Building trust and confidence in the online marketplace

Remarks by John Pecman, Commissioner of Competition

Canadian Marketing Association, breakfast with members

Toronto, Ontario

October 27, 2016

(As prepared for delivery)


Introduction

Thank you, Wally. Good morning, everyone. I welcome this opportunity to speak to you today because marketers have an important role to play in helping competition thrive by informing consumers about their choices amongst competing goods and services in the marketplace.

I’m here to talk to you about the Bureau’s work on consumer protection and strengthening consumer confidence, and how this affects your work. I’ll also talk about how we enforce the law and how this helps build trust and confidence in the online marketplace.

But first, let me start with a short video that explains what the Bureau does. We call it Fair Play and we got a little creative, so I hope you like it.

Fair Play video

Transcript

In its simplest sense, business is a lot like one of our favourite games:

hockey.

And competition in business is like a couple of hockey teams that go out on the ice and try to win.

In business, you have two or more entities (teams) working in an industry or a sector…

everyone is focused on winning.

Your competitive environment could be anything from burgers to building management,

from aerospace… to nanospace, but it’s the same basic principle:

Healthy competition benefits all Canadians by increasing product choice, keeping prices low, and fostering innovation.

In hockey, if we simply turned the cameras on and let the teams play without:

  • rules and regulations (like offside and icing)
  • rules for players and coaches’ conduct on the ice … and off…
  • and referees and linesmen…

… the result would be unfair and confusing.

What holds it all together (for the most part) is structure, rules,

systems and people who enforce the rules and keep the game fair and clean. [scoreboard buzzer]

The Commissioner of Competition and the Bureau

are a lot like the referees who ensure fair play and call infractions during the game.

We’re here to be sure that people play by the rules,

and to observe how the game is played in order to ensure compliance with these rules.

Governed by the Competition Act and other laws (our rule book), we have the power

to seek corrective action against improper conduct.

Let’s talk about if one kids’ hockey team gathered players together that were forty pounds heavier,

five inches taller and three years older than every other team …

… they’d obviously be dominant.

If they headed out on the ice against smaller, younger players and played an overly physical and dirty game,

that would be what we call abuse of dominance.

We move into action when this sort of anti‑competitive behaviour goes on.

Another example.

Imagine that there are only two hockey arenas in a community.

The owners of these arenas compete to sell ice time to local teams and others wanting to rent the ice.

Now suppose that the owners agree to merge their operations.

This merger could result in higher prices for ice time and/or a reduction in services offered.

While most mergers are pro‑competitive and good for the economy, this one…doesn’t look good,

and it is possible we would review it to make sure the market remains competitive.

Here’s the next instance:

An out‑of‑town kids tournament is coming.

Buses will be needed, and the league seeks quotes for the best rental deal in town.

However, two bus operators get together to rig the bids

so that they could fix the outcome of the winning bid and charge a much higher price.

That’s bid‑rigging: It’s a kind of fraud when businesses rig the outcome of a bidding process at consumers’ expense.

One more:

A team advertises free parking for all home games to anyone who buys season tickets online…

but hides the fact that the offer only applies to the most expensive seats.

Buyers of other seats could be misled, and have to fork out for parking at every game.

This is misleading advertising. Consumers are misled into paying much more than they expect… and that’s no good.

It’s really simple: play fair… and the game goes on: it’s business as usual.

Cut corners or cheat… and you may face serious consequences‑large monetary penalties,

compensation for consumers, hefty fines or even lengthy jail terms.

By the way, we also encourage the public to report any wrongdoing.

It’s all aboutend keeping the marketplace fair and competitive.

At the Competition Bureau, we are watching and reviewing and analyzing the game from ALL angles.

Hi, I am the Commissioner of Competition.

We, at the Bureau, simply ask businesses to play by the rules, and when they don’t,

we are committed to making sure they wind up “in the box”.

Compete to win and…play fair!

Video Length: 4 minutes, 38 seconds

There you have it: hockey and competition. I hope you enjoyed it.

The message of the video is that we want you to compete to win …and play fair.

And I’m going to share some examples with you this morning, so you know what to watch out for in the corners when the ref is not looking.

Let’s start with some of the trends that we see in digital marketing in recent years.

Digital marketing trends

Consumers are now spending 25 per cent of their time on mobile. And so we saw mobile ad revenue growing by 66 per cent in 2015. Internet advertising continues to grow too, and it’s dominated by Facebook: between 2014 and 2015, Facebook's ad revenue grew 59 per cent, with most of the ads running on mobile devices.

At the Competition Bureau, we see a crucial link between competition and advertising: advertising educates and engages consumers about their choices.

But this assumes that advertising is always truthful. Unfortunately, it is not.

And when some companies don’t play fair, that’s when the Bureau is called upon to step in.

Accuracy in advertised prices

You might have heard of drip pricing: drip pricing is when a headline price is used in advertisements, but when you add up all the additional fees, taxes or charges, the real price is much higher. The additional costs are incrementally disclosed or "dripped" during the purchasing process.

When the Bureau investigated advertised prices for vehicle rentals and associated products by Avis and Budget, we concluded that the advertised prices were not attainable due to the extra fees that were being charged.

The companies said that those fees were taxes, surcharges and other fees that were required to be collected by governments and agencies.

But that was not the case. Our investigation concluded that Avis and Budget were imposing the charges to recoup part of their own cost of doing business.

The result was that consumers were paying up to 20 per cent more than the advertised price. The extra fees were hiding the true cost of the product from consumers.

This kind of activity does not inspire consumer confidence.

The key principle here is that advertised prices need to be accurate and attainable.

Following our investigation, Avis and Budget agreed to pay a three million dollar penalty for what we concluded was false or misleading advertising plus 250,000 dollars towards the Bureau’s investigation costs.

The companies were required to implement a corporate training and education program to make sure that they know the rules and play fair in the future. We call that a compliance program. I will tell you a little more about that in a few minutes.

Fake online reviews

Now, I would like to turn your attention to fake online reviews. We describe this deceptive marketing practice as “astroturfing”. Like astroturf, they look real, but they are not.

Online reviews can be an important source of independent information for consumers. That’s why any relationship between the reviewer and the brand is relevant, even if the person provides an honest and unbiased review.

Unfortunately, as noted by the data mining expert Bing Liu at the University of Illinois, Chicago; around one-third of all online consumer reviews are fake.

We have noticed an increase in this practice. It’s sometimes part of an organized effort by companies to boost their own ratings or lower the ratings of their competitors.

Some companies have encouraged their employees to post positive reviews on websites and review platforms. Some provide their customers with incentives to leave positive reviews, and others hire third parties to make the fake online reviews.

An example is the Bureau’s investigation into Bell Canada. In 2014, some Bell employees were encouraged to post positive reviews and ratings of the free MyBell Mobile app and Virgin My Account app on the iTunes App Store and the Google Play Store. But they didn’t disclose that they worked for Bell. Our investigation concluded that these reviews and ratings created the impression that they were made by independent and impartial consumers and they affected the overall star rating for the apps.

Once again, this kind of activity does not inspire consumer confidence. It is not playing fair.

Following our investigation, Bell agreed to pay a penalty of 1.25 million dollars and signed a consent agreement that was registered with the Competition Tribunal: as with all of our registered consent agreements, this gave it the effect of a court order and made it enforceable. Bell also agreed to beef up its internal policies to ensure that it follows the rules in the future.

For more information, I invite you to read the article about online reviews, in Volume I of the Deceptive Marketing Practices Digest. Just go to our website and search for "digest".

Social media sponsorship and advertising

Behind me you see a picture of Kylie Jenner. I am told that she is some kind of celebrity… in this photo she is endorsing a product in one of her many selfies, which are shared directly with her 76 million followers on Instagram.

I am not saying Ms. Jenner is doing anything wrong here, just making the point that more and more, consumers are turning off the TV and are tuning in directly to celebrity influencers like her on social media. It could be on Twitter, Instagram, Facebook, Snapchat or elsewhere. This represents a marketing opportunity for brands, and a revenue opportunity for the celebrities.

While the medium may be different, the advertising rules still apply. New guidelines by Advertising Standards Canada will come into play soon for bloggers and individuals who use social media to talk up companies and their brands in exchange for any kind of benefit.

A failure to disclose such relationships could also fall under the Bureau’s rules against misrepresentation and false advertising.

Labelling laws

The last case that I’d like to share with you this morning relates to a brand that is being marketed as quintessentially Canadian. You will note on the screen that their label features a game of hockey. There is nothing more Canadian than that, I agree.

The company in question is Moose Knuckles, whose winter coats typically retail for between 600 and over 1,000 dollars. We know that many people are willing to pay a premium for ‘Made in Canada’ products, and manufacturers know this too.

This matter is still before the courts so I can’t go into too much detail. However I can tell you that we allege that Moose Knuckles actually manufactures its parkas in Asia, and puts the finishing touches on here in Canada, which - in the Bureau’s view - makes their “made in Canada” labels misleading. Moose Knuckles disagrees.

Again, this alleged behaviour does not help consumer confidence in the marketplace.

To find out more about labelling, you can always refer to our guidelines, which are available on our website. Just search for “labelling guidelines”.

While you’re there, check out the Deceptive Marketing Practices Digest and some of our products to educate consumers like the Little Black Book of Scams and our Consumer Alerts. I’ve provided the CMA with links to these resources, which they will circulate to you shortly for your ease of reference.

Creating a culture of compliance with the law

I will close by urging you to create a culture of compliance within your organizations. Find out what the law says and make a company-wide plan to play fair and within the law. Ignorance of the law is no excuse, so building your own compliance program makes sense.

We all have a shared responsibility to keep a fair playing field.

And with that in mind, I understand that Wally has some questions for me. It will be my pleasure to answer them.

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