United States: Don't Forget The FTC Pricing Guides!

Those of us who practice advertising law are very familiar with the FTC's guides on pricing claims and consult them frequently when advising clients about their special offers and discount prices. I'm speaking, of course, of the Guides Against Deceptive Pricing; and the Guide Concerning Use of the Word "Free" and Similar Representations. The Deceptive Pricing Guides address various kinds of pricing representations: representations by marketers that their current price is a discount from their former price (a "sale" or "discount"); comparisons to others' prices and to manufacturers' suggested retail prices; and representations about special prices based on the purchase of other products (like gifts with purchase or buy-one-get-one -- BOGO -- offers). The fundamental principle for these guides is, of course, truthfulness: advertisers should not tout that a price is special if it's not. You can't call something a "sale" if you're charging your normal price.

As the Guide notes: "Where the former price is genuine, the bargain being advertised is a true one. If, on the other hand, the former price being advertised is not bona fide but fictitious—for example, where an artificial, inflated price was established for the purpose of enabling the subsequent offer of a large reduction—the "bargain" being advertised is a false one; the purchaser is not receiving the unusual value he expects." Thus, a seller must offer an item at a price for a reasonable, substantial period of time in good faith, and in the regular course of business, before advertising that a different price is a discount from that original price.

Similarly, for comparisons to others' prices, "Whenever an advertiser represents that he is selling below the prices being charged in his area for a particular article, he should be reasonably certain that the higher price he advertises does not appreciably exceed the price at which substantial sales of the article are being made in the area." And, for offers based on the purchase of other products, like a classic BOGO offer, if the advertiser "increases his regular price of the article required to be bought, or decreases the quantity and quality of that article, or otherwise attaches strings (other than the basic condition that the article be purchased in order for the purchaser to be entitled to the "free" or "1¢" additional merchandise) to the offer, the consumer may be deceived."

Likewise, the Free Guide is premised on the notion that all "free" offers or claims about special bargains "must be made with extreme care so as to avoid any possibility that consumers will be misled or deceived." What that means, first, is that "... a purchaser has a right to believe that the merchant will not directly and immediately recover, in whole or in part, the cost of the free merchandise or service by marking up the price of the article which must be purchased, by the substitution of inferior merchandise or service, or otherwise." Second, all of the terms and conditions should be clear and conspicuous and proximate to the offer of "Free" merchandise or services. The Guide also provides rules about the frequency of any such offers and the circumstances in which they can and cannot be made. For example, no "Free" offer should be made "in connection with the introduction of a new product or service offered for sale at a specified price unless the offeror expects, in good faith, to discontinue the offer after a limited time and to commence selling the product or service promoted, separately, at the same price at which it was promoted with the "Free" offer."

The FTC's guides set clear rules but you don't see a lot of enforcement actions based on pricing issues. (Don't be complacent, though, because there are some! For example, take a look at this action by the FTC and the New York Attorney General against the seller of Snuggies in connection with a misleading BOGO offer). There are, however, a lot of Attorney General enforcement actions (like this one) and a myriad of consumer class actions based on the state law analogs of the FTC Guides, like this case in the Northern District of Illinois and these cases in district courts in California.

What you also see are actions at the National Advertising Division. A recent case is a good example. Tuft & Needle, an online mattress and bedding seller, challenged advertising by its competitor Nectar Sleep. Initially, Nectar did not submit a response and NAD referred the action to the FTC. Nectar then returned to NAD, agreeing to participate (presumably at the urging of the FTC). Tuft & Needle challenged this claim: "LIMITED OFFER: $125 Off + 2 Free Pillows." It argued that the claim effectively communicated that Nectar previously sold its mattress at a higher price and that Nectar pillows are generally available for purchase (separately from the mattress) both of which, Tuft & Needle argued, were untrue. NAD agreed.

Citing the FTC Deceptive Pricing Guides and Free Guide, NAD determined that Nectar's claim was misleading to consumers because Nectar could not show that its mattresses were ever offered for sale at the "regular" price prominently displayed on its website or in its retail advertising. NAD also found Nectar's free pillow offer was misleading because there was no evidence that Nectar's offer for "2 Free Pillows" had been made available to consumers for a limited amount of time. Rather, the pillows were always free as part of some supposedly special offer and, therefore, actually part of the regular price (i.e., not "free"). Accordingly, NAD recommended that Nectar discontinue the claim and Nectar agreed. Case Report #6251.

The bottom line is that the FTC guides continue to be an important reference for all advertisers touting special offers and bargains. A claim that a price or an offer is special or time-limited must be exactly that.

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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