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Advertising of prices

Start date: 15 October 2009


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Purpose of the study

The study looked at various practices that are used in the advertising of prices. To establish how consumers respond to these practices we have drawn on research from the field of psychology and behavioural economics. We have also collected evidence with a large consumer survey and focus groups. The pricing practices we looked at were

  • partitioned, or 'drip' pricing, where price increments 'drip' through during the buying process
  • 'baiting sales', where only some products are available at the discount price and consumers may ultimately purchase a full priced product
  • 'reference prices', where there is a relatively high reference price compared to sale price, for example 'was £50, now £20', or '50% off'
  • time-limited offers, such as sales which finish at the end of the month or special prices which are available for one day only
  • complex pricing, where it is difficult for consumers to assess an individual price, for example 'three-for-two' or 'non-inclusive' prices, and
  • price comparison sites which may use some of the practices described above.

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Findings and outcomes

The evidence shows that certain pricing techniques when used in a misleading way can result in consumers making purchasing decisions they would not have made were prices more clearly advertised, or to spend more than they need to. This study has helped the OFT determine how it proposes to apply the Consumer Protection from Unfair Trading Regulations 2008, which prohibit, amongst other things, misleading advertising. 

The pricing practices we have identified as having the greatest potential to cause harm are drip pricing (where optional or compulsory price increments are added during the buying process such as taxes, card charges and delivery charges) and time limited offers (such as 'offer ends today'). This does not mean that the use of these practices is automatically unlawful - this will depend on the specifics of the advert and a number of other factors. The study has also identified baiting sales (the practice of having a limited volume of stock at the offer price which is too small to meet the expected demand in response to the offer) as being potentially harmful. Baiting sales are prohibited by Annex Practice 5 of Schedule 1 of the CPRs.

We recognise that most businesses do not want to mislead their customers and intend to comply with the law. After extensive engagement with industry we have developed a new framework for prioritising enforcement action. This study sets out that new framework.

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Action following market study

Based on the findings of the study, we are asking traders to review their advertising and promotions. We plan to take targeted national enforcement action, alongside our enforcement partners, against firms suspected of most seriously breaching the law.

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Market study details and report

Advertising of prices overview video

Video transcript

Our report looks at a number of pricing practices commonly encountered in-store, online and in promotional advertising.  It draws on research from the fields of behavioural economics, from psychology and from a large consumer survey that we have conducted.

What we have found is that in some circumstances, some uses of these pricing practices have the potential to mislead customers and we are calling on traders to review their promotional advertising with a view to staying compliant with the law.

When adverts are clear, fair dealing businesses and consumers alike benefit.  In support of this we will be taking enforcement action against the most serious breaches of the law.

Click below to view a video overview of the Advertising of prices report featuring James MacBeth, OFT Team Leader of the Advertising of prices study.

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Advertising of prices overview video

Background documents and contacts

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Background

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Contacts

See also
Fastrack
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