marylsommers: Groupon to be investigated by OFT

Sunday, December 4, 2011

Groupon to be investigated by OFT

Advertising watchdog refers daily deals website after it was found to have broken UK ad regulations 48 times in 11 months

The Office of Fair Trading is to launch an investigation into Groupon after the daily deals website was found to have broken UK advertising regulations almost 50 times in less than a year.

Groupon, which offers promotional deals to subscribers on anything from restaurant meals to beauty treatments, has been referred to the OFT by the Advertising Standards Authority.

It has emerged that the OFT secretly launched its own investigation into Groupon in July ? although it has only become public knowledge today following the ASA's decision to refer ? to see if the company is "complying with consumer protection legislation, including in relation to certain of its advertising practices".

"This investigation is ongoing and the OFT will not be in a position to determine whether it considers the law has been infringed until it has completed its investigations and assessed the available evidence," the OFT said.

The ASA was prompted to make the referral ? the first since Ryanair was investigated for repeated breaches in 2008 ? after having to deal with Groupon breaking the advertising code 48 times in the first 11 months of 2011.

The advertising watchdog has made 11 formal rulings of code breaches against Groupon, which it has published. There have been a further 37 informal breaches that the ASA has addressed without publishing details.

Groupon's most recent breach came last week when the ASA banned a promotion email offering discounted cosmetic surgery, ruling that it "pressured" consumers into hurriedly making potentially life-changing decisions in just a few hours.

In a statement the ASA said that it was referring Groupon over three specific concerns: "failure to conduct promotions fairly, such as not making clear significant terms and conditions"; "failure to provide evidence that offers are available"; and "exaggeration of savings claims".

"We are taking this approach because, given Groupon's track record, we have serious concerns about its ability to adhere to the advertising code," said the ASA. "It is in the public interest that we refer the matter to the OFT, the OFT being better placed to address any underlying issues concerning Groupon's trading practices generally."

Last month Groupon listed on the New York stock market at a valuation of $12.7bn, making it the second-biggest internet company to make a market debut behind Google in 2004. However, its share price has since slumped.

The company has faced controversy over the way it reports its finances, while an increasing number of consumers and marketers have complained about their experience of using Groupon.

US-based Groupon offers coupons to its subscribers, which give them discount deals on anything from restaurant meals to spa treatments.

The OFT has previously shown an appetite for investigating new online business models in order to evaluate their impact on consumers.

In 2009, the competition regulator launched an investigation into behavioural online advertising to see how the habits and personal information of web users are used to target internet advertising.

News of the investigation prompted a 20% fall in the share price of Phorm, then the main player in the sector, with the OFT ultimately deciding that internet companies should carefully self-regulate behavioural advertising practices.

"Groupon constantly strives for business practices that are in the best interest of consumers," said a Groupon spokeswoman. "We are constantly evolving business process to ensure customers receive the best possible experience at the highest standards. We are co-operating fully with the OFT to ensure that the rights of consumers are protected."

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