Daily deal site feels watchdog's bite

It's hard not to notice the new fashion in bragging. Maybe it's a product of the new consumer austerity drive or the emerging disdain for conspicuous consumption but the new dinner-party boast is now how cheaply one has bought something online. Paying full retail is apparently for schmucks.

Online-only stores have grown rapidly over the past five years in particular, thanks to the absence of entry barriers and an audience of consumers thirsty for deals and convenience.

But mushrooming industries can have their toadstools. And it's those group-buying coupon sites that have come to the attention of the Australian Competition and Consumer Commission.

The ACCC now has two full teams operating on complaints and remedies for consumers, and even more interestingly, merchants, that have been victims of alleged unscrupulous practices of the online discount coupon industry, commonly referred to as daily deal sites.

On Friday, the regulator fired a shot across the bows of this sector and began legal proceedings in the Federal Court against one of the participants, Scoopon.

The business model for these group-buying sites is to acquire goods or services from merchants at heavily discounted prices and sell them via email to their members or through social media.

The upside for the merchant is in the expansion of the customer base, as well as lots of promotional exposure - read, advertising.

The benefit for the consumer is bargain basement prices.

The challenge for the ACCC lies in striking the right regulatory balance in an industry that has grown from nowhere five years ago and is now a sizeable business with plenty of small operators, few of which have proper processes in place.

The industry has started to evolve and consolidate, and there are now a smaller number of large operators such as Groupon, Spreets, Cudo and Scoopon.

Scoopon may be the only one facing court action, but it is not the only one people are talking about. There were 1065 complaints to the commission in the year to June - a huge number, ACCC chairman Rod Sims says. And it's the tip of the iceberg because most people don't bother taking complaints to the regulator.

It's up there with phone and electricity bill complaints, but with a higher proportion of genuine victims.

There is no suggestion that all operators are engaging in questionable or allegedly illegal practices. Having said that, Sims says there is potentially more legal action in the pipeline.

The Scoopon case, which is scheduled for later this month, outlines potential breaches of the Competition and Consumer Law by the company against the merchants that supply the goods/services and the consumers who buy the vouchers.

The ACCC says the merchants were misled by representations made by Scoopon, that between 25 per cent and 30 per cent of the vouchers issued would not be redeemed, and that this would provide a windfall gain for the merchants. This claim was allegedly made without any means of being accurately determined.

When the merchants (often small businesses) did not have the capacity to honour all the redemptions, their reputations suffered.

They ranged from golf courses to beauty salons to retail stores. A recurrent theme was that consumers tended to redeem vouchers towards the end of the offer period when there was no availability of the product or service.

The ACCC's case also covers allegations that Scoopon had told consumers the goods or services would be available as long as they complied with the conditions of purchase - ie, that if the merchant could not honour the voucher, there would be a refund. Instead, Scoopon's usual practice was to deny liability based on the fact the customer attempted to redeem the voucher in the last two weeks of the promotion period.

The case is not just about misleading statements on availability, but also on prices and products.

Here is but one example. The commission's statement of claim says Scoopon sent an email advertisement to its 1.8 million members for "Samsonite Itineris Spinner Roller Suitcases, Delivered". It stated this was a "3-piece set" for $155 and depicted three suitcases.

However, only a single piece of the set (the smallest one) was available for $155. The cost for the whole set turned out to be $499.

Ugg boot offers turned out to be slip-on scuffs, and the list goes on.

This online discount coupon style of business has been one of the financially successful new retail models for some entrepreneurs. But it still has a touch of the Wild West when it comes to its practices.

In March, Rupert Murdoch fell victim to an invasion of his own privacy. While addressing a meeting of his staff at The Sun in London, someone taped the conversation - the contents of which show his distain for the two-year-long police investigation into the newspaper's phone-hacking scandal.

The irony is profound. He has been hoisted with his own petard.

Far from being unaware of the practice of paying off the police, Murdoch suggested it had long been part of the DNA of Fleet Street.

He privately told his London Sun staff that paying police officers was part of Fleet Street culture and "at the Sun it has been going on for 100 years". Over the past two years, Murdoch has publicly offered support and assistance during testimony given in the Leveson inquiry into the culture, practices and ethics of the British press.

In the taped remarks to the Sun reporters, he described the police as incompetent and agreed with the paper's editor that it would "hit back at them when we can".