Udemy were recently fined $4m to settle a case brought against them in the USA for using “fake discounts”.
“Buy today £12.99 (instead of £44.99).”
Under federal law in the USA, it is illegal to sell a product at a discounted price if the “original price was not offered to the public on a regular basis for a reasonably sustained period of time”.
Many ecommerce and online companies continue to use this practice without realising the legal implications of what they are doing.
Boohoo, the Manchester based fashion retailer, also settled for $100m in the US last year for a case brought against them for similar reasons.
As consumers we are all probably familiar with this practice, but we continue to get suckered into buying products that are marketed as being “on sale” in this way without knowing whether the original price is true or not.
In the UK, the regulations are not as prescriptive as they are in the USA or the EU, but there are many rules that require reference prices to be fair and not misleading.
- Selling to Consumers
UK consumers are protected from unfair or misleading trading practices and traders are specifically banned from using misleading omissions or aggressive sales tactics, including bait advertising, bait & switch offers, false limited offers, false free offers, and so on.
According to the Advertising Standards Authority, you must not use misleading reference price in your marketing copy.
A “60% OFF” claim for some bike kit was found to be misleading as the advertiser could not provide any sales data that proved the product had been sold at the original price before the sale price (Swytch Technology Ltd, February 2023).
- Selling to Businesses
Advertising to businesses is covered by the Business Protection from Misleading Marketing Regulations 2008.
Under these regulations you are not allowed to use advertising that is misleading or makes unfair comparisons with competitor products:
(3) In determining whether advertising is misleading, account shall be taken of all its features, and in particular of any information it contains concerning:
(a) the characteristics of the product;
(b) the price or manner in which the price is calculated.
Penalties include fines or imprisonment if found guilty of any of these actions.
- Selling into the EU
Under a recent change to EU Directive (The Enforcement and Modernisation Directive), traders are required to display the correct PRIOR PRICE for a sales offer.
So, if you normally sell a product at €100 and offer a discounted price of €80 for one week, and then €70 for a second week, the “prior price” needs to be shown as €80 in the second week (and not €100).
This is to stop traders misleading consumers into thinking that the saving is greater than it actually is.
Fines can be up to 4% of annual turnover for companies that fall foul of this regulation.
Expert advice
Robert Edwards, assistant professor of industrial economics at the University of Nottingham says:
“Competition authorities are placing more attention on the way prices are framed and how product information is communicated to consumers. However, for companies it hasn’t always been completely clear how a regulator would determine whether a pricing strategy or marketing campaign breaks the law.
In the UK, this started to change in March 2023 when the UK’s Competition and Markets Authority (CMA) launched their Red Lines Campaign designed to tackle misleading and deceptive pricing strategies.
For online retailers and service providers, the CMA has now provided illustrative examples of what constitutes a misleading price reduction claim or a false scarcity claim such as a “limited time” offer that does not expire.
Some of the key takeaways for businesses are:
- Companies are encouraged to review their existing practices in the context of the illustrative examples provided by the CMA to ensure their practices comply with consumer protection law.
- For any price reduction or urgency claims, maintain evidence to show that the offer genuinely reflects selling conditions.
- Introduce safeguards within your organisation to ensure no unfair or misleading claims are presented to consumers.
The Chartered Trading Standards Institute also offers more general Guidance for Traders on Pricing Practices.
One case that pricing decision-makers may wish to follow is the current investigation by the CMA into Wowcher, the owner of several online deal websites. They are currently in the initial stage of being investigated over whether consumers were misled by countdown timers and urgency claims that encourage shoppers to buy quickly. This case should provide further insights into the way pricing strategies are to be regulated in the UK in the context of consumer protection law. (Note that the opening of the initial investigation does not imply the company has broken consumer protection law).”
So, the key message is that you need to be careful with any discount claims or price promotions to make sure they are not misleading!