Kogan (ASX:KGN) busted for misleading promo, fined six figures

The Federal Court found Kogan put prices up immediately before it put on a sale, so the e-tailer could pretend to have cut prices.

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Kogan.com Ltd (ASX: KGN) has been ordered to pay a $350,000 fine for making false or misleading representations about a sale.

The Federal Court found the company’s subsidiary, Kogan Australia Pty Ltd, misled customers by jacking up the prices of 621 products immediately before a ‘tax time’ sale.

The online retailer then ran a sales promotion offering customers the code ‘TAXTIME’ to use at checkout for a 10% discount.

“Consumers who used the promotional code to purchase these products paid the same as, or more than, they would have paid before or after the promotion,” said Australian Competition and Consumer Commission chair, Rod Sims.

“Consumers were not receiving a genuine 10% discount as promised, and this affected high-value products such as Apple MacBooks, cameras and Samsung Galaxy mobile handsets.”

To rub further salt into the wound of customers who thought they had a bargain, Kogan then put the standard prices back down after the promotion.

Despite the absence of genuine discounts, the retailer used phrases like “48 hours left!” and “Ends midnight tonight!” in emails to customers to create a sense of urgency.

Kogan’s deceptions were “serious”

Justice Jennifer Davies said Kogan’s misbehaviour “must be viewed as serious”.

“Misrepresentations about discounts offered on products not only harm purchasers acquiring such products on the basis that they are getting a genuine discount but also may impact on consumer confidence in discount promotions when legitimately made – that is, when products are being offered for sale with a genuine discount on price.”

The Kogan share price was up 3.62% at 3:21pm AEDT, to hit $18.01. This was largely due to its acquisition of New Zealand e-tailer, Mighty Ape.

In a statement to the ASX, Kogan dismissed the significance of the court findings.

“The profit derived by the company from the promotion was immaterial,” the company stated.

“Kogan.com has a compliance program in place, which comprises protocols for the internal and external review of promotional statements and associated collateral.”

Kogan’s offences occurred in June 2018, with the ACCC starting legal action May last year. The court found the case in the watchdog’s favour July this year, with the resulting penalty handed down this month.

The court also ordered Kogan to pay ACCC’s costs.

Sims said the penalty was a “strong signal” to all internet retailers.

“They must not entice consumers to purchase products with a promise of discounts that are not genuine.”

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Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Apple. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd. The Motley Fool Australia has recommended Apple and Kogan.com ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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