Who: The OFT has closed its investigation into the pricing practices of 6 furniture and carpet retailers
When: The investigation commenced in 2012 and ended on 21 March 2014
Law stated as at: March 2014
In 2012, the OFT opened a number of formal investigations under Part 8 of the Enterprise Act 2002 to consider whether six retailers within the furniture/carpet sector were engaging in the use of misleading reference pricing. The investigations built upon the findings of the OFT’s Advertising of Prices market study, published in December 2010. The OFT relied on the market study to justify its investigation that certain reference pricing practices used by the 6 retailers might be in breach of the Consumer Protection from Unfair Trading Regulations 2008 (CPRs). Reference pricing refers to those offers which include a reference to another, typically higher, past or future price (such as ‘Was £800, Now Half Price £400′ or ‘Now £400, After Event Price £800′) when promoting a product as having a currently advantageous price.
The OFT’s position is that the use of misleading reference prices is likely to deceive the average consumer and influence their transactional decisions and could put other businesses at a competitive disadvantage.
Why this matters:
The investigation was closed without any of the 6 retailers giving undertakings or any formal enforcement action against them. The OFT states on its web site that the retailers confirmed a commitment to the use of “genuine reference prices” and, without any admission of liability, made changes to their reference pricing practices. On the basis of those commitments the OFT closed its investigations.
Of most interest to all retailers that use reference pricing is the fact that the OFT set out on its web site a list of non-exhaustive list of factors, which would lead the OFT (now the CMA) to question whether genuine reference prices were being used:
1. Relative volume of units sold: Whether the reference price is the price at which the retailer has sold a significant number of units of the product relative to the number of sales at the discounted prices. The greater the proportion of sales made at the higher price the less this will call into question whether that higher price was a genuine retail price.
2. Legitimate expectations: Whether the reference price is a retail price at which the retailer has a legitimate expectation of significant sales of units of the product relative to the number of sales at the discounted prices. The following practices suggest a lack of legitimate expectation:
i. Repeated use: Whether the retailer repeatedly uses a reference price, when the retailer knew that it had not sold a significant number of units of the product at the reference price relative to the number of sales at the discounted prices.
ii. Duration: Whether a reference price is advertised to show a specific price advantage and/or discount, in circumstances where the sale price has been used for longer than the reference price, whereby the sale price has, in fact, become the usual retail price.
iii. Proportion of stores: Whether the reference price was used in all or a significant proportion of stores before and/or after the advertised discount.
iv. Online: Whether a reference price was available on a retailer’s main online store or only through a secondary or lower profile business or website, before being used to promote savings and/or discounts in all its stores.
v. Parallel discounts: Whether, during the time that the reference price is the current retail price, a retailer runs parallel discount offers to attract sales. For example, by offering money off vouchers, in store discounts and/or ‘bundling’ offers whereby discounts are offered for multiple purchases.
The Trading Standards Institute has been tasked with a consultation and review of the current Pricing Practices Guide, (‘PPG’), which has become fundamental to the way that retailers interpret the CPRs and therefore how prices and promotions are presented to consumers in the UK. The consultation and review is meant to gather evidence as to whether the PPG assists or detracts from ensuring legal compliance and preventing consumer detriment. The TSI call for evidence closes on 30 April 2014.