Retail and brand marketers are being urged to review their pricing strategies by the Office of Fair Trading (OFT) or face tough “enforcement action” following its report into misleading price advertising.
The OFT says it recognises that advertising price is a “key part of active price competition which benefits both consumers and the economy” but warns that some pricing practices can mislead consumers and break the law. The watchdog says it will “actively monitor” price promotions and “take targeted national enforcement action against firms using practices that constitute serious breaches of the law”.
The OFT supports the Advertising Standards Authority (ASA) which regulates the content of ads and sales promotions in the UK. The report identified seven potentially misleading pricing practices as part of a new framework to regulate price advertising.
Drip pricing, where additional costs are added during the buying process, time limited offers and baiting sales, where only a small proportion of stock is available at the advertised price, were identified as the most harmful to consumers.
Despite recent criticism, buy one get one free (BOGOF) deals were seen as one of the least harmful practices.
Under the new framework, companies such as RyanAir which use drip pricing throughout the booking process and retailers such as Marks & Spencer which has been accused of bait selling with its recent £10 champagne offer, could face court action and fines.
The British Retail Consortium slammed the report saying that consumers benefit from the competition and are good judges of the best deals. Tom Ironside, BRC director of business and regulation, says: “Customers aren’t stupid. They make sophisticated judgements about prices and value within stores, between stores and over time and have all the information they need to do that.”
The OFT seeks to reassure “fair dealing businesses” that they should not be concerned that they risk enforcement action on trivial matters. John Fingleton, OFT chief executive, says: “Misleading pricing is not only bad for the consumer, it is also bad for competition, and creates an uneven playing field between fair dealing businesses that stick to the spirit of the law, and those that push the boundaries too far. “We urge all firms to review their pricing practices and to get their houses in order where necessary.”
The Institute of Promotional Marketing welcomed the OFT’s report and says: “Price promotions that are deliberately designed to confuse and mislead consumers are simply not acceptable.” The IPM says it will look to incorporate the findings into its best practice guidance.
The seven pricing practices investigated are:
Drip pricing – where optional price increments such as taxes, card charges and delivery charges are added during the buying process
Time-limited offers – for example “offer must end today”
Bait pricing – when consumers are drawn in with offers of discounts although few items are available at the discount price
Complex pricing – for example offers where the price depends on numerous elements which may be conditional on each other
Reference pricing – such as “was £100, now £60”
Multiple unit price promotions – such as “three for two”
’Free’ products offered as part of a package – such as “first two months free
Source: Rosie Baker, Marketing Week