchises. Misleading claims about important aspects of a business opportunity such as earnings can cause significant harm.

Penalties

The ACCC has a range of tools to take action against false or misleading claims. We have the powers to require businesses to substantiate their claims and the ability to issue infringement notices. The ACCC can issue an infringement notice where it has reasonable grounds to believe a person has contravened certain consumer protection laws. Infringement notices carry a penalty fixed at $10,800 for a corporation (or $108,000 for a listed corporation) and $2160 for an individual. The ACCC can also resolve matters by accepting court enforceable undertakings and we can seek penalties in the courts of up to $1.1 million per contravention.

Further information

For information about the Australian Consumer Law and advertising and selling download a copy of the ACCC’s free guidelines at http://www.accc.gov.au/publications/advertising-selling

For the latest ACCC small business news and events you can follow the ACCC on LinkedIn, or sign up to our Franchising Information Network email updates at http://www.accc.gov.au/media/subscriptions/franchising-informationnetwork

Dr Michael Schaper is Deputy Chair of the Australian Competition and Consumer Commission.

W: www.accc.gov.au/franchising

The rules around franchise marketing funds

If you contribute money to a marketing or cooperative fund, the franchisor can only spend the marketing fund money on:

• expenses that were set out in the disclosure document;
• legitimate marketing or advertising expenses;
• expenses that have been agreed to by a majority of franchisees; and
• administering and auditing the fund.

The franchisor must prepare an annual financial statement of all the fund’s receipts and expenses for the last financial year, and do so within four months of the end of its financial year. The statement must provide meaningful information about who contributes to the fund and how the money is spent.

The statement must be audited, unless 75 per cent of franchisees who contribute to the fund vote that an audit is not required. The vote must be revisited every year. The franchisor must provide you with the financial statement and auditor’s report (if required) within 30 days after their
preparation.

When buying into a franchise, it’s a good idea to find out whether you will be able to sell your goods or services online. If you can, will the franchisor impose any conditions? Can the franchisor, its associate, or other franchisees also sell goods or services online? If so, to what extent will the franchisor supply those goods or services in your territory?

This information must be set out in your disclosure document.