A California judge hit the “extreme value retailer” Overstock.com with a $6.8 million dollar fine for misrepresenting just how “extreme” a consumer’s discounts actually were. Over the last decade Overstock.com has displayed “advertised reference prices” (ARPs) on the same screen as the actual sale price to show shoppers just how advantageous shopping at Overstock was. The court held Overstock liable because these ARPs weren’t always based in reality.
The “smoking gun” in this class action was a patio furniture purchase from 2007. That year, a shopper bought two patio sets from Overstock. The Overstock page displayed the ARP or “list price” as $999, the actual price as $449.99, and the “savings” as $549.01. When the furniture arrived, the purchaser was surprised to discover a Wal-Mart price tag listing the furniture for $247. The shopper was further miffed to learn that several stores and sites besides Wal-Mart were offering it for $247, as well.
That price discrepancy and others stated in the decision were initially created because some of Overstock’s “list prices” were created with no consideration of the actual retail price of the item. Instead the designation was sometimes based solely on a mathematical formula.
After several complaints about the patio furniture incident, Overstock attempted to improve the accuracy of its ARPs. For instance, Overstock stopped using the word “list price” in favor of “compare” or “compare at.” And it ceased using a formula to calculate that number.
However, according to the court, even after 2007 Overstock would intentionally publish the highest retail price it could find for some items or base the number off of non-identical items in an effort to inflate the ARP and create the perception of a large discount.
The California judge held that Overstock’s online displays violated two California statutes prohibiting “untrue or misleading” advertising. The court found displaying a price based on a formula or on a non-identical item was clearly false advertising. Additionally, given that most consumers considered the ARP to be an average market price, the judge considered it misleading to set the ARP at the highest price “without regard to the prevailing market price and without any disclosure of the practice.”
The judge suggested that Overstock could avoid violating of the statute by being more descriptive and transparent with the ARP. For instance, showing a range of prices including the highest retail price rather than the highest retail price alone would not be misleading; nor would indicating to the consumer that the ARP was based on similar, but not identical items.
Still waiting to see if Overstock will appeal and ask for a discount of its own.