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Some common pricing practices – and when the OFT will take action against businesses using them

3 December 2010

The OFT have this week published their final report into which pricing models are most likely to mislead consumers. The OFT estimates that misleading pricing costs consumers billions of pounds each year. Businesses which continue to use such pricing models may find themselves subject 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 behavior, 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.

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The content on this page 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.

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