Review of the MCCA Direct Marketing Model Code of Practice - Report

Terms of Reference 2

The extent to which the Model Code has achieved its objectives of enhancing the potential for consumers to benefit from distance selling and improving the market for reputable businesses

Objectives of the Model Code

The Model Code’s objectives are ‘to enhance the potential for consumers to benefit from distance selling, and to improve the market for reputable business’. The Model Code is also intended to prevent unreasonably intrusive forms of marketing by a variety of users of direct marketing techniques, including distance sellers and fundraisers.

The Model Code seeks to achieve its objectives by helping to:

• ensure that consumers have access to the product and service information they need to make informed choices;
• promoting ethical sales practices and ensuring that fair trading principles are complied with;
• ensuring that consumers have access to appropriate returns policies, complaints procedures and remedies where there is a problem with a sale; and
• protecting consumers from unreasonably intrusive telemarketing practices.

Has the Model Code enhanced the potential for consumers to benefit from distance selling and improved the market for reputable businesses?

The case in favour

ADMA believes the introduction of the Model Code leading to the development of the ADMA Code has enhanced the potential for consumers to benefit from distance selling and improved the market for reputable businesses. It is argued that the Model Code has promoted higher business standards of conduct and generated increased consumer confidence in direct marketing. ADMA supports this view by noting that:

• in recent years distance selling has experienced strong revenue growth leading to higher industry profits; and
• compliance with the code has been at a ‘high level’ among ADMA members.

Data provided by ADMA, which was collected by the Commercial Economic Advisory Service of Australia (CEASA), support the view that the direct marketing industry has grown dramatically in recent years. Such statistics show that direct marketing spending has grown from $5 billion in 1995 to $16.4 billion in 2001. ADMA‘s own data suggests that since 1997 (when the Model Code was introduced) direct marketing has grown two and a half times, and the trend is continuing upwards.

ADMA contends that the high standards promoted through the Model Code and adopted by ADMA members have been a key factor contributing to an improved market for distance selling and reputable businesses. That is, the adoption of the requirements of the Model Code has led to increased consumer confidence, higher industry profits and better marketing practices by the larger number of direct marketers.

Indeed, ADMA suggests that its adoption of the Model Code has reduced consumer complaints about distance selling ‘from a perceived potential systemic problem to minimal and manageable proportions’.

ADMA argue the high level of code compliance and the take-up of ‘code compliant’ advertising among ADMA members has led to consumer satisfaction and customer loyalty, both of which have been beneficial from a business perspective. Further, the Model Code may have discouraged certain more dubious direct marketing practices. For example, ADMA claim in relation to telemarketing, that the issue of intrusive ‘cold calling’ practices has experienced a notable reduction in recent years.

ADMA also point to the establishment of the Code Authority as encouraging the growth of responsible direct marketing practices in Australia and helping to ensure an environment encouraging best practice and ethical conduct. The Code Authority has achieved this by being a vehicle for consumer complaints and offering recourse in cases where consumers have not been able to resolve their complaint directly with the direct marketing business.

The Code Authority acts to encourage reputable practice among direct marketing businesses. Poor business practices may lead to the Code Authority recommending that, where the business involved is an ADMA member, such membership should be revoked.

The case against

Some submissions received during the Review were not convinced of the value of the Model Code for enhancing the potential for consumers to benefit from distance selling. However, no submission directly challenged the ADMA view that the Model Code had improved the market for reputable businesses.

Some submissions argued that the Model Code does little to protect consumer interests as it is voluntary, does not cover all industry participants, lags other legislative changes and is not sufficiently specific in relation to certain issues as it is broadly based and neutral in its approach.

In supporting this position, the CFA took the view that voluntary codes simply do not provide sufficient incentive for markets to self-correct for market failures. The CFA believe that the Model Code delivers only a perception but not the reality of consumer protection and responsiveness. The CFA was broadly dismissive of self-regulatory approaches generally, including in the area of direct marketing.

Some submissions argue that while the Model Code has been of some positive benefit to consumers, it has not gone far enough in addressing concerns relating to distance selling.

Some of these concerns have been identified in Privacy and the Community, 2001, research commissioned by the OFPC, and include:

• 91 per cent of respondents believe businesses should seek permission before sending any marketing material;
• 55 per cent are concerned about how organisations (whom they have never dealt with) obtained their name and addresses before sending unsolicited marketing information;
• 89 per cent believe organisations should advise on who has access to their personal information while 92 per cent want to know how such information may be used; and
• 84 per cent objected in some way to receiving unsolicited e-mail marketing pitches.

Some of these concerns relate to issues of e-commerce and privacy, neither significantly addressed in the original provisions of the Model Code. For that reason it may be unfair to judge the success of the Model Code against such criteria, with these concerns more properly considered in the context of what updates may be desirable to the Model Code. Additionally, a question remains whether such concerns (which involve privacy issues), translate into reduced confidence in distance selling.

Examples of specific consumer problems raised in submissions include:

• businesses accessing personal information and not explaining how they obtained it or how they intend to use it;
• businesses not seeking permission before contacting consumers or sending out marketing material (particular irritants included unsolicited telephone calls and e-mail messages);
• the use of cookies and difficulties faced by consumers in seeking to refuse them;
• marketing to deceased relatives which often causes great distress;
• marketing to children;
• use of publicly available sources such as electoral rolls, telephone directories, land title registers, deceased notices in newspapers for marketing purposes;
• apparent difficulty in being removed from marketing lists despite repeated requests;
• no information provided on how to opt-out of receiving further unsolicited direct marketing material;
• no organisation details on direct marketing material;
• telephone marketers refusing to provide information about their organisation;
• alleged inappropriate use of personal information collected by one organisation for direct marketing purposes by another organisation; and
• unsolicited offers of credit to people who cannot repay.

Other information provided some guidance on the issue of consumer enquiries/complaints and direct marketing.

For example, statistics from the OFPC show that ‘Hotline’ calls related to direct marketing have formed 3.53 percent of all Hotline enquiries for the period 21 December 2001 to 20 October 2002. During this same period the OFPC received 530 complaints about alleged breaches of the NPPs and, of these, approximately 9 percent related to direct marketing acts and practices.

VICPC indicate that, as at the end of August 2002, the issue of direct marketing amounted to 7 percent of overall enquiries. VICPC argue that while this percentage may not appear high, given that most other enquiries related to questions about the introduction of the Information Privacy Act, health matters or the Federal Privacy Commissioner’s jurisdiction, direct marketing enquiries were over represented compared to other industry sectors.

NSWPC states that written complaints and phone enquiries about direct marketing continue to represent a significant proportion of overall complaints and enquiries they receive but as a percentage have fallen compared to 1993. In 1993, written and phone complaints targeted at direct marketing amounted to around 10 per cent of all written and phone complaints. In 2001-02 the figure for written complaints was 7 per cent and for phone inquires was 6 per cent.

An area of consumer dissatisfaction with direct marketing involves businesses contacting consumers without their permission. This is supported by information from the OFPC which states that in the main, enquiries from individuals generally wanting to find out how to be removed from marketing lists or complaining about their seeming inability to do so dominated complaints about direct marketing to the OFPC hotline. Additionally, the Code Authority’s annual report confirms that the most common complaint was consumers not being given adequate information by marketers on how (and how long it would take) to be removed from marketing lists. Not surprisingly consumers continued to receive offers until the opt-out advice from them had filtered through the direct marketing system.

Conclusion

The Working Party had difficulty measuring the extent to which the Model Code had achieved its objectives of enhancing the potential for consumers to benefit from distance selling and to improving the market for reputable business.

This suggests a possible need for benchmarks to confirm whether regulatory best practice is being achieved. The benchmarking task would be to obtain the data leading to the measurement of effective performance. Ultimately the use of appropriate benchmarks could be used by the Working Party to reinforce accountability, improve communication and drive behaviour across the direct market industry.

While direct marketing has grown strongly since the introduction of the Model Code it is difficult to quantify the reasons for the growth. Clearly a component would be represented by organic growth. ADMA indicate that new marketing techniques including a marked shift from mainstream media to direct marketing techniques would also be a factor.

That there has been strong nominal growth in the direct marketing industry in recent years supports an argument that consumer confidence in direct marketing has improved. However, ultimately the Working Party found this link tenuous as various factors could explain higher revenue growth. Nor was it clear how significantly the Model Code had contributed to industry growth. The Working Party found no evidence to support the counter view that self-regulation by means of the Model Code had acted to impair distance selling and the market for reputable businesses. It was also unclear whether significant market failures existed in the direct marketing industry that required legislative remedies.

The available evidence suggests that some consumers remain concerned about certain aspects of distance selling. However, the relative significance of each concern including the extent of consumer dissatisfaction was not generally well quantified in the submissions. Nor was it clear how this level of dissatisfaction had changed since the introduction of the Model Code. Nevertheless, the Working Party believes tackling these concerns may encourage improved consumer confidence and boost distance selling to the advantage of both consumers and reputable businesses. This would need to give appropriate consideration to the legitimate commercial interests of direct marketing businesses. Such action would ensure that the Model Code retains the support of the community more broadly.

Submissions received generally supported this approach. They suggested that the Model Code has been a positive benefit to both business and consumers involved in the direct marketing industry notwithstanding some issues remain to be addressed. The concluding view of most submissions was that the Model Code should be maintained and updated to ensure a better focus is applied to some specific problems.

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