UK: Important New Guidelines For Advertising Prices To UK Consumers

The long-awaited Guidance for Traders on Pricing Practices was finally issued by the Chartered Trading Standards Institute (CTSi) in December 2016. The previous guidelines had been around since the old DTI published its first Code of Practice in 1988, with the last iteration published by the Department for Business, Innovation and Skills (BIS) in 2010. Although the BIS guidance has been withdrawn, traders have until April 2017 to comply with the new Guidance. The Guidance will apply to any advertisers targetting UK consumers, including advertisers based abroad.

WHAT ARE THE KEY CHANGES FROM THE OLD GUIDANCE?

The new Guidance adopts the principles-based approach that underpins the main underlying legislation, the Consumer Protection Regulations 2008 (CPRs). This is a triumph for a more flexible approach in deciding whether a pricing practice is misleading, rather than the old formulaic approach enshrined over the years since 1988, gradually leading to practices that were compliant with the letter of the guidance but increasingly at odds with the principles of the CPRs. However, this more flexible approach has come at the cost of certainty, illustrated in the two areas below.

NO MORE 28 DAY "PRICE ESTABLISHMENT" FOR REFERENCE PRICES

The first key change is in the use of "reference prices" when making a savings claim. It has become common practice for traders to "establish" reference prices immediately before a sale by increasing their prices for 28 days and then starting their sale. This enabled them to follow the old guidance, which stated that traders could compare their sale prices with an earlier, higher reference price, provided that (a) the reference price was the last price applied; (b) the new lower price did not apply for so long that the comparison became misleading; and (c) the old reference price had applied within the preceding 6 months.

In 2010 the BIS guidance required that the reference price had to be "genuine". In other words, the trader had to have a reasonable expectation of selling the goods at the higher price and had to place them on the market in sufficient numbers and for a sufficient period for the sale offer to be genuine.

Nevertheless, following consultation, the Competition and Markets Authority (CMA) concluded that, while traders may well have been complying with the letter of the guidance on the 28-day rule, they were not complying with the principle of the CPRs. The old rule has therefore been expunged and now traders must ensure that the "average consumer" would not consider the savings claim to be misleading or unfair. Despite this ambiguity, the Guidance provides a useful steer in the form of the following 5 questions:

  1. How long was the product on sale at the higher price compared to the period for which the price comparison is made? Traders should apply a 1:1 ratio at most, so if the higher price applied for one month, the comparison should apply for no more than one month. Tesco was fined for making a savings claim on strawberries many months after the short-lived higher price had ceased to apply.
  2. How many, where and what type of outlets will the price comparison be used in compared to those at which the product was on sale at the higher price? The Officers' Club was prosecuted for making savings claims for a range of shirts sold in many of their stores when the higher, reference price had only been applied in a couple of stores and to a limited range of shirts.
  3. How recently was the higher price offered compared to when the price comparison is being made? The new Guidance suggests that if the reference price applied less than 2 months ago, and with no intervening prices, that would be a genuine comparison. However, as with all the examples, that comes with the caveat that it will depend on all the circumstances.
  4. Where products are only in demand for short periods each year, are you making price comparisons with out-of-season reference prices? A genuine "end-of-season" sale is fine, such as reducing the price of ski gear in April. However, a trader raising the price of ski gear in August to make a savings claim in time for the start of the new ski season in December would not be behaving legitimately.
  5. Were significant sales made at the higher price prior to the price comparison being made or was there any reasonable expectation that consumers would purchase the product at the higher price? There is no explanation of "significant sales", but traders should make sure that they keep evidence of sales at higher prices, as well as other evidence for reference prices, such as screen grabs of competitor prices, so that they can defend any allegation of bad practice.

NO MORE 10% RULE FOR GENERAL SAVINGS CLAIMS SUCH AS "SAVE UP TO 50%"

For many years, the guidance stated that if a trader wanted to make a general savings claim such as "save up to 50%", then that saving needed to apply to at least 10% of the range of products on offer. Canny retailers found ways to comply with the letter of the old guidance, if not the spirit, by using less popular or profitable items to make up the numbers to hit the 10% threshold.

The new Guidance merely repeats the requirement that general savings claims must not be misleading and must reflect the reality of the offer. The maximum saving must apply to a "significant proportion" of the range of goods on offer and represent the true overall picture of the price promotion. The Guidance also states that the "up to" and "from" claims must be shown clearly and prominently.

Unfortunately, while the old 10% rule provided some clarity and certainty, its demise may have been necessary to comply with the underlying EU Directive. It is also not a rule founded on principle. It would be unwise to assume that 10% is synonymous with a "significant proportion". A higher proportion is likely to be needed, although we have no way of knowing at this point. There may be no single figure. For example, if the maximum saving of 50% applies to 10% of the products on offer, but the remaining 90% are discounted by 35%, will it be acceptable to claim "save up to 50%"?

WHERE DO WE GO FROM HERE?

One source of guidance will be adjudications by the ASA who have recently published decisions on issues such as the use of RRPs as reference prices and the failure to specify delivery charges until after a consumer has made a "transactional decision" to add goods to an online shopping basket.

This article was first published as a Brand Briefing by the British Brands Group.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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