Comparative pricing is a powerful sales tool. However, many franchisors, retailers and suppliers are currently using it incorrectly and are unknowingly at risk of prosecution for breaching the Trade Practices Act (TPA).
Comparative pricing is commonly seen in the following forms:
- straightforward comparisons, such as “was $X, now $Y”
- strikethrough comparisons, such as “$X $Y”; and
- percentages discounts, such as “X% off”.
As recently stated by Acting Chairman of the ACCC Mr Peter Kell, when using comparative pricing, “…retailers must ensure that the claimed savings are genuine or they run a serious risk of breaching the law”. Specifically, if retailers use comparative pricing incorrectly, they may engage in misleading or deceptive conduct (or conduct that is likely to mislead and deceive), or make false price representations, in breach of sections 52 and 53(e) of the TPA respectively.
The ACCC recently investigated Furniture and Bedding Concepts Ltd (FBC) in relation to its use of comparison pricing. FBC operated 107 retail furniture stores and had used “was/now” advertisements in its national catalogue. However, FBC based its “was” price on recommended retail prices set internally, rather than the actual prices at which the relevant products were sold prior to the sale. Following an ACCC investigation, FBC agreed to enter into a range of enforceable undertakings, including to display corrective advertising, publish an information notice in an industry magazine, implement a TPA compliance program and offer $100 gift vouchers to the affected customers.
To ensure that your advertising does not fall foul of sections 52 or 53(e) of the TPA, consider the following questions before going to print. If the answer to any of these questions is “no”, you should revise the advertisement or seek legal advice.
- Is the “higher” price a genuine pre-sale price, and the actual price at which the products are offered immediately prior to the promotion?
Many retailers use the recommended retail price (RRP) as the “higher” price without giving this issue much thought. However, unless the relevant products were ordinarily sold at the RRP prior to the promotion commencing, it should not be used as the basis for the comparison.
Explicitly stipulating that the comparison is based on the RRP (for example, “20% off the RRP”) will not protect a retailer from breaching the TPA if products were customarily sold below the RRP.
- Were the relevant products sold to customers at the higher price for a “reasonable” period before the promotion?
In determining this, consider things such as the expected shelf life of the product and ordinary price fluctuations.
- Were the products sold at the “higher” price for a reasonable period before the advertising campaign at all outlets?
Using comparative advertising in the context of a franchise or independent dealer network is especially difficult and in some cases may not be appropriate. Other than in very specific and limited circumstances, franchisors or suppliers to dealer networks cannot dictate prices, agree on prices with their franchisees or dealers, or facilitate the making of agreements regarding price between franchisees or dealers who may be competitors. Accordingly, establishing that products are sold by franchisees or independent dealers at the “higher” price for a reasonable period before the advertising campaign can be very difficult.
- Is the “lower” price only available for a limited time?
The lower price must be a temporary price. That is, the promotion should not operate for a longer period than the products were available at the “higher” price. In short, comparison pricing should never be used to make savings look bigger than they actually are. Businesses must ensure that any discount specified is real and not illusory.