Component pricing involves the price of an item not being displayed or disclosed completely. A straightforward example is where a business lists a service at a certain price however does not display a booking fee or include GST in the price.
Advantages of component pricing
This is a common practice amongst many businesses, who present the price of a good or service in component parts. This can be advantageous as it presents the product as cheaper than the actual price to consumers.
Component prices include any of the following extra charges.
- administration fees
- service charges
- taxes, such as the goods and services tax
- duties
- levies
This is industry practice in many industries, such as in the automobile field. By advertising a single advertised price without registration, compulsory third party insurance, stamp duty and dealer delivery charges.
Legality of component pricing
Under Australian Consumer Law (ACL) it is illegal to to represent to consumers that a component price is the total price of goods or services. Using the example of a car dealer, you can advertise the component price of a car. However, the full cost of the car must also be presented as a single total price.
Legally, businesses need to ensure the following is presented.
- 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.
Failure to do comply with these laws can results in civil remedies such as injunctions, declarations and corrective advertising orders. However, criminal penalties are also possible with fines ranging from $220,000 for individuals and up to $1.1m for corporations.
There are some exceptions to the component pricing areas of the ACL. When advertising exclusively to corporations it is not necessary to advertise a single total price. Restaurants and cafes also have a conditional exemption from the component pricing requirements as long as they display surcharges.
Example
An airline in 2012 did not display airfare prices inclusive of taxes, duties, fees and other mandatory charges in a prominent way and as a single figure. Consequently, the Federal Court of Australia fined the corporation $200,000. In this instance, the corporation should have contacted a commercial lawyer to properly understand their obligations under the ACL.
Conclusion
Ultimately, as a corporation when pricing your products it is important to understand your pricing obligations. The penalty of engaging in misleading and deceptive advertising is severe. Consequently, if you are unsure about these obligations contact a commercial lawyer.
