The Deceptive Marketing Practices Digest - Volume 5

Bulletin
March 4, 2020

Introduction

In this edition of the Deceptive Marketing Practices Digest, we look at three marketing issues that resonate with consumers of the online marketplace:

  1. the collection of consumer data in exchange for “free” online products and services;
  2. unsubstantiated weight loss claims; and
  3. the marketing practice of “drip pricing” in the car rental market.

Let’s begin with the numerous “free” digital products and services that access and collect various types of consumer data. Some of that data may be necessary for the functionality of the digital product or service. However, some businesses design products and services to collect consumer data for other purposes, such as using it to display targeted ads or selling it to third-parties. Consumers should not be misled about whether they are paying with their own data for these “free” products or services.

Our second topic takes a look at businesses that take advantage of many Canadians’ desire to lose some weight. Some of these businesses make unsubstantiated claims to consumers about the efficacy of their products or schemes. They use social media and e-mail campaigns to market weight loss products to large numbers of consumers, who discover that “quick-fix” promises are often empty.

Finally, we discuss the enforcement actions taken by the Bureau to stop drip pricing in the car rental industry. This is a marketing practice where businesses advertise attractive prices which are actually unattainable because they add non-optional fees during the purchasing process.

As marketing practices, online or otherwise, develop and evolve, the Bureau will continue to educate the public, and inform businesses about the rules and their responsibilities towards consumers. Businesses should know that if they choose to defy those rules, the Bureau will take action to protect consumers from misleading claims and to preserve the competitive potential of the digital marketplace.

I strongly encourage consumers to report instances of misleading or deceptive marketing practices to the Competition Bureau using our online complaint form or by telephone at 1-800-348-5358.

Matthew Boswell
Commissioner of Competition


Table of contents

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Big data and the hidden cost of “free” digital products and services

Introduction

Traditionally, consumers simply had to look at the price tag to determine the cost of a product or service. In the digital world, it is not quite that simple. Today, the cost of a product or service frequently includes consumer data. This is information about our behaviour as consumers: what we eat, where we go, where we shop, our age, our marital status, where we live and work, who our friends are, and a myriad of other attributes.

But how is this data monetized, and do consumers always understand what data they provide in return for “free” digital products and services or how it is going to be used?

Monetization of consumer data

Although not everyone is aware of it, the collection, use and trade of data about individual consumers is a big part of the data economy. This kind of consumer data is one element in what is often referred to as big data.

Consumer data is not only collected and used by businesses that deal directly with consumers, such as social media platforms, app developers, browsers and online retailers, but also collected and sold by third-party companies such as data brokers. Frequently, businesses use this data to develop a sophisticated understanding of the attributes of each digital consumer and to disseminate targeted advertisements.

The collection of consumer data

Often, data is collected through digital products and services that consumers download or use “free” of charge. These are sometimes referred to as “non-monetary transactions”. However, they effectively remain transactions between a business and consumer, where the consumer does not pay directly for the digital product or service with a traditional currency.

For example, consumers use “free” browsers to surf the web, “free” social media platforms to connect with other people, and “free” apps on their mobile devices. In fact, if you are reading this Digest on a smartphone, the apps that you have installed on your device are likely sharing data about you at this very moment, even if they are not in use.

When consumers use these “free” services, companies frequently collect valuable data about those consumers. While companies might disclose that they collect data, they often do it in lengthy and complex privacy policies or in terms and conditions. It remains unclear if consumers are aware of the types and extent of data being collected about them. Consumers may not understand precisely what is happening with their data, how often it is being collected, and by whom it is being collected and used.

Some argue that digital consumers know that if they do not pay for a product with money, then they must be paying for it with their data. The Bureau doubts that this is universally true. In fact, consumers interact with many “free” digital products that are not primarily designed to monetize consumer data. For example, some digital products are designed to increase engagement with a brand or promote customer convenience. Others also aim to improve the products and services they offer or the efficiency of their operations.

Furthermore, one might presume consumers know or expect that apps and digital services depend on certain types of consumer data to function. But it may not be wise to assume that consumers will know or expect that many apps and digital services are designed to collect and use their data for other purposes. Indeed, consumer data is often used in ways that may not be apparent or expected and for purposes not directly related to the functioning of the product or service.

Businesses must ensure that they do not mislead consumers about the collection and use of their data

For example, consumers may understand that a map application relies on current location data to accurately determine travel routes. However, they may be surprised to discover that it is also storing data about their movements for the purpose of using it to determine what ads to display or even selling it to third parties.

All of this suggests that businesses should not assume that consumers are fully aware of what they are giving up in return for a “free” product or service. Instead, businesses should assume that consumers will be influenced by representations about what data is accessed, and how it is used and shared. Therefore, businesses must ensure that they do not mislead consumers about the collection and use of their data. They should also be mindful that the issues discussed here in relation to “free” products and services can also arise when consumers pay for the products or services.

The Competition Act and the Bureau’s perspective on non-monetary transactions

The deceptive marketing practices provisions of the Competition Act make it clear that businesses should not mislead or deceive consumers when they make marketing representations that promote their interests in any way. And while the collection and monetization of consumer data is relatively new, the rules relating to advertising apply to non-monetary transactions in the same way that they do to more traditional ones. The Bureau will continue to enforce these rules when companies make false or misleading representations to consumers about the collection and use of their data.

“The rules relating to misleading advertising apply to the collection and use of big data just as they do in more familiar contexts. The overarching principle remains the same: firms should not mislead consumers.
When firms make false or misleading representations about their collection of data, consumers may be led to provide information that they would not otherwise have offered or acquire products that they might not otherwise select. Put simply, firms should truthfully represent pertinent information to allow consumers to make informed choices.”
Big data and innovation: key themes for competition policy in Canada

While most businesses understand that they cannot, for example, mislead consumers to promote a product or service, they may not always realize that an exchange of money or tangible products is not necessary for a representation to raise an issue under the Act. This is particularly important to understand in the context of non-monetary transactions and of the digital marketplace. In the Bureau’s view, false or misleading representations can raise an issue under the Act even when there is no exchange of money or product if it furthers or otherwise promotes a business interest.

When companies design digital products or services to collect consumer data for a commercial purposeFootnote 1, they are promoting their own business interests. This is true even if they do not charge any money for the product or service. The Bureau has endeavoured to educate businesses and consumers in this respect, with resources like the report on competition policy as it relates to big data.

The guiding principle for the Bureau’s enforcement decisions is the same whether a business is promoting a product, a service or a business interest: a representation must not mislead consumers in a material respect. Concretely, “material respect” means misleading consumers into making decisions that they may not have made in the absence of the misleading or deceptive information.

Representations may be false or misleading in a material respect if, for example, they lead consumers to give companies access to data that they would not otherwise provide, or acquire digital products or services they might not otherwise select. Whether and how a company collects, uses, handles and shares consumer data has the potential to be a material factor in a consumer’s decision-making process.

When the Bureau is determining if a representation is misleading, it considers the general impression that the representation is likely to create in a consumer’s mind, as well as the literal interpretation. Therefore, when determining whether a false or misleading representation contravenes the Act, businesses should not necessarily rely on other forms of disclosure such as a privacy policy or terms and conditions, to cure the deception.

Non-monetary transactions are now a regular feature of the digital marketplace, and consumers have the right not to be misled about the data that will be collected and used as a result of their choice to use a digital product. By ensuring that their representations about the collection and use of data are not false or misleading, companies can enable consumers to make informed choices.

Considerations for businesses

In the Bureau’s view, the representations that are most likely to raise issues are those that create a false or misleading general impression about:

  • Whether consumer data will be collected
  • What data will be collected
  • How often data will be collected
  • Why the data is collected and what it will be used for
  • Whether the data will be sold to, or otherwise shared with third-parties
  • Whether consumer data will be retained, and how it will be maintained and deleted

Of course, representations that create a false or misleading general impression about the level of control that consumers have as it relates to these issues will raise similar concerns.

Whether consumer data will be collected

Businesses that collect consumer data must never make any representations that may create the general impression that they do not.

What data will be collected

Businesses are reminded not to make representations that suggest that they will collect less data than is actually the case. For example, representations suggesting that only a consumer’s public social media profile will be collected would raise concerns if the business is also using geolocation to track the consumer’s physical location.

How often data will be collected

Businesses run the risk of misleading consumers if they make representations that create the general impression that the collection of a consumer’s data is a one-time event, if in fact the collection is ongoing for as long as the digital product is installed.

Why the data is being collected and what it will be used for

Businesses should not make representations that suggest that they will collect data for one purpose, such as inviting consumers to apply for jobs, when in fact the data is collected for another purpose, such as being sold to third parties.

Similarly, a business should not make representations that create the general impression that consumer data will be used only for purposes directly related to the digital product, such as for customer support, if the collection of data actually serves other purposes that promote the business’s interest.

Whether consumer data will be sold to, or otherwise shared with third-parties

Privacy is important to many consumers, so they may be selective when deciding with whom they are willing to share their data. Businesses should ensure that they do not mislead consumers about whether, and under what circumstances, their data will be shared with third parties.

Whether consumer data will be retained, and how it will be maintained and deleted

“The Bureau's mandate to ensure truth in advertising may overlap with the Office of the Privacy Commissioner’s (OPC) mandate to protect privacy rights. Both mandates are important to protect consumers in the digital economy. The Bureau will continue to enforce provisions of the Act even if the offending actions may be subject to enforcement under the Personal Information Protection and Electronic Documents Act. The Bureau shares the OPC's view of the importance of collaboration in this area and looks forward to working with the OPC to protect Canadian consumers.”
Big data and innovation: key themes for competition policy in Canada

Finally, in the midst of repeated data breaches, many consumers have expressed concerns about whether their data will be retained and how it will be handled. When choosing products and services, they may rely on claims made about how businesses will fulfil their duties in this regard. This may even extend to representations about where the data will reside.

Consumers may be influenced by representations that create the general impression that they have complete control over the destruction of their data, should they wish to stop using a digital product or service. As such, businesses should ensure that they are truthful about the extent of control consumers have over the recall or destruction of their data.

Any of the conduct noted above could contravene the deceptive marketing practices provisions of the Act if it has the potential to mislead consumers about the collection and use of their data.

International developments

In 2016, the Organization of Economic Co-operation and Development (OECD) Council published its Recommendation on Consumer Protection in E-commerce to address the dramatic evolution in e-commerce since the Council first adopted guidelines in 1999. The Council explicitly included non-monetary transactions in the scope of the Recommendation, recognizing that consumer data was increasingly being exchanged for “free” products and services.

Among the recommendations relating to the protection of consumers in e-commerce, the Council advised that OECD members adopt the principle that businesses should not engage in deceptive practices related to the collection and use of consumer data.

More recently, the OECD once again expressed concerns about the risks associated with increased data collection in the paper Online Advertising Trends, Benefits and Risks for Consumers.

Conclusion

It is important that businesses do not mislead consumers about the real cost of “free” digital products and services, including what data they collect about them and their online activities, as well as how this data is used and maintained.

Businesses should be particularly mindful when data collection, use, sharing and storage go beyond what would be expected by consumers using the product or service.

The Bureau has made it a priority to investigate and address issues that are important to consumers, especially in relation to the digital economy. It will vigorously pursue online marketing practices that undermine consumer trust in the digital marketplace.

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Weight loss products: The Competition Bureau’s take on an age-old issue

An enduring appeal

Product and marketing fads come and go, but the empty promises of miraculous weight loss products endure. Individual weight loss products are often here today and gone tomorrow, only to be replaced by new products, each claiming to possess the secret to weight loss. While travelling peddlers are a thing of the past, weight loss products continue to be marketed through every possible channel, from brick-and-mortar retailers to social media influencers, and everything in between.

Consumers are always on the lookout for quick and easy ways to lose weight. This can be for aesthetics, health benefits or a combination of these and many other reasons. According to a study by Statistics Canada, 6 in 10 Canadians aged 18 to 79 are either overweight or obese. There is a constant demand for weight loss solutions, and many consumers are vulnerable to promises of deceptive weight loss claims.

Common weight loss claims

Although the products may differ, the claims promoting them are similar. For instance, it is common to claim that the products are the result of a breakthrough discovery. The claims also often include assurances that the products are backed by science, are supported by extensive clinical research and are safe to use.

In terms of effectiveness, the claims typically promise or imply one or more of the following:

  • consumers who use the product will lose a substantial amount of weight
  • the product works for everyone
  • weight loss will be easy
  • results will be quick
  • weight will come off and stay off
  • the product can target particular areas, like belly fat
The general impression created by weight loss claims is often appealing: you can get rid of unwanted fat quickly and easily.

These representations are often accompanied by images that reinforce the claims, such as before-and-after pictures, or a slim person holding a tape measure around their waistline or beaming on a bathroom scale. These images usually appear in a context that suggests that the people have lost a substantial amount of weight by using the advertised product.

Moreover, marketers of weight loss products often make scientific-sounding claims about how the miracle product works, which are sometimes limited only by a marketer’s imagination. Some common claims are that the product:

  • blocks the absorption or storage of fat
  • inhibits carbohydrate absorption
  • stimulates an enzyme that burns fat
  • burns calories
  • converts fat into muscle

Many products come with a money-back guarantee of some kind, such as “Lose 14 lbs in 8 weeks or your money back!” These can serve to reinforce claims about the effectiveness of the product. In fact, the guarantee itself may include even more compelling claims about the product’s effectiveness. Oftentimes, promotional messages also include testimonials from purportedly satisfied customers sharing remarkable weight loss stories.

In the end, these claims create a general impression that is very appealing: consumers can get rid of unwanted fat quickly and easily and achieve their weight loss goals simply by using the advertised product.

Marketing myths versus the reality of weight loss

A key element in achieving and maintaining weight loss is sustained behaviour modification, including changes to diet and exercise. Many individuals who lose weight through fad diets end-up gaining some or all of it back, confirming what many people who have tried to lose weight have learned: losing a substantial amount of weight and keeping it off is difficult. Even relatively modest weight loss takes time, hard work and dedication.

This reality contradicts claims that suggest consumers can safely lose large amounts of weight over a short period of time, with no effort and no lifestyle change, simply by using a given weight loss product. Consumers should be doubtful of such claims and of those that suggest that a product can target a particular part of the body, such as the belly or the thighs, as there is little support for these claims.

Enforcement work in the weight loss industry

In the Bureau’s experience, marketing for weight loss products often involves strong claims based on weak evidence. Over the years, the Bureau has devoted significant resources to address weight loss claims that, according to its conclusions, were unsubstantiated, based on weak evidence or outright false or misleading.

In the Bureau’s experience, marketing for weight loss products often involves strong claims based on weak evidence.

The Bureau has taken enforcement action against weight loss claims promoting a myriad of products, including devices that used heat, infrared waves as well as tablets, electronic muscle stimulation, creams and patches. Furthermore, the Bureau has repeatedly reminded consumers to be skeptical of these kinds of claims, with a variety of tools such as The Little Black Book of Scams 2nd edition.

The Bureau’s position on weight loss claims

What does the law require?

The law prohibits anyone from making materially false or misleading representations to the public to promote any product, including weight loss products. Moreover, as discussed in the Deceptive Marketing Practices Digest Volume 2, claims about the performance or efficacy of a product must be based on adequate and proper testing. The determination of this requirement depends on the nature of the claim and on the general impression it conveys.

How does the Bureau apply the law?

The Bureau examines the specific representations and the advertisement as a whole, including pictures, videos and testimonials, to determine the general impression it conveys.

For example, does the claim create the general impression that the product will result in minor weight loss, or does it suggest that weight loss will be substantial, or lead to a significant transformation?

Testing needs to substantiate the claim before it is used in representations to the public. It is not enough to have testing that shows modest weight loss if the general impression suggests that using the product will yield more significant results. Similarly, if the representations create the general impression that the product will work for everyone, then it is unlikely that testing on only one sub-population will be adequate and proper.

It is not enough to have testing that shows modest weight loss if the general impression suggests that using the product will yield more significant results.

To determine the substantiation required to make certain claims, advertisers must consider the general impression that the proposed representation is likely to create. Testing will then need to substantiate every performance and efficacy claim made about the product.

Substantiation of weight loss claims

When it comes to weight loss claims, testing must be adequate and proper, and advertisers should pay particular attention to ensure that testing:

  • Is done properly and in a controlled environment to account for other variables. For example, testing that does not account for other factors such as changes in diet, exercise and lifestyle would not likely be adequate and proper
  • Is conducted as objectively as possible
  • Establishes that the results are not mere chance or a one-time effect, by demonstrating that the product causes the desired effect
  • Is conducted before the claim is made

In the Bureau’s view, testing for weight loss claims should be rigorous. For example, the Bureau is likely to consider an independent, well-conducted randomized, placebo-controlled, double-blind study for a weight loss supplement to be adequate and proper.

To ensure that results are reliable, the Bureau recommends that advertisers use the services of reputable laboratories to design and conduct testing of products.

Beyond performance claims

In addition to performance claims, advertisers must remember not to contravene other sections of the Act, including the section that prohibits making any false or misleading representations to the public when promoting a product. These can include representations that suggest that claims have been endorsed or approved by a reputable body or government agency, or have been substantiated in extensive clinical trials, where that is not the case.

Similarly, if the product is promoted by the use of testimonials or is endorsed by influencers, the Bureau expects the testimonials to be true, accurately conveyed, and provided by actual consumers who have no material connection with the advertiser unless such a connection is properly disclosed. The Deceptive Marketing Practices Digest – Volume 4 offers additional information on influencer marketing.

A word about natural health products

Many natural health products are licenced for sale in Canada, and advertisers of these products must comply with the Food and Drugs Act, which is enforced by Health Canada.

While the Bureau will not take enforcement action in circumstances where Health Canada has approved specific claims, it may take action to address any false, misleading or unsubstantiated claims if the general impression created goes beyond what was expressly approved by Health Canada. In those circumstances, a product licence from Health Canada will not shield advertisers from the consequences of failing to comply with the Competition Act.

Conclusion

Easy solutions to complex problems such as weight loss have an enduring appeal. Advertisers must ensure that every claim they make about the performance or efficacy of a product is properly substantiated before it is made to the public.

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Changing the status quo for car rental pricing practices: ensuring that the prices you see are the prices you pay

Introduction

Until recently, major car rental companies in Canada often advertised prices that were unattainable due to additional mandatory fees that were disclosed later in the reservation process.

The practice of offering attractive headline prices and then adding additional mandatory fees later in the transaction is sometimes referred to as drip pricing. This is because the additional costs are “dripped” one at a time onto the initial price offered to consumers. While each dripped fee might be small, they can add up fast.

While each dripped fee might be small, they can add up fast.

When it came to the marketing of car rentals, the Bureau was of the view that the advertising of unattainable prices, particularly online, was materially false or misleading to consumers. The Bureau took action to give consumers the confidence that the price they see for car rentals is the price that they actually pay.

Drip pricing and the digital economy

The Bureau has been transparent about its commitment to enforce the Act in the context of the digital economy, to promote consumer confidence online and to encourage constant innovation. In fact, the first article in the Deceptive Marketing Practices Digest volume 1 offers the Bureau’s perspective on how certain kinds of online representations may create a false or misleading general impression by advertising an appealing price while concealing the true cost.

In the Bureau’s view, price misrepresentations usually have a significant influence on consumers.

Moreover, the Bureau’s stance against drip pricing is not limited to the car rental industry. On July 4, 2017, the Bureau called on online sporting and entertainment ticket vendors to avoid drip-pricing and display the real price of tickets upfront whenever the additional fees are mandatory for consumers. Then, in June of 2019, the Bureau concluded its legal action against Ticketmaster and other related companies. The companies agreed to pay a $4 million penalty and $500,000 for costs incurred by the Bureau during its investigation into allegedly misleading pricing claims in online ticket sales. The Bureau’s investigation concluded that Ticketmaster’s advertised prices were not attainable because they added mandatory fees later in the purchasing process.

Car rental cases

A number of Bureau investigations of marketing practices in the car rental industry, specifically in relation to the practice of drip pricing, have concluded in consent agreements with six major Canadian car rental companies.

Avis and Budget

In 2015, the Bureau began its enforcement efforts to improve pricing practices in the car rental industry when it filed an application with the Competition Tribunal for an order against Aviscar Inc. (Avis) and Budgetcar Inc./Budgetauto Inc. (Budget). The Bureau alleged that Avis and Budget made false or misleading price representations to the public on their websites and mobile apps, as well as in emails and in certain television commercials and flyers.

The matter was resolved by way of a registered consent agreement in June 2016. In the agreement, the Bureau concluded that certain of Avis and Budget’s initial price representations created the false or misleading general impression that consumers could rent cars and related products at prices that were not attainable, since consumers were required to pay additional non-optional fees. The Bureau also concluded that Avis and Budget’s non-optional fees may have increased the cost of a car rental by 5% to 20%, depending on the rental location and vehicle type.

Most importantly, the Bureau concluded that the representations were misleading even though the companies disclosed the additional fees before consumers completed a reservation.

The consent agreement with Avis and Budget was the first in the car rental market in Canada, but it was not the last.

Hertz and Dollar Thrifty

After the consent agreement with Avis and Budget, the Bureau launched an investigation into the pricing practices of Hertz Canada Limited and Dollar Thrifty Automotive Group Canada Inc., which culminated in a second consent agreement in April 2017.

In this agreement, the Bureau reached conclusions similar to those in the consent agreement with Avis and Budget. The Bureau notably concluded that initial price representations created the general impression that consumers could rent cars at prices that were not attainable, because they were required to pay additional non-optional fees. The Bureau concluded that these fees may have increased the cost of a car rental by 10% to 57%, depending on the rental location and vehicle type.

Enterprise

In February 2018, Enterprise Rent-a-Car Canada Company, another large Canadian car rental company, entered into a consent agreement relating to similar conclusions by the Bureau about price representations.

As set out in the agreement, the Bureau concluded that non-optional fees may have increased the advertised daily rate by between 6% and 48%, depending on the rental location and vehicle type.

Discount

Most recently, in October 2018, the Bureau entered into a consent agreement with Discount Car & Truck Rentals Ltd., another major car rental company.

This agreement again involved conclusions by the Bureau that the company had advertised car rental prices that were unattainable due to mandatory fees added during the purchasing process. The Bureau concluded that the mandatory fees may have increased the cost of a rental by 5% to 138%, depending on the rental location and vehicle type.

The Bureau’s investigations gave consumers the confidence that the price they see when shopping for a rental car online in Canada is the price that they will actually pay.

All of the car rental companies that entered into consent agreements with the Bureau also agreed not to make any further representations to the public that create a materially false or misleading general impression that consumers can rent cars at prices or percentage-off discounts that are not attainable due to additional, non-optional fees.

Conclusion

Until a few years ago, the status quo for major car rental companies in Canada involved the advertising of prices that were unattainable. Following a number of Bureau investigations, Canada’s major car rental companies committed to change their marketing practices. This will give consumers the confidence that the price they see when shopping for a rental car online in Canada is the price that they will actually pay.

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How to contact the Competition Bureau

Anyone wishing to obtain additional information about the Competition Act, the Consumer Packaging and Labelling Act (except as it relates to food), the Textile Labelling Act, the Precious Metals Marking Act, or the program of written opinions, or to file a complaint under any of these acts should contact the Competition Bureau’s Information Centre.

Website

www.competitionbureau.gc.ca

Address

Information Centre
Competition Bureau
50 Victoria Street
Gatineau, Quebec
K1A 0C9

Telephone

Toll-free: 1-800-348-5358 National Capital Region: 819-997-4282 TTY (for hearing impaired) 1-800-694-8389

Facsimile

819-997-0324

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