Pricing Practices Guidelines: regulator sword or business shield?
Author: Charles Arrand and Roy Tozer
Applies to: UK wide
This article looks at the non-statutory guidelines on pricing practices published by the Chartered Trading Standards Institute and discusses whether they act as a sword for the regulator or a shield for businesses.
The guidelines apply to all consumer goods and services irrespective of the platform or medium used by businesses to sell to consumers. Regulators will inevitably use the guidelines as a sword to try and inflict damage on those who fail to comply with them, or at the very least use them as the yardstick by which to measure legal compliance when investigating. The good news for businesses though is that the guidelines can also be used as a shield in the event of an investigation or if a prosecution ensues.
Helpfully, the guidelines separate out various types of pricing practice to make them easily identifiable and recognisable and provide easily understood examples which are likely to prove helpful for training purposes and if businesses wish to draft their own internal guidelines. Their aim is to provide common sense advice to businesses who deal with consumers. The overarching principle is pricing transparency. A promotion must not mislead, take advantage of or deceive consumers. The average consumer, who is described by the guidance as 'reasonably well informed, reasonably observant and circumspect' (following the existing law), must be able to rely on the information provided by businesses when they decide to purchase the product or service.
Information on a website must be communicated in a transparent manner and kept up to date. Consumers who visit the website must have all the information they need available to them. Requiring consumers to take extra steps such as clicking on a link or scrolling down a page to see crucial information such as extra costs is unlikely to satisfy the requirements of the guidelines.
Pricing practices covered
The types of pricing practice covered by the guidelines include;
- Introductory or 'new' prices
Businesses must take care when using the words 'introductory' or 'new' in a promotion. What is 'introductory' or 'new' in one sector will be different to another. Businesses must take a view on how long such a price can last before the price should be increased to its normal selling price. The guidance suggests that if a product is rarely purchased, the word 'new' could be used for a longer period as compared to a more regularly purchased product.
- Comparisons to a competitor's price
A comparison made with a competitor's price should be made on an objective basis. Comparisons are encouraged where the products marketed are the same or intended for the same purpose and can assist consumers who are often looking for the best value. Businesses could help consumers by providing means to check the comparison e.g. by providing a link to the competitor's product although care must be taken to avoid confusion.
- Recommended retail price
A RRP is a price set by a manufacturer or supplier of the product. If a business uses a RRP extra care must be taken not to mislead consumers. The guidance recommends that if a business makes a price comparison to a RRP, it must be made clear to consumers that the higher price is a RRP rather than a price previously charged by the business.
- Volume offers
Offers such as 'buy one get one free', meal deals or free offers must offer genuinely better value. They must be easy to understand with all necessary information easily accessible. Care must be taken not to take advantage of consumers who decide not to calculate for themselves whether or not the price promotion is better value.
- Price reductions
These must be genuine. Determining factors to include: how long the product was on sale at the higher price and how recently, how many, what type and the location of outlets where the product was on sale at the higher price compared to where the price promotion is marketed.
- Cheaper products
Businesses should avoid general claims about their products being cheaper than competitors if that claim only applies to selected items. Businesses should explain why the comparison is a fair one and the basis of the comparison.
- Location based price comparisons
If a business decides to make a price comparison based on specific locations, to avoid confusing consumers it must check whether there are any local price variations.
Something marketed as 'free' must genuinely be 'free' and consumers should be able to rely on the claim. A business must be able to show that the item is separable from or in addition to the product being purchased, the free item is supplied if a consumer complies with the terms of the promotion or the price of a product is the same with or without the free item. The quality of the item must not suffer as a result and it must not already be included in the price of a package deal.
- Due diligence
Due diligence in a pricing practice is important if it is challenged. It is important to keep records of the way the product was priced in order to show that it was done fairly.
The guidelines suggest that the regulators will be concerned with a number of factors including:
- the terms and conditions connected to the pricing practice (if any) and how they were communicated to consumers
- evidence surrounding how the price promotion was communicated to consumers e.g. in newspapers, signs, advertisements, emails
- the stock available during the price promotion
- evidence of the competitor's pricing and product on a like for like basis if a comparison has been made with a competitor
In the broader meaning of due diligence it will be important, in seeking to demonstrate that the business has done what might reasonably be expected to ensure compliance with the law, that the business can show that those responsible for pricing practices within the organisation are aware of and familiar with the guidelines, have been trained in relation to them, and understand what the guidelines are trying to achieve and the overarching principle of transparency in dealings with consumers.
The guidelines will be in force from April 2017. The examples contained within the guidelines are held up as best practice for businesses. Businesses should act as soon as possible after the busy Christmas and New Year's sales period to review their policies, procedures and training practices.
Whilst adhering to the guidelines will never guarantee a complete defence to a prosecution (ultimately, a court will decide on a case by case basis whether or not a pricing practice is compliant or unfair), properly applied they are likely to give businesses the best prospect of ensuring that their pricing practices are legally compliant, of ensuring that customers feel that they are being dealt with transparently, of avoiding the scrutiny of the regulator and, if scrutinised, being able to satisfy the regulator that their concerns are misconceived.
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.