bulletin
OFT to get tough on misleading pricing
9 November 2010
The Office of Fair Trading last week published their final
report into misleading pricing models, reminding businesses of
their obligations. The OFT estimates that misleading pricing costs
the consumer billions of pounds each year. Businesses which
continue to use such pricing models may find themselves open to
court action and fines.
The report is the result of a year-long investigation into how
the Consumer Protection from Unfair Trading Regulations 2008 should
be enforced. The OFT examined pricing online, in store and in
advertising, took account of scientific studies on consumer
behaviour, and consulted the industry.
The following pricing practices were examined in particular:
- drip pricing - where credit card surcharges
and other hidden compulsory (or optional) costs are not included in
advertised prices, creating a misleadingly low impression of the
price
- time limited offers – for example, sales which
finish by the end of the month, or sale prices which are available
for just one day
- baiting - where only a very limited number of
products are available at the advertised lower price, so consumers
may decide to purchase a full priced product instead
- complex offers - such as package deals with
many separate elements to the price
- reference pricing - where there is a higher
reference price compared to the sale price, for example 'was £500,
now £360,' '30% off,' 'AB Ltd price £9.99' or 'RRP £40'
- volume offers and free offers - when it may be
difficult for consumers to assess the price for an individual item,
for example '3 for 2', 'buy one get one free', or 'first two months
free'
The report ranked these practices on their potential to mislead,
with drip pricing having most potential to mislead, and volume/free
offers having the least potential to mislead. This will serve to
set the priority the OFT (and others) place on enforcement against
such practices.
This does not mean that all drip pricing is banned and all
volume offers are permitted – further factors will need to be
considered before a decision to take enforcement action is made,
which include the following:
- the specifics of the advertisement (for instance, in cases of
drip pricing, are compulsory elements of the product - for
which there is a range of charges - clearly displayed up
front?)
- what market and product the advert relates to
- ease of cross-market price comparison
- whether the advert leads to consumer harm
- whether the seller has followed applicable guidelines, for
instance the BIS Pricing Practices Guide and the ASA's Code on
Advertising Practices
John Fingleton, OFT chief executive, has said:
“Misleading pricing is not only bad for the consumer, it is
also bad for competition, and creates an uneven playing field
between fair dealing businesses that stick to the spirit of the
law, and those that push the boundaries too far.”
The OFT has urged all businesses to review their pricing
practices and to get their houses in order, as the OFT will be
actively monitoring price promotions.
If businesses fail to do so, they may face criminal prosecution,
resulting in an unlimited fine and up to two years imprisonment
upon a conviction. In addition, Trading Standards or the OFT may
take civil action to prevent the use of what they consider to be
misleading pricing practices.
talk to us
save to PDF
The content of this bulletin is provided for the purposes of
general interest and information. It contains only brief summaries
of aspects of the subject matter and does not provide comprehensive
statements of the law. It does not constitute legal advice and does
not provide a substitute for it.