UK: Bullseye! OFT Publishes Views on Online Targeted Advertising and Pricing

On 15 October 2009 the Office of Fair Trading (OFT) launched two separate studies: one on online targeting of advertising and pricing and another on advertising of prices. The first explored the practice of tailoring prices to individuals using information collected about a consumer's internet use. The second looked at pricing practices which may potentially mislead consumers, including how these practices are used online. On 25 May 2010, the OFT published a market study on the former. The report finds that, although industry self-regulation addresses some concerns about behavioural advertising, more could be done to provide consumers with better information about how personal information is collected and used. It also sets out how regulation might apply to these new and emerging practices. On 28 May 2010, the OFT published a legal discussion paper and two research papers as part of its ongoing market study into advertising of prices.

ONLINE TARGETING OF ADVERTISING AND PRICES AND BEHAVIOURAL ADVERTISING

The OFT's study on this addresses two types of behaviour:

  • Targeted pricing – tailoring prices individually using information about a consumer's internet use, for example, offering price discounts only to new customers and retracting those offers from consumers who have visited the site already; and
  • Behavioural advertising – using information about an individual's web-browsing behaviour to select advertisements to display to them.

Information is usually collected through 'cookie' files placed on a user's computer after a first visit to a website. Behavioural advertising is spreading – Google is looking to roll-out its Interest-Category Advertising later this year and Sky and Google have announced plans to implement mobile phones in such advertising.

The Benefits

The OFT recognises that behavioural advertising has some benefits to customers; improved targeted advertising decreases suppliers advertising costs which feed through to customers, (ie by enabling free access to content). It also reduces the chances of consumers receiving adverts that are not of interest to them.

The Concerns

Consumer concerns relate to privacy, misuse of data, inappropriate advertising shown on shared computers, and a general dislike of being tracked and monitored.

The OFT's research has revealed that consumers' concerns decrease the more transparent the practice is and the more control they have. Concerns increase with the sensitivity of the data collected and the degree to which this is shared. However, the OFT concluded that none of these concerns significantly inhibit internet use – 5 per cent of consumers would reduce their internet use as a result of behavioural advertising.

Action

The OFT seeks to address these concerns by the following means:

Self Regulation

The Internet Advertising Bureau (IAB) the trade association for online advertising, abide by a set of Good Practice Principles. The OFT aims to work with the IAB to provide clear notices alongside behavioural adverts and propose the following recommendations to improve the self-regulation framework:

  • Provide clearer guidance around sensitive information and the use of that data for behavioural advertising;
  • Increase awareness of the Good Practice Principles amongst publishers and advertisers seeking to engage in behavioural advertising;
  • Consider extending the coverage of the self-regulatory scheme to include more first party advertisers, and consider whether retargeting companies and social networking sites should be included;
  • Consider whether the Good Practice Principles should include a commitment to maximum length of data storage for the purpose of behavioural advertising;
  • Include non-industry, independent stake - holders on the IAB to deal with complaints.

Privacy

Under the Privacy and Electronic Communications (EC Directive) Regulations 2003 (Privacy Regulations) companies must inform consumers when using a tracking system to store data about them on their computer, and give them the opportunity to refuse this. They must also make consumers aware if third parties collect personal data. This is commonly set out in a privacy policy. The report encourages the Information Commissioner's Office (ICO) to work with industry to find "better ways of explaining complex online information collection and analysis to consumers" and ensure the fair collection of information by formulating clear views on when consent is necessary and when notice will suffice.

Consumer Protection

The OFT considers that failing to clearly inform a consumer of the collection of information about their browsing behaviour may breach the Consumer Protection Rules if that knowledge would have dissuaded them from taking a transactional decision. Under the OFT's broad definition of "transactional decision", this would include a decision on whether or not to visit a website. However, the OFT found that price targeting is currently "a possibility but not yet a reality in the UK" and it is therefore an area which it is keen to discuss further.

Memorandum of Understanding

The OFT and the ICO propose to agree a Memorandum of Understanding to establish the circumstances in which each would take appropriate enforcement action. In the event that the Memorandum of Understanding covers areas where OFT and Ofcom have overlapping jurisdiction, both bodies would discuss who would be best placed to act.

ADVERTISING OF PRICES

The OFT investigation into the advertising of prices is continuing. The final report will be published in September/October 2010. However, the OFT has published a discussion paper and two research papers which provide an insight into the OFT's current thinking. Two main factors motivated the study into advertising:

  • The diversification of advertising and pricing practices on the internet; and
  • The introduction of the Consumer Protection from Unfair Trading Regulations (CPRs), which came into force on 26 May 2008 and contain rules which will impact on this sector.

The consultation process completed in August 2009 and canvassed the views of the government, trade organisations, consumer groups and the advertising industry. The study examines potentially misleading pricing practices and provides a useful insight into the main areas of concern for the OFT, as follows.

Drip Pricing

Drip pricing occurs where consumers see an element of the price upfront, but price increments 'drip' through during the buying process as the product cannot be purchased without incurring the additional costs (ie flights advertised at £10 which rise in cost with taxes). The OFT's preliminary finding is that failures to provide upfront information could constitute a breach of the CPRs.

Reference Pricing

Reference pricing occurs where sale prices are compared to a fictitious 'original' price. Comparisons based on former prices which were in existence, but for a short period of time, may also be classed as misleading; the claim is technically true, but is presented in a manner that exaggerates or distorts the meaning.

Bait Pricing

This practice entices customers with discount prices, but results in consumers purchasing a more expensive product due to the limited availability of discounted products, or because they upgrade during the sales process, for example, where tickets are advertised at a discounted price, but all have sold out. Such pricing may still be classed as misleading where there are just a few left at the price stated.

Complex or Confusing Pricing

Complex pricing offers can make it difficult for consumers to assess and compare prices. The OFT has highlighted volume pricing (where the unit price changes with the volume, such as '3 for 2' offers) as a particular concern.

Time-Limited Offers

Time limited offers arise where discounts are advertised as only being available for a short period of time. This includes statements without a specified time limit such as "hurry whilst stocks last".

Use of the Word 'Free'

The preliminary view of the OFT is that this term can be used where it is clear that the price has not been inflated to recover the costs of the free item, that the quality of the product has not been reduced and that the consumer is aware of their liability for costs. The OFT has identified certain usages of the term which will be subject to further investigation.

WHAT NEXT?

The OFT states that its discussion paper sets out its current, not definitive, views. The OFT has a range of actions available to it:

  • The OFT could make recommendations for self-regulatory or regulatory change to the industry or to government (including publishing consumer information, encouraging firms to take voluntary action or make recommendations to government for regulatory changes).
  • Take investigative and enforcement actions against companies suspected of breaching consumer or competition law.
  • If the OFT discovers evidence of anticompetitive conduct by any of the market participants it could commence an investigation under the Competition Act 1998.
  • If the OFT identifies features of the market that prevent, restrict or distort competition, it may make a market investigation reference to the Competition Commission.

The OFT's findings are expected to be published in September/October 2010.

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