UK: OFT Launches Two Advertising And Pricing Market Studies

On 15 October 2009 the Office of Fair Trading (OFT) announced that it is undertaking two new market studies which are aimed at clarifying and updating the understanding of consumer harm that arises from potentially misleading advertising and pricing.

One of the main motivations for the study is the diversification of advertising and pricing practices on the internet. The legislation relating to these practices has also changed recently. The Consumer Protection from Unfair Trading Regulations (CPRs) came into force on 26 May 2008. The study will also consider how the law applies to internet transactions

The studies will cover on the one hand online targeting of advertising and prices and on the other hand, advertising of prices. This announcement follows a consultation period which commenced in August 2009 and canvassed the view of Government, trade organisations, consumer groups and the advertising industry.

The study into online targeting of advertising and prices will cover:

  • behavioural advertising – which uses information about an individual's web-browsing behaviour to select which advertisements to display to that individual; and
  • customised pricing - where prices are individually tailored using information collected about a consumer's internet use. The OFT aims to complete this study by spring 2010.

The study into advertising of prices will cover various potentially misleading pricing practices and particularly how they are used online. These practices include:

  • 'drip' pricing – where price increases steadily build through the buying process;
  • 'baiting sales' – using low prices to attract consumers but having only some products available at the low prices, so that many consumers end up paying full price;
  • 'reference prices' – where discounts are advertised by reference to how much the product cost previously and whether that reference price is inflated;
  • time limited offers – such as one day price offers
  • complex pricing – where it is difficult for consumers to assess the cost of an individual item e.g. three for two offers, prices which don't include certain items;
  • price comparison websites which may use some of the practices mentioned above.

Several of these pricing practices are already specified as being automatically unfair, and therefore unlawful, under the CPRs. The OFT aims to complete this study by summer 2010.

Possible outcomes from a market study 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;
  • referring the market to the Competition Commission for further review;
  • investigation and enforcement action against companies suspected of breaching consumer law.

The study does not include broadcast advertising, which is regulated by OFCOM.

These market studies are likely to involve the OFT requesting data from various retailers about their pricing strategies. This is part of the OFT's focus on consumer protection and is in response to the growing importance of internet retailing and the development of sophisticated advertising and consumer targeting practices.

Online behavioural advertising has been the subject of public controversy. Of particular concern has been the level of consumer choice and potential privacy issues. The study will hopefully provide some certainty to advertisers and consumers alike.

The OFT's press release is available here.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 15/10/2009.

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