Trivago fined $44.7m for falsely advertising hotel room prices as best price

There must be a good reason to advertise best price, otherwise, a large fine may…

There must be a good reason to advertise best price, otherwise, a large fine may be the payable for contravening the Australian Consumer Law

Background

Trivago conducts an online search and price comparison platform for hotel accommodation. The Trivago business model is aggregating online hotel offers made by participating hotels or online travel agents and displaying these offers on its website. The website presents prices from a number of different Online Booking Sites for a particular hotel, ranked according to best (cheapest) price.

When a customer clicks on an offer, they are directed to the Online Booking Site. Each time a consumer clicks on an offer for accommodation, the hotel or travel agent whose site it is pays a fee (Cost Per Click or CPC) to Trivago.

Trivago spends in the order of 75% of its revenue on advertising to attract consumers to the website, because the online travel industry is highly competitive. Competitors include review websites, search engines, independent hotel chains, online travel agents and alternative accommodation providers.

Trivago’s headquarters are located at Düsseldorf in Germany. Sales and marketing and technical management of the website are located there. It employs no Australian staff. It derived substantial revenue from its Australian platform of A$178 million (in the period from 1 December 2016 to 13 September 2019), yet had no policies or procedures to ensure compliance with the Australian Consumer Law.

The Trivago website

Trivago’s Australian website enables searches for hotels by city or region or by hotel for desired dates and room type.

Offers are based on real-time data. When a consumer generates a search in a given region, Trivago sends a request to all Online Booking Sites in that region asking for the lowest available rate for each hotel and for relevant stay dates. This process is repeated when a customer clicks on the “More Deals” button for a particular hotel.

Hotels are listed on the Initial Search Results Page. This is the example from the judgment:

From 1 December 2016 to 13 September 2019 (the “Relevant Period”) –

  • The ‘Top Deal’ price for the hotel was displayed in the far right column, in green text, in a relatively large font and with space around it. The name of the Online Booking Site making that offer and a green “View Deal” click-out button were also displayed.
  • Initially a red ‘strike through price’ appeared above the price. Later, a single price appeared in red text with no strike through price or green price. The price was a comparison between prices offered on different booking sites for the same room category in the same hotel.
  • Three more price offers were displayed in the column second from the right. They are displayed in a smaller font compared with the far right column.
  • A “More Deals” button is displayed below these price offers. If clicked, other offers from Online Booking Sites for the selected hotel are displayed.
  • If a consumer clicks on an Online Booking Site’s offer on the Trivago website, the consumer is taken to the Online Booking Site’s website and may complete the booking by using the Online Booking Site’s website’s booking service.
  • Trivago advertised on television that it makes it easy “to find the ideal hotel for the best price”. The statement was repeated on its website.

The ACCC’s concerns

The ACCC was concerned that the “Top Deal” (“Top Position Offer”) was in many cases not the best or cheapest price available for the particular hotel room, because Trivago had manipulated the display in three ways:

  1. The Trivago website only displayed offers made by Online Booking Sites that had agreed to pay an amount of money – referred to as the Cost Per Click or “CPC” – to Trivago.
  2. Unless the CPC offered to be paid by the Online Booking Site exceeded a minimum threshold set by Trivago, the offer did not appear on the Trivago website.
  3. Trivago used an algorithm to select the offer to appear as the Top Deal. A very significant factor in determining which offer would be the Top Deal was the amount of the CPC to be paid by the Online Booking Site to Trivago.

The manipulation was hidden from consumers.

In addition, the ACCC was concerned that the Trivago website, and the Initial Results Search Page in particular, would lead consumers to believe that the Trivago website provided an impartial, objective and transparent price comparison to identify the cheapest room available which met their criteria at a particular hotel, when this was not the case.

The Court agreed with the ACCC’s concerns and found that Trivago had contravened these provisions of the Australian Consumer Law

s 18 – misleading and deceptive conduct

s 29(1)(i) – false or misleading representations about the price of goods and services

s 34 – misleading conduct as to the nature of services 

The Court said “Trivago’s contraventions of the Australian Consumer Law were systemic and were a product of its business model”. The television advertising and the design of the Top Position algorithm were “intentional”.

On 22 April 2022, the Federal Court decided the appropriate penalty and other orders for the conventions – Australian Competition and Consumer Commission v Trivago N.V. (No 2) [2022] FCA 417 (Moshinsky J). This article deals with the penalty decision.

The penalties and the reasons for the penalties

The Court ordered Trivago to pay pecuniary penalties totalling A$44.7 million, taking into account the representations and conduct during the Relevant Period.

The Court also made a restraining order that for five years Trivago not display as “Top Deals” a price offer that was not the cheapest available or which had some other characteristic that made it more attractive than any other available offer for the hotel.

The Court gave six reasons:

  1. The contraventions were “extremely serious”. The television advertising was “highly misleading” in that it gave the impression that the Trivago website would “quickly and easily identify the cheapest rates available for a hotel room responding to a consumer’s search”, when in fact the Trivago website did not do this. The Court referred to the expert evidence that consumers selected higher offers because they were shown as Top Deals over alternative lower priced offers, in 66.8% of listings.
  2. It was “highly misleading” for Trivago to represent on its website that the Top Deals were the cheapest available offers for an identified hotel or had some other characteristic which made them more attractive than any other offer for that hotel, because of the way that Trivago manipulated the display.
  3. The conduct extended for a long time – nearly three years. In the early part, television advertisements were prominent. Throughout, the website was misleading.
  4. A large number of consumers were affected by the conduct. The evidence was that during the Relevant Period, there were approximately 111 million click-outs on the Trivago website. The overwhelming majority (approximately 104 million or 93%) of the click-outs were on the Top Deal. There were approximately 57 million click-outs on a Top Deal for an identified hotel where the Top Deal was not the cheapest offer for that hotel.
  5. The loss or damage to consumers caused by Trivago’s contraventions was substantial. The Court found that Australian consumers paid A$36,985,090 more for bookings made on the non-cheapest Top Deals than if they had booked on the cheapest offer from the same hotel. After cancellations, the loss was A$30 million caused by Trivago’s contraventions. Trivago has not compensated the affected consumers.
  6. Trivago derived substantial revenue from its contravening conduct of A$178 million during the Relevant Period. Trivago’s submissions that the fine should be closer to A$15 million than the A$90 million that the ACCC was contending for were based on net income from its Australian operations of A$6.72 million over the 2017, 2018 and 2019 calendar years. The Court’s view was that revenue, not profits from the Australian operation was relevant to assessing benefits to Trivago from the contraventions.

Comments

The ACCC is sensitive to price representations because consumers are sensitive to price. Prices must be transparent.

And if the price is advertised as “best price”, “cheapest price” or “lowest price”, there must be a good reason for describing it in that way.

Further resources

Links to the liability decisions are: Australian Competition and Consumer Commission v Trivago N.V. [2020] FCA 16 (trial, Moshinsky J); Trivago N.V. v Australian Competition and Consumer Commission [2020] FCAFC 185 (on appeal, Middleton, McKerracher and Jackson JJ); Federal Court of Australia.

See also my commentaries on the liability decisions Cheap rooms? Probably not? Trivago’s top deals are hotels which pay the most and How the Trivago online business model failed the Australian Consumer Law test

 

Marketing Commentary by Michael Field from EvettField Partners

Impact of the Trivago decision upon small business travellers

According to its website, the role of the ACCC is: “Making markets work for consumers, now and in the future”. The ACCC also describes “supporting fair trading in markets affecting consumers and small business.

I have focussed my review on the likely impact of Trivago’s conduct on small businesses.

Small businesses are consumers who were clearly and significantly harmed by Trivago’s conduct. According to Investopedia, business travellers make up ~12% of airline passengers, pay higher rates than other customers and are typically twice as lucrative, accounting for as much as 75% of profits.

According to Finance Online 60% of companies have a corporate travel policy. A common directive is to book the ‘cheapest available ‘or ‘lowest logical price’ accommodation and travel within a prescribed category such as hotel star ratings. In a typical business travel budget, accommodation represents approximately 13% of the total travel expense.

A 2022 study of business travel conducted by an international airline revealed that 60% of all business travel is not booked by the traveller, but rather is handled by an assistant. The assistant responsible for booking accommodation and travel is often pressured by availability, time constraints, and the requirement to comply with the company travel policy. A common approach is to search online for ‘cheapest <star rating> accommodation in <insert city>’ and then rely on the search results displayed on the booking website. It would be reasonable to accept the advertised ‘top deal’ as the lowest price and book the accommodation accordingly.

Providing the claim was not false and misleading, there would be no reason to continue scrolling through the website looking for cheaper prices, especially when the ‘top deal’ is already prominently displayed at the top of the page. This is why Trivago’s misleading website was so damaging for small businesses.

Trivago’s actions have damaged their brand, harmed consumers – and all businesses, and likely emboldened the ACCC to pursue high profile cases that will attract significant penalties, industry, and media attention.