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Press releases 2010 -

OFT warning on misleading pricing practices

'Sale' labels

124/10    2 December 2010

The OFT today urged businesses to review their use of common pricing practices to ensure they comply with fair trading laws, or risk enforcement action.

The message follows the publication of an OFT market study into the advertising of prices, which established that certain pricing techniques used online, in-store and in adverts can mislead consumers, potentially breaching the law.

View a video overview of the Advertising of prices report featuring James MacBeth, OFT Team Leader of the Advertising of prices study.

Advertising of prices is a key part of active price competition which benefits both consumers and the economy. But evidence obtained by the OFT from consumer surveys, focus groups, psychology literature and groundbreaking behavioural economics research suggests that certain pricing techniques can lead consumers into purchasing decisions they would not have made were prices more clearly advertised, or to spend more than they need to.

The practices the OFT 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), time-limited offers (such as 'offer ends today') and baiting sales (having only a small proportion of stock available at the advertised offer price). However, 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.

This research 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. Breaches of the regulations can result in court action and fines.

The OFT recognises that most businesses want to play fair with their customers and to comply with the law. In order to help them, it has published a new framework which sets out the criteria it will use in prioritising enforcement action against traders engaged in pricing practices causing the most harm to consumers.

On drip pricing, for example, businesses that ensure all compulsory charges are included in the headline price, and make details of all genuinely optional charges available at the early stages of the buying process are less likely to be subject to OFT enforcement action.

Fair dealing businesses should not be concerned that they risk enforcement action on trivial matters, and will benefit from clarity about the OFT's position. However, the OFT is actively monitoring price promotions and, where necessary, will take targeted national enforcement action against firms using practices that constitute serious breaches of the law.

In its national consumer protection role, the OFT's analysis is also designed to provide a lead for the compliance and enforcement work of local trading standards services and sector regulators.

John Fingleton, OFT Chief Executive, said:

'Pricing practices, used in a transparent and fair manner, can provide consumers with a helpful shortcut to assess whether a particular offer is a good or bad deal. However, our research has highlighted how certain pricing tactics can be used in a misleading way.

'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.'

NOTES

1. Download the OFT's market study into the advertising of prices: OFT1291 (pdf 839kb). Further details and annexes are available on the Advertising of prices project page.

2. The 'price frames' examined by the OFT include:

  • 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').

3. The OFT launched its market study into the Advertising of Prices in October 2009 (press release 126/09). Market studies are conducted under the OFT's general function under section 5 of the Enterprise Act 2002, which includes the functions of obtaining information and conducting research.

4. Possible outcomes of market studies may include:

  • giving the market a clean bill of health 
  • publishing information to help consumers 
  • encouraging firms to take voluntary action 
  • encouraging an industry code of practice 
  • making recommendations to Government or to sector regulators 
  • investigation and enforcement action against companies suspected of breaching consumer law 
  • a market investigation reference to the Competition Commission.

5. The Consumer Protection from Unfair Trading Regulations 2008 (CPRs) prohibit traders from engaging in unfair commercial practices, including those which are likely to distort the behaviour of the average consumer.

6. The Department for Business, Innovation and Skills has published a 'Pricing Practices Guide' for businesses (pdf) which recommends a set of good practices in relation to pricing. The Guide takes account of relevant legal obligations, in particular those provisions of the CPRs.

7. The Advertising Standards Authority (ASA) regulates the content of advertisements, sales promotions and direct marketing in the UK and ensures that standards are kept high by applying the CAP and BCAP advertising standards codes. The OFT supports the ASA by acting as a statutory regulatory partner, with the ability to take enforcement action if necessary.




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