Coupang Fined $4.5 Million for Misleading Advertising Practices

Coupang. [Photo=Yonhap News]

Coupang has been penalized by the Fair Trade Commission for misleading advertising regarding its membership pricing. The commission announced on June 9 that it would impose a corrective order and a fine of 500 million won (approximately $4.5 million) on Coupang for advertising its 'Wow Membership' prices as lower than regular retail prices while concealing that these prices were based on one-time coupons issued upon membership registration. According to the Fair Trade Commission, Coupang began this advertising practice between August 2020 and May 2022, during a period of rapid growth in the paid membership market for online shopping. Typically, consumers who subscribe to a paid membership for a specific online shopping platform tend to exhibit a 'lock-in effect,' leading to increased repeat purchases. Therefore, competitive strategies among businesses in the paid membership market became crucial. Coupang initiated its Wow Membership advertising in March 2020, adding product discount benefits for paid members. Initially, the term 'Wow Member Price' was used to indicate prices applicable to Wow members at all times, while one-time coupons were separately noted. However, after conducting tests to assess the effectiveness of this advertising, Coupang began to advertise prices that included the one-time coupon as the Wow Member Price. The company particularly obscured the distinction between the Wow Member Price and exclusive discount coupons, making it difficult for consumers to recognize that the advertised prices were based on one-time coupons. For example, advertisements stated 'Discount of 0,000 won with Wow Member Price,' 'Discount with Rocket Wow,' and 'Member-only special prices,' suggesting a separate pricing structure for ongoing discounts. In reality, the Wow Member Price was only applicable when a consumer used the one-time coupon after subscribing to the paid membership. Consumers could not repeatedly purchase products at the same Wow Member Price. Additionally, Coupang presented the discounted prices of general-use coupons as if they were applicable to all products at the Wow Member Price. The Fair Trade Commission determined that Coupang's advertising practices constituted 'deceptive advertising' under the Display and Advertising Act. The commission noted several aggravating factors, including the intent to create a lock-in effect through misleading advertising, the concealment of important information, the prolonged duration of the deceptive practices, and a significant increase in Wow Membership subscriptions following the advertisements. As a result, the commission decided to impose the maximum fine of 500 million won. Lee Young-hee, head of the Fair Trade Commission's Display and Advertising Monitoring Team, stated, "When calculating the relevant sales for imposing the fine, we will consider the sales that were directly or indirectly influenced by the violations. We estimate that approximately 4.5 million Wow members were added during the advertising period." However, she added, "Given the various pathways for joining the Wow Membership, it was challenging to directly quantify the sales. We deemed this a serious violation, leading to the imposition of the maximum fine." The Fair Trade Commission is currently pursuing amendments to the Display and Advertising Act to raise the maximum fine limit, citing that the current cap is insufficient relative to the severity of violations. Lee emphasized, "We will continue to improve the system to ensure that fines correspond to the degree of violations, thereby enhancing deterrence against legal infractions."

* This article has been translated by AI.

Kim SeongSeo biblekim@ajunews.com