Who: Chartered Trading Standards Institute (“CTSI”)
Where: United Kingdom
When: 7 December 2016
Law stated as at: 30 January 2017
The long-awaited CTSI guide to pricing practices (the “Guide”) was released in December 2016 at the request of the Department of Business, Energy and Industrial Strategy and the Consumer Protection Partnership. It followed public consultation almost a year earlier and replaces the 2010 Pricing Practices Guide (“PPG”) produced by the then “Department for Business, Innovation and Skills”.
The Guide provides advice to businesses who sell products or services to consumers to enable them to formulate their pricing and promotional activity in a legally compliant way. Like the PPG before it, the Guide is not legally binding and instead presents recommended ‘best practice’ only. However, a version of the Guide has been in existence for several decades and has been widely used and accepted by retailers and other consuming-facing businesses as accepted practice. It is highly likely that regulators and the courts will continue to use the Guide to determine whether a promotion is misleading.
The Guide presents a step change to the PPG (and earlier guidance) because it suggests a framework within which businesses should consider pricing and promotions instead of the previous prescriptive approach. This means that well-known and practised rules, such as “28-days” for price establishment, are now gone. As the CTSI chief executive explained during the consultation process for the Guide: “…Only a court can decide if a business has broken the law and the guidance is not intended as a set of rules, instead illustrating whether a given practice is more or less likely to comply with the law. This method avoids creating the appearance of ‘safe harbours’ which the legislation underpinning the guidance does not provide.”. This change in approach follows investigations by what was the Office of Fair Trading into the pricing activities of supermarkets and other retailers and the Which? super complaint, where business was criticised for referring to the PPG as a set of rules. There can be no doubt that the intended effect of the new Guide is to rip up the rule book and require business to approach pricing and promotional campaigns in a new way.
How will business have to change?
The PPG had long been used by businesses to ensure a compliant presentation of pricing to customers. It had also indirectly created consistency between competitors on pricing information, creating similar approaches within categories (for better or for worse). While the PPG had become outdated in some areas, especially given the increase in e-commerce in recent years, businesses were used to referring to the guidelines when formulating their price communications. The BCAP and CAP Codes, applicable to UK sales promotions and advertising generally, also pointed advertisers to the PPG if they wanted to ensure their communications would be CAP Code compliant.
The Guide takes a wholly different approach by being less prescriptive and authoritarian and instead gives ‘recommendations’ which will need to be considered and applied on a case-by-case basis. The Guide gives examples of the type of corporate behaviour which is generally likely to comply with the law. Responsibility is therefore squarely placed at the feet of each business for it to show that for each pricing practice and promotion the business has considered the Guide’s recommendations.
In practice businesses will now need to adopt and document why a pricing practice or promotion is fair and not misleading. This is because if a business is challenged under the Consumer Protection from Unfair Trading Regulations 2008 (the “CPUT Regulations”) it will be reliant on showing that it had a due diligence system in place to prevent misleading practices. While this may sound onerous, in our view a simple and efficient system can be created that will meet the due diligence requirements. But, without doubt, it will require a change in approach by marketers and in-house lawyers who plan and advise on promotional campaigns.
For example, when running a promotion involving a price comparison showing the business’s original price and a discounted price, under the new Guide you will need to be prepared to justify and document the answers to the following questions:
- How long was the product on sale at the higher price compared to the period for which the price comparison is made?
- How many, where and what type of outlets will the price comparison be used in compared to those at which the product was on sale at the higher price?
- How recently was the higher price offered compared to when the price comparison is being made?
- Where products are only in demand for short periods each year, are you making price comparisons with out-of-season reference prices?
- Were significant sales made at the higher price prior to the price comparison being made or was there any reasonable expectation that consumers would purchase the product at the higher price?
What many will now find surprising is that when answering those questions, practices that have been widely used by businesses for many years are now deemed under the Guide as “less likely to comply” or, in other words, more likely than not to be viewed as misleading and in breach of the CPUT Regulations.
So what is now less likely to comply?
- Price establishing for 28-days within a 6-month period so that a product is at full price for one month and then on discount for 5 months. The recommendation is to move to 1:1 pricing (i.e. the product is offered at a discount for the same period of time or shorter than the product is sold at full price).
- Using different reference prices in different stores but picking the highest reference price as the “was” price for a promotion running in all stores. For example, product x sold at £3 and £4 in different stores, reduced to £2 and sold at half price in all stores.
- Using a reference price that applied many months (at least more than 2 months) prior to the promotion.
- Price establishing seasonal products (e.g. Easter eggs, British strawberries) out of season to be able to show a discount when the product is in season.
- Using a reference price when only a minimal amount of product actually sold at that price. There is now an expectation that a business will have sold a “significant number” of units at the higher price in order to make a price comparison.
The Guide also provides three examples of price comparisons that may not be genuine:
- Offering successive types of discounts on the same product. For example, month one: product priced at £500 but within a “Buy 2 get 10% off promotion”; month two “Was £500, now £350”.
- The higher price is not the last price that the product was sold at, for example there have been intervening prices, but the higher price is used as the reference price.
- There are a series of price claims but each subsequent claim does not offer a greater discount. For example, “Was £150, now £75”, followed by “Was £150, now £99”.
While the advice given in the Guide is broader in many respects to the previous PPG, there are practices that it is clearly discouraging. For instance, where digital communications are concerned, it is confirmed that it may amount to an unfair practice if a trader’s technology requires the consumer to take extra steps (such as clicking on a link or scrolling down a page) to obtain material information, such as additional costs. Further the use of RRPs (which we anticipated being prohibited completely) must be used cautiously and businesses should now expect to have to justify that the RRP is a genuine selling price. This could include asking manufacturers or suppliers to substantiate the RRP. Finally, the use of volume offers, such as multi-buys, must genuinely provide the consumer with better value.
Where the Guide disappoints in our view
During the consultation phase there was genuine concern by many businesses that the new Guide would not provide sufficient clarity on what would be viewed as an acceptable price promotion. It is widely understood and recognised that today’s consumers lead busy lives and it is important that marketers therefore present promotions in a clear, accurate and meaningful way. However, in order for a business to operate efficiently, the provisions of the Guide have to be applied practically – marketing teams will need a clear framework within which to work so that promotions can be decided upon and implemented quickly. So does the Guide help retailers know how to do this? In our opinion…….no.
The elements of the previous PPG that have been removed without clear new recommendations in their place will leave businesses unsure of what is an acceptable price promotion. The expectation is that businesses will continue to apply the well-known rules from the PPG until enforcement action is taken that demonstrates that in certain situations the old rules can no longer be relied upon. Prudent businesses should take steps now to review their approach to price promotions and put a simple system in place that justifies the promotional activity.
The lack of clear rules may ultimately be to the detriment of consumers, which goes against the purpose of amending the PPG. Each business may reach a different conclusion on how a promotion can be justified and adopt a different approach as a result. For instance, the Guide has removed the criteria for “new” claims (which previously indicated something could not be new for longer than 6 months), which will leave individual businesses and sectors working out for how long a price should be considered new and potentially reaching different conclusions. The lack of consistency and the resulting confusion may well lead to an increased number of competitor led complaints to the ASA.
There are some areas in which the Guide has sought to present traders with illustrations, although we are pleased to note that the example ASA and Trading Standards cases present in the consultation have been removed. However, there is very little information given in the Guide that goes beyond the guidance and help notes already provided by CAP and the ASA which relate to the interpretation of the CPUT Regulations. Indeed, there are now some conflicts between the Guide and CAP and ASA guidance where, for example, the provision that at least 10% of promotional items have to be available at the advertised discounted price (e.g. “up to 40% off sale”) still exists. Time will therefore tell how useful the Guide actually is for businesses.
The Guide also focuses very heavily on the CPUT Regulations to the exclusion of other regulatory codes that can apply in this area to traders, not least the CAP Code. While it is not possible for any document to cover all types of possible pricing practices, it does feel when reading the Guide that it is so broad in scope that its guidance and use is therefore more limited than it could have been.
Why this matters:
In summary the effect of the Guide is to shift the onus on to business to make an assessment of whether a promotion is fair and to be prepared to justify decisions with, if necessary, documentary evidence. The Guide offers limited practical assistance to those who plan and advise on marketing campaigns and pricing promotions.
We suspect that with the issuing of new guidance the regulators will allow a period of time for business to understand the shift in emphasis from a rules based approach to self-assessment. However, we fully expect enforcement activity to take place which will reference the Guide and provide greater clarity on how the authorities now think price promotions should be managed. We will also have to see how the Guide is applied to any ASA adjudications that may focus on this area.
CTSI have invited feedback on the new Guide which should be sent to email@example.com.
Osborne Clarke will be hosting a thought leadership event to discuss the impact of the Guide on marketing teams and in-house legal. Please click this link to register your interest to attend and we will confirm dates in due course.