When a sale isn’t saving – what retailers need to know about misleading discounts

Darcy MacMillan, Solicitor

A consultation will launch this autumn into discounts and recommended retail prices, focusing on “was” and “now” pricing structures and whether a misleading use of such practice should be prohibited under the Digital Markets, Competition and Consumers Act (DMCCA).

The Competition and Markets Authority (CMA) is already tightening pricing practices in relation to hidden fees and fast-changing prices, and this latest consultation could lead to the CMA having further powers in enforcing how a business sets its prices.

CMA investigation of retailer pricing practices

The recent case brought by the CMA against the mattress brand Emma Sleep highlights concern around “urgency messaging” and “reference pricing”.

Urgency messaging

Urgency messaging, for example “last one remaining” or “this product has been viewed [NUMBER] of times” is a promotional tool used to suggest that a product is in demand or that an offer will soon expire. Use of urgency messaging is not automatically unlawful, but can be misleading if such messages are not a true and genuine reflection of the actual position.

Emma Sleep accepted that its use of countdown timers, headline discount claims and high demand claims constituted infringements and agreed not to continue, repeat or otherwise engage or consent to such conduct.

Reference pricing

The outstanding issue in the Emma Sleep case was its use of reference pricing. Reference pricing refers to the practice of using comparative pricing, for example “was” and “now” pricing and introductory offers which later increase in price.

Issues arise when such reference pricing is misleading because of a false comparison price. In its guidance, the CMA stipulated that if reference pricing is used, there are two requirements:

• Duration – how long a product is offered for a sale at the “reference price” before being discounted; and
• Fixed volume – at least one product must be sold at the “reference price” for every two products sold at the discounted price (1:2 ratio).

Emma Sleep accepted the duration requirement, however pushed back on the CMA’s argument of the fixed volume requirement. In its judgment, the High Court rejected the CMA’s proposal that low sales volumes at a reference price are, in isolation, determinative of a misleading reference price.

Although the CMA may have lost this battle, the announcement of the consultation into discounts and recommended retail prices highlights the mounting pressure on retailers to set fair and genuine pricing.

What does this mean for retailers and managing pricing practices?

1. A reference price should be realistic, with retailers having a genuine belief that their reference price is achievable.
2. Sales volume is still important, but not a determining factor that a reference price is not “genuine” or “realistic”.
3. The product market matters. The High Court addressed the product market as being a consideration within this case since, consumers are more likely to take the time to compare prices between retailers and to research a product in detail, before rushing to make a purchase of a product that is generally expensive as a market standard.

If you would like further information in respect of this topic, please contact our Commercial Team on 0161 832 3434, or at [email protected].