Prior to being able to unpack the practical implications that the new Consumer Protection Act (CPA) will have for sales execs and their teams, it helps to understand the basics of the Act and who it is designed to protect.
Who is ‘the consumer’?
Patrick Bracher, financial services lawyer and senior director in the commercial department at Norton Rose South Africa (formerly DeneysReitz Attorneys), outlines just who is protected: “The ‘consumer’ as defined by the Act includes all companies with a turnover or asset base of R2 million at the time of the transaction, as well as all individuals.” It’s important for companies to understand this. If your business primarily deals with the individual consumer or with small businesses, the CPA is directly relevant to you. But this does not mean that businesses that deal exclusively with large companies are not affected by the Act. Roger Hitchcock, director of Sink or Swim, a specialist company that runs seminars on critical business issues, including the CPA and New Companies Act, explains that responsibility for quality lies with everyone in the supply chain. “Just because a bicycle retailer is the company that deals with the individual consumer doesn’t mean that the manufacturer of a defective bicycle sold by that retailer can’t be held responsible for the defect or liable for injury resulting from it – even though the manufacturer didn’t do a transaction with the individual consumer,” he says. In other words, the Act is designed to protect the little guy and if your product ultimately ends up being sold to the little guy, you can be held responsible even if your business does not transact with the end consumer. It’s an important distinction and one that big business should be aware of.
Areas of the CPA that will affect sales
The CPA provides consumers with extensive protection across a broad range of areas, all of which will affect businesses dealing with consumers but some of which will have a greater or lesser effect on the sales environment. The following is not an exhaustive account of the legislation but it does highlight those aspects that will have the most material effect on selling activities. Marketing Marketing tactics cannot be misleading or unfair. As Rosalind Lake, Director at Norton Rose South Africa explains, misleading a consumer would include making the consumer think (or not correcting their obviously mistaken assumption) that goods or services will have any features, qualities, associations or benefits they do not have. “A good example – claims on weight-loss products – ‘take these pills and you will lose 10 kgs in a week’, will need to be justified,” she says. Bracher elaborates: “Claims must be factual and may not be deceptive. If they are and they induce the consumer to purchase your product or service, they can cancel the transaction.” Consumers also have the right to refuse unwanted marketing. You may not contact consumers at home at night, on Saturday afternoons, Sundays or public holidays. Cooling off periods If you close a sale on the basis of direct marketing, a cooling off period allows the consumer five days to back out of the transaction without any repercussions and with a full refund. And as Bracher warns, “Direct marketing is not only telesales. It covers any direct approach to a consumer to do business with you, either in person, on the telephone, via SMS or on email.”
Lake cautions that for many suppliers, this makes direct marketing risky business. “It creates substantial risk that consumers will use the products within the five-day period and devalue the product by opening packaging, and the supplier will be powerless to charge the consumer for the use as there can be no penalty imposed. With goods like new motor vehicles, the depreciation in value during five days will be significant,” she points out. Given the risk, sales teams will need to weigh the benefit of direct marketing against the impact of such returns.
Cancellations Suppliers in the hospitality and transport sectors should be warned that just because you have a signed booking in the bag, doesn’t necessarily mean you’ve closed the sale. Advance bookings can be cancelled without the consumer having to forfeit their deposit. “The Act stipulates that suppliers can impose a reasonable charge for the cancellation, depending on how soon in advance it takes place and whether that gives them the opportunity to fill the booking space. If the reason for cancellation relates to death or hospitalisation, however, no cancellation fee may be charged,” Bracher explains. Delivery Sales teams will no longer be able to simply leave delivery up to the logistics team, and be safe in the knowledge that the sale is secure. If suppliers don’t stick to agreed dates, times and places of delivery, or inform the consumer of unavoidable delays, the consumer can choose to cancel the transaction as wrongly delivered goods are regarded as unsolicited. Being late can, therefore, undo the hard work of selling the product in the first place. Sales reps need to be sure of the delivery promises they make on behalf of the company. Warranties and right of return The CPA automatically builds in a six month warranty for goods and services, regardless of the warranty offered by the manufacturer or supplier. If, within six months of the date of purchase, a product is found to be defective or not ‘fit for purpose’ the consumer can return it and choose to get a refund, replacement or repair.
Sales and marketing no-nos
The following practices, previously used in sales and marketing, are now outlawed:
- Bait marketing. Getting feet into stores by offering low prices on goods only to have no stock of the goods advertised. You can restrict the amount of sale goods but you must tell the consumer what is available and actually have the goods for sale.
- Negative option marketing. Supplying consumers with goods on the basis that unless they respond to say they don’t want them, the goods are theirs.
- Referral selling. Inducing a consumer to accept goods or services in return for providing you with the names of other consumers, or otherwise assisting you to supply goods or services to other consumers. No rebates, commissions or other benefits may be contingent upon an event occurring after the consumer agrees to a transaction.
The effect on the business of selling
Sink or Swim’s Hitchcock asserts that businesses will need to address four key areas on a risk continuum, each of which has implications for the sales environment.
- Strategy. Ask what changes need to be made to business strategy in light of the CPA. “For example, some businesses may choose to cut back on direct marketing and, in particular, their outbound call centre sales activities,” Hitchcock notes. Businesses will also need to ensure they can deliver what they promise, when they promise and to a standard of quality that is reasonably acceptable. By the same token, their sales teams will only be able to make promises that the business can keep.
- Corporate governance. Sales people are going to need to be able to prove that they did not mislead the consumer at the point of sale and that they provided them with all the necessary information to allow them to make an informed decision prior to purchasing the product. This calls for new record-keeping activities. “For many sales people, this will involve an extra step at the point of sale and they may, for example, need to get the customer to sign something stating that they have been informed of certain things. This document will need to be attached to the invoice and a copy kept by the business in case the customer tries to return the goods,” says Hitchcock.
- Legal. Sales contracts will need to be amended and put into plain language that a person, not familiar with the goods or services on offer, may easily understand. Any onerous clauses will need to be highlighted to the consumer and there are certain prohibited terms that cannot be included. Once contracts are amended, sales teams will need to be fully briefed on them. Hitchcock points out, “If sales reps are selling contracts without understanding what’s in them or making claims that are not supported by the contract, it can make the contract void”. Contracts can also be cancelled with 20 working days’ notice, so getting a consumer to sign on the dotted line is no longer enough to secure their custom for a predetermined contract period.
- Insurance. “Because suppliers can be held liable for damage caused by goods and services, companies may need to increase their insurance in some areas. However, if they get the strategic, corporate governance and legal aspects right in relation to the Act, then the insurance aspect shouldn’t account for more than between five to ten percent on the risk continuum,” Hitchcock says.
Preparing your sales team
Hitchcock’s advice on preparing your sales team to deal with the implications of the CPA:
- Make sure they properly understand what they are selling. Most sales are a combination of product and service and there are risks attached to both selling the actual product and to the advisory element of the sales transaction. Make sure you understand where the gaps in your sales teams’ knowledge is on both aspects.
- Ensure sales reps understand their liability as a supplier, even if they are not dealing with the end consumer. One part of the supply chain cannot indemnify another – all can be held responsible if the consumer seeks recourse to action.
- Because they are responsible for what they are selling, sales teams need a wealth of product and service knowledge. They cannot sell a product unless they fully understand the possible risk associated with using the product, as they will need to communicate these to the consumer. For example, if a travel agent is selling holidays to Libya, they need to inform the consumer of the fact, nature and potential consequences of purchasing such a holiday and travelling to that country.
- Ensure your sales teams keep records of the information that was divulged to the customer prior to the transaction taking place. Businesses will need to decide exactly what this list of disclosures needs to include. If, for example, an estate agent is selling a house with cracks and areas of damp, they will need to inform the buyer of such in detail and keep a record of having done so. The same applies for second hand goods such as used cars.
