Prior to disbanding on 31st March 2014, the Office of Fair Trading (OFT) recently concluded its investigation into the pricing practices of five furniture retailers.
The investigation looked at the misleading use of reference pricing, reference pricing being the practice of comparing a sale price against a previous higher price e.g. "Was £1000, not £600". Specifically it looked at the authenticity of reference prices given the significant influence they have on informing consumers' decisions to purchase and the disadvantage this can have on competing businesses.
The investigation, following which the five retailers confirmed a commitment to use genuine reference pricing, follows on from the OFTs pricing study in 2010 which analysed various types of misleading pricing practices and the affect they have on consumers. The study identified drip pricing, where optional or compulsory price increments are added during the purchasing process (such as card-charges, taxes and delivery charges) and time limited offers (TLOs) as the two types of practices that have the greatest potential to cause harm.
One of the practical realities facing businesses is the use of a TLO to shift unsold stock and having to extend the promotion because of poor response. Whilst it would seem that there is a genuine reason to extend a promotion in these circumstances, businesses need to be aware that doing so puts them at significant risk of being found to have breached consumer protection regulations.
The Consumer Protection from Unfair Trading Regulations (the CPRs) list 31 banned practices that are banned in all circumstances. Number 7 on the list states:
"Falsely stating that a product will only be available for a very limited time, or that it will only be available on particular terms for a very limited time, in order to elicit an immediate decision and deprive consumers of sufficient opportunity or time to make an informed choice."
The upshot of this is that businesses should not advertise a time limited offer (TLO) knowing that it could/will be extended. In assessing the potential for enforcement action under the CPRs, the study highlighted increased concern where a TLO is extended at short notice and/or is repeatedly extended. It concludes that traders who announce that an offer will end on a particular date but decide to extend the offer in good faith because of poor sales, run a significant risk of breaching the CPRs. When prioritising an advert for enforcement action, action is less likely where a trader:
- follows the BIS Pricing Practices Guide and the UK advertising Codes (the Codes).
- gives consumers due notice that a TLO is going to be extended
- where appropriate, tells consumers how many times an offer has been extended
However, the Codes, whilst mirroring the above wording of the CPRs, go further by also stating that a promoter must not change a promotion close date unless circumstances outside of a traders reasonable control make it unavoidable. Therefore even where a trader takes steps to mitigate the risk of enforcement action under the CPRs, they still run a significant risk of breaching the CAP Code unless the reason for changing the close date was outside of their control.
What is likely to constitute a valid reason for extending a promotion under the CAP Code is a computer system failure or a postal strike i.e. something that might affect consumers’ ability to participate and therefore warrant the extension of the timeframe in the interests of fairness. Purely commercial reasons, such as poor sales or popular demand, are not likely to be valid.
The Advertising Standards Authority frequently receives complaints from consumers and competing businesses about advertisers who have extended sales promotions and it invariably upholds those complaints because the advertiser is not able to demonstrate that there reasons for extending were fair and unavoidable.
The CAP Code makes it impossible for a business to legitimately extend a TLO if the reason to do so is a commercial one, even if a trader takes steps to notify consumers of their intentions. Traders need to also bear in mind that running a promotion without a close date is not a solution given the potential that would create for a consumer to be misled in the event they tried to avail of the special after it had expired.
- Be mindful of the both the Consumer Protection regs and requirements set out in the UK Advertising Codes
- Avoid changing promotional close dates for purely commercial reasons
- If a promotion might be extended, change the terms upon which it is offered. For example, 15% off throughout the initial promotional period followed by 10% off in the extended period.