OFT Announces Study Into Misleading Advertising And Pricing

The OFT is seeking to address the question as to whether the flexibility of online trading is advantageous or detrimental to consumers with its study into advertising and pricing.  The study will, amongst other aspects, examine which advertising and pricing practices are most detrimental to consumers.  The study will target pricing policies such as 'drip' and 'bait' pricing and the ability of consumers to find alternative products, especially in the online marketplace.

The study will be of particular interest to brand owners with an online presence, but should also attract the attention of any party which markets its services or products to consumers. The scope of the study is still to be confirmed, but there have been indications that the following will be investigated:

• misleading and unfair pricing strategies, including 'drip' and 'bait' pricing

• the ease of finding alternative products, which is of particular relevance in the online marketplace and which presents major challenges for brand owners

• the application of the Consumer Protection from Misleading Marketing Regulations and how they apply to internet transactions. These Regulations have been in force since May 2008 and the OFT's views on their implementation are eagerly anticipated.

Interested parties may contribute to the scope of the study by forwarding comments to the OFT by 18 September.  Once the scope is finalised the study will be launched in full; at this point there should be further opportunity for comments on the current regime, including the impact of existing legislation and where improvements should be made.

Introduction

On 19 August 2009, the OFT announced a market study into the impact on consumers of misleading advertising and pricing of goods and services.  The study will be launched in the autumn and interested parties are invited to put forward suggestions on the scope of the study by 18 September.

The motivation for the study is the increasingly dominant role that the internet has assumed in relation to advertising, including its effect on pricing methods and the ease of finding alternative products.

The study will focus on pricing, alternatives, and existing legislation.

Pricing

One particular area of focus is on specific pricing strategies and the detrimental effect of such strategies on consumers, including:

• 'Drip' pricing tactics, when price increments 'drip' through during the buying process

• 'Baiting' sales, where a retailer attracts consumers with discounts but has limited stock of sale items

• Time limited offers

• Complex pricing, which makes it difficult to assess unit price (for example 'three for two' deals)

Alternatives

Another area of interest identified by the OFT is the ease with which consumers can find alternatives, especially in the online marketplace.  The issue of alternatives is of particular interest to the British Brands Group, with whom we work closely on issues affecting brand owners.  The supermarket switch campaigns are a clear example of this advertising strategy at work.  In these cases, a consumer is offered a 'cheaper alternative' (in the case of Tesco), at the point of selecting a product online. 

Whilst the supermarkets argue that this offers the consumer value for money, the practice has met with resistance from brand owners because it lures a customer away from a prospective purchase (often to a home-brand product) by using a price comparison. 

Consumer Protection From Misleading Marketing Regulations

UK consumer law received a major overhaul with the introduction of the Consumer Protection from Misleading Marketing Regulations ('CPRs'), which came into force on 26 May 2008, replacing the Control of Misleading Advertisements Regulations 1988. 

In its study, the OFT seeks to clarify the application of these Regulations, including how they apply to internet transactions.  This should be of interest to any party dealing with consumers, as the scope of the CPRs is extremely far-reaching.

Conclusion

This study will focus on the impact of the current regime on consumers. Nevertheless, brand owners should seize this opportunity to voice their concerns to the OFT.  Certainly, there are many arguments which support the protection of business interests but also protect consumers.  For example, legislation restricting the use of lookalikes protects the brand owners, but also reduces the risk of confusion and deception in the eyes of the consumer.

For the full text of the OFT's press release and explanatory details, go to www.oft.gov.uk/news/press/2009/103-09.

We will be exploring the existing regime, particularly the use of alternatives, in an evening seminar entitled Comparative Marketing: the law and the science.  This will be held on 3 November and members of the IPTC team will be joined by external speakers, including a representative of the British Brands Group and behavioural psychologists.  The event will explore marketing strategies from various perspectives and promises to be highly informative and entertaining.

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