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Group-buying deal for £99 iPhone 4 may have breached consumer laws

OFT says only 8 phones were available at the bargain price

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A group-buying website may have breached consumer protection laws when its advertising for cheap iPhones encouraged 15,000 people to sign up to its scheme – despite there being only eight phones for sale at the advertised price, a consumer regulator has said.

The company behind Groupola and its director have signed promises to the Office of Fair Trading (OFT) promising not to advertise products where there is "a disproportionately inadequate supply", according to an OFT statement.

The company, Markco Media, has also promised to stop its employees from posting positive comments on social media sites without disclosing that they work for the company.

The OFT investigated Markco Media and found that Groupola had engaged in "bait pricing", where consumers are attracted by prices that apply to so few products that they do not have a realistic chance of buying them at the advertised price.

Groupola advertised £499 iPhones that were on sale for £99 to people who signed up to its scheme and agreed to receive daily email alerts. Just under 15,000 people did sign up after a campaign of advertising, promotion and an interview with a national newspaper.

The company did not say that only eight phones were available for the advertised price.

"During the sale, Groupola displayed a progress bar displaying how many handsets had been sold and how many were remaining," said an OFT report on the results of its investigation. "At one point during the sale, this progress bar indicated there were over half the amount of iPhone 4s still available. Above this was a caption stating '202 bought'. Soon after the promotion in question concluded Markco Media stated that 'We can confirm that we had 200 handsets available, and these have now sold out'."

The OFT said that Markco Media may have been acting in breach of consumer protection laws. It said it had evidence that the company engaged in commercial practices which breached the Consumer Protection from Unfair Trading Regulations (CPRs).

"The advertising, marketing and promotion of the sale was very disproportionate to the actual number of iPhone 4 handsets that it had available for purchase (without suitably disclosing the existence of any reasonable grounds that it may have had for believing that it would not be able to offer for supply the product)," it said. "It published inaccurate information and was therefore untruthful in relation to a number of matters, including the availability and quantity of the product. As a result, this caused or was likely to cause the average consumer to take a transactional decision that would not have been taken otherwise."

The OFT also criticised Markco Media because Groupola's Facebook page contained positive comments from someone the OFT identified as an employee of the company.

According to the OFT, the Facebook comment read:

... Lets face it...if they offer you the same deal in a few weeks time, you will be back to try again, regardless of what you think of them now...I say fair play!...and no – I don't work at groupola.

The OFT said of this comment: "During its investigation, when the OFT put it to Markco Media that the individual in question was in fact an employee of Groupola, Markco Media did not dispute this. "However, the company stated that it was not aware of the existence of the comments until after they appeared on the website and it also said that the employee was not in the office at the time the comments were posted."

Markco Media has signed undertakings not to repeat the conduct of concern to the OFT, though the OFT said that the director of the company maintained that he thought his personal actions complied with the law.

"Bait pricing" was one of the strategies identified by the OFT in a recent study into pricing.

"Bait pricing – having only a small proportion of stock available at the advertised offer price – is one of the practices the OFT identified as having the greatest potential to cause harm and one which it has prioritised for enforcement action under the Consumer Protection from Unfair Trading Regulations," it said.

"Competitive markets, and economic growth, need fair and transparent promotional activity with consumers able to shop around and trust advertising of prices – this case demonstrates that, where necessary, we will take enforcement action," said the senior director of the OFT's consumer group Heather Clayton.

"It is never acceptable for traders to pretend to be independent consumers. It is increasingly the case that people make purchasing decisions based on online peer recommendations and the OFT will continue to prioritise cases that protect the integrity of online consumer reviews and comments," she said.

Copyright © 2011, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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