In June 2005 we reported on a ‘70% off our previous price’ offer that landed retailer Officers’ Club in court on misleading price indication charges. Now the Office of Fair Trading has published draft Guidelines for advertisers on how to avoid a similar fate.
Topic: Prices
Who: Office for Fair Trading
Where: London
When: June 2006
What happened:
The Office of Fair Trading (OFT) has published draft guidance on advertising own price discounts. The guidance is aimed at businesses that advertise price discounts against their own previous prices.
Back in June 2005, we reported that the OFT had won its High Court battle against The Officers Club Limited under the Control of Misleading Advertisements Regulations 1988 and the Enterprise Act 2002. In this case, the men’s clothing retailer’s claims of “70% off everything” were found to be misleading, as the prices on which the discounts were based were not genuine. The retailer operated a permanent advertising strategy, which consisted of promoting a small number of goods at the “full” price for 28 days, but only in a few of the retailer’s outlets. After the 28 day period, a significantly greater number of goods were made available, at all of the retailer’s outlets, which were marked “70% off”. The OFT’s successful challenge was based on the argument that a consumer would be mislead into believing that the 70% discounts were from genuine reference prices.
In October 2005, the DTI published a revised version of its Code of Practice on Price Indications, (DTI’s Code) which takes account of the High Court’s decision in the above case. In particular, the DTI’s Code now includes the following section 1.2.4:
“a previous price used as a basis of a price comparison should be a genuine retail price. It should be a price at which you offered the goods for sale in the reasonable expectation that they could be sold by you at the higher price. In any case where a sale price is compared to a price that is higher than the usual retail price in the particular outlet, that fact should be made clear.”
The OFT’s guidance assists with the application of the rules on discounted prices in the context of both the Control of Misleading Advertisements Regulations and the DTI’s Code.
The key area that is addressed is the interpretation of a “genuine retail price” or a “genuine reference price”. The draft guidance explains that this involves three main elements:
– The seller must honestly believe that the reference price is an appropriate sale price for the goods. This effectively means that the seller must honestly believe that significant sales would result at that price.
– The seller must have placed a significant quantity of goods on sale at the higher price.
– The goods must be offered for sale at the higher price for a period at least sufficient for potentially interested consumers to become aware of the offer, decide whether or not to buy, and if they so choose, buy the goods.
Why it matters:
Of course, the draft guidance only applies to non-broadcast advertising. However, this seems to be a recurring problem in both broadcast and non-broadcast media. The ASA recently considered Land of Leather’s TV and press ads, which promoted a 12 hour sale. The ASA found that the Land of Leather had not proved that the reference Recommended Retail Price referred to in the press and TV were the prices at which the related items were normally sold. As a consequence, consumers could be misled as to the level of savings they would make by purchasing items at the 12 hour sale. The TV advertisement was found to be in breach of the BCAP Code rules on misleading advertising, evidence and accurate pricing.
Offering discounted prices is a valuable promotional tool, however, consumers should be given the opportunity to make their decisions based on genuine prices. The OFT’s draft guidance and the DTI’s Code appear to address both these elements. For example, the terms “significant quantity” and “sufficient period” are not defined, which will allow sellers and retailers to adopt a flexible approach to such promotions.
The consultation process closes on 24 August 2006 and the OFT proposes to publish a formal summary of the results later in the year.
