Why it matters: Amazon made news for pricing items without stating a list price or whether an article was on sale or was offered at a discounted cost. The policy was based on the idea that Amazon's numerous Prime members would buy with increasing frequency if they could rely on Amazon to provide the best price. The news comes amidst increasing activity in the retail pricing arena. Other retailers, especially in the outlet store area, have seen an increase in lawsuits alleging false discounts. We wrote about the dismissal of one such case, wherein the plaintiff failed to establish how a price claim had been misrepresented.
The growth in private actions provides a good opportunity to review the disclosure and consumer protection issues that can arise when retailers offer sales and discounted prices, and the role that government agencies have in enforcing specific retail pricing statutes—a position that can give them a stronger footing than private litigants.
Detailed discussion: Discounts and sales are time-tested retail practices precisely because they have proven to be effective. Problems arise, however, when the discounts are made from whole cloth. Sales that go on for 52 weeks, or discounts that are offered on items that were never sold at the list price, can all draw the scrutiny of consumer protection agencies.
Although the FTC has not brought a price comparison action in many years, its published guides regarding deceptive advertising still provide the touchpoint for many state attorneys general actions involving price comparisons. At the core of the FTC provisions are prohibitions against deceptive practices. For example, the former price from which a sale price is advertised cannot be fictitious. A retailer cannot merely double an item's retail price with the intent of offering it at half the cost so that it can be listed as being 50% off. Many states also have specific laws about how and when sales can be offered. Massachusetts permits discounted prices as long as 40% of sales in the preceding six months were offered at the list price. New Jersey and Missouri require proof of sales at the original listed price, while Ohio defines "average price" as a price at which the good or service was "openly and actively sold by the supplier to consumers for a substantial period of time in the past."
This patchwork of state regulations is a challenge to navigate and is philosophically suspect. For example, suppose a new item is priced at $100, but it is first sold at a special introductory price of $75. Sales take off wildly and a decision is made to reduce the price permanently to $75. Has there been a violation of the law? Is there a legal obligation to actually sell the product at $100 to comply with requirements that the price be one which was actively offered for some period of time? How can consumer or business interests be served by forcing the sale of goods at prices consumers do not want to pay and the retailer has no desire to charge?
In my prior position as Director of the Florida Attorney General's Consumer Protection Division, we confronted these issues of permanent sales and list prices at which the items had neither been offered nor sold. In attempting to balance our deceptive pricing concerns without unduly limiting consumer access to discounted goods, we set a standard that required companies to provide proper disclosure to consumers. In one matter, the company provided a hyperlink to a disclosure which stated that the list price may or may not have been the cost at which the item was originally offered—in other words, there might not be any real discount at all. To strike that balance between preserving consumer interest for reduced price goods, without creating arbitrary minimum standards as to percentages of sales or time at which an item must be offered for sale, we simply required the company to place a clear and conspicuous disclosure (which at a minimum meant not via hyperlink) stating that the list price savings may not be based on actual sales.
We recognized that to the degree consumers are deceived by these practices, the harm is usually caused by the deceptive illusion of a bargain. Bogus sales and discounts create a false sense of urgency. For example, the consumer may think that an item may be gone quickly or that the offer may be removed at short notice. Companies that provide adequate, clear, and conspicuous disclosure are far less likely to attract regulatory attention. Retailers should remember that deception is the principal harm government agencies are likely to police, and that proper consumer disclosures should be made so that no illusions are created regarding the nature of the bargain.