Reed Smith Client Alerts

The Chartered Trading Standards Institute (CTSI) has produced a new pricing practice guide which moves towards a principle-based approach. The new guidance will take effect from April 2017 and covers a range of pricing practices including advertising discounts such as ‘was/now’ prices, additional charges, using the terms ‘RRP’ and ‘free’, and comparisons to competitor pricing.

The new guidance was introduced following the 2015 Competition and Markets Authority’s investigation into misleading pricing practices by several of the UK’s leading supermarkets and the Advertising Standards Authority (ASA) upholding complaints made against Ryanair and regarding misleading pricing.

What’s new?

The new guidance replaces the 2010 Pricing Practices Guide1 and provides a non-prescriptive set of guiding principles for training and internal compliance purposes to help businesses navigate through these laws.2

In terms of content changes, the ‘28-day’ price-establishment rule (whereby, the most recent higher price should have been available for at least 28 days) has been abandoned in favour of businesses asking themselves a number of simple questions such as: “How recently was the higher price offered compared to when the price comparison is being made?”

Additionally, claims such as “up to 50% off” or “half-price sale” can only be used if they apply to a “significant proportion” of the products on offer.

The new guidance also requires that RRP claims are substantiated so as to ensure that any price saving advertised represents a genuine saving. Businesses contemplating making RRP claims should consider consulting the ASA guidance on this subject.

Pricing in the digital environment

Enticed by the ease of online shopping, consumers’ focus has shifted towards the price as the basic differentiator. To avoid falling foul of the rules on unfair pricing, businesses need to consider:

  • whether any of the information available to the consumer (however given) is false
  • how information is presented
  • whether there is anything else that the consumer needs to know (but which may have been omitted or hidden, or be unclear or unintelligible) to make an informed decision.

The new guidance is clear that online businesses should be conscious of their customers’ online journey. Any information that is likely to affect the consumer’s decision should be prominent and close to the price, headline or main product-offering. E-commerce sites should be wary of requiring consumers to click through or scroll down in search of material information.3 Pre-ticked boxes aimed at procuring consumer consent to additional fees and charges are also prohibited.

In relation to subscription services which tie consumers into repeat payments, the consumer’s financial commitments must be made clear at the outset. Where the initial product is offered for free or at a significant discount, any additional payment obligations and the duration of the contract must be clearly communicated.

E-commerce businesses should not create a false sense of urgency and scarcity by suggesting that a product is only available at a particular price or on particular terms for a limited amount of time where this is not true

Statements such as “20% off all online orders” or “everything 10% off” must not be used unless such claims apply to all of the products on offer. Use of the terms ‘new’ and ‘introductory price’ should also be considered carefully, as where the price of the product is not increased at the conclusion of the promotional period, such practice is likely to be considered unfair.

Price comparisons should also be carried out with caution; for example, they must not give the overall impression that all of the business’s products are cheaper. Non-compliant comparisons also carry a risk that a competitor may accuse the business of discrediting or denigrating the competitor’s trademark.

When things go wrong

Getting the pricing right is critical since failing to comply with applicable pricing laws can lead to civil and criminal liability, ASA complaints and adverse publicity, and ultimately damage the business. Every pricing practice will need to be assessed on a case-by-case basis; however, adherence to the guidance does not necessarily guard against all claims. Businesses should take the following simple steps to prepare themselves in case they need to fend off any potential challenges:

  • retain records of prices and any promotions, including the manner in which these have been communicated to consumers;
  • ensure terms and conditions are transparent and user-friendly; and
  • document competitor’s pricing (where comparisons are made against a competitor) via website screenshots.

What’s next?

The new guidance goes a long way in accommodating some of the more modern retail practices and embraces flexibility, which will benefit online businesses. If in doubt about a specific practice, CTSI’s user-friendly checklist of dos and don’ts serves as a good starting point and should always be consulted first. This new high-level approach might, however, sacrifice some of the certainty that comes with more prescriptive rules. Nonetheless, businesses that put transparency at the heart of their service and take care to provide customers with all material information are more likely to be compliant.

Businesses have until April 2017 to adjust their practices to the new guidance.

  1. This was produced by the then Department for Business, Innovation and Skills (BIS).
  2. Businesses must continue to comply with all applicable pricing laws including the Consumer Protection from Unfair Trading Regulations 2008, the Price Marking Order 2004, the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 and the Consumer Rights Act 2015, as well as the codes issued by the Committee of Advertising Practice.
  3. Some of this was already required under the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013.

Client Alert 2017-080