UK: CTSI Guide On Pricing Practices – What Does It Mean For Retailers?

After a lengthy consultation, in December 2016 the Chartered Trading Standards Institute (CTSI) finally published its much anticipated new guidance on pricing practices, entitled The Guidance for Traders on Pricing Practices (CTSI Guidance). The CTSI Guidance replaces the BIS Pricing Practices Guide, which was published in 2010 by the then Department for Business Innovation and Skills (2010 Guidance). In this note, we look at what the new guidance means for retailers and explore some of the key differences with the 2010 Guidance.

Background

The CTSI Guidance was prompted by a series of complaints from disgruntled consumers and consumer bodies about retailers being engaged in systematic pricing practices that were misleading and confusing for consumers. This culminated in a super-complaint submitted by consumer group Which? to the Competition and Markets Authority (CMA) in April 2015.

Which? claimed that traders were confusing and misleading consumers into sales by creating a false impression of savings that did not actually exist. One of Which?'s key concerns was the use of special offers which make extensive use of price framing, such as price referencing, volume offers and free offers. The CMA conducted a full investigation and recommended that the CTSI should clarify how the relevant legislation applies to certain promotional practices.

Status of the CTSI Guidance

The CTSI Guidance (and indeed the 2010 Guidance) is intended to provide guidance to traders on compliance with consumer protection legislation relating to pricing and associated practices in the UK and, in particular (but not exclusively), compliance with the Consumer Protection from Unfair Trading Regulations 2008 (the Regulations). The legislation itself has not changed by virtue of the CTSI Guidance.

To that extent, the CTSI Guidance is not legally mandatory. Following its advice will not necessarily provide a complete defence to any action against traders for breach of any law. Similarly, not strictly adhering to the guidance will not by itself establish a breach of consumer legislation. However, the guidance will be strongly persuasive and, like the 2010 Guidance, will be used by regulatory bodies and courts in interpreting the legislation. The guidance provides traders with a good indicator on how the Regulations are likely to be enforced. Following its advice is most definitely recommended.

Structure of the CTSI Guidance

The CTSI Guidance applies to all businesses that sell goods or services to UK consumers, irrespective of the sales channel. The guidance sets out a number of overarching general requirements looked at from the prospective of the average consumer (who is still described as "reasonably well informed, reasonably observant and circumspect"). It provides guidance in relation to specific pricing practices, offering practical examples of practices that are likely to be considered fair, and those that are less likely to be considered fair.

The CTSI Guidance has taken a different approach to the 2010 Guidance. The CTSI Guidance moves away from setting down clear and specific rules, to a structure that is more outcomes-focused and takes a principles-based approach. The trader is expected to take the final decision on whether the intended practice is compliant or not.

The new guidance attempts to be more user-friendly, providing practical examples and making good use of visuals and tables. This will no doubt be helpful for traders, but the new approach will also lead to more grey areas and questions.

Key changes under the CTSI Guidance

Goodbye to the 28-day rule? Traders will be familiar with the requirement that a price savings claim (such as '20% off' or 'save £15' or 'Was £X, now £Y') is subject to 'price establishment'. The 2010 Guidance provided a clear position on this, advising that the saving could be claimed against a reference price where the higher price was charged for a consecutive period of at least 28 days.

This 28-day rule is notably absent from the CTSI Guidance. This doesn't necessarily mean that a 28-day price establishment period will not be enough. Instead, traders are advised to consider a range of factors when making such price claims, including how long the product was on sale at the higher price compared to the period for which the comparison is made. The guidance clearly advises traders that this kind of price referencing is likely to be fair only if the discounted price does not apply for a longer period than the higher price.

Price comparisons and multiple promotions. Any comparisons made against a trader's own previous price (e.g. 'was/now' offers) should be with the immediately previous price for the product. If the price has been lower than the 'now' price for any significant period in the interval, this needs to be made clear. The 2010 Guidance suggested that one week in a six-month interval, or two or three weekends in a six-month interval, would be unlikely to be "significant".

The CTSI Guidance is not as certain on the question and leaves traders to assess what a "significant period" might mean for themselves. It also advises that price comparisons might not be genuine if: (a) during the period that the product was sold at the higher price, different types of discounts were offered (e.g. multi-buy); or (b) the higher price is not the last price that the product was sold at (e.g. there have been intervening prices); or (c) a series of price claims are made against a reference price, where each subsequent claim does not offer a greater discount. Traders will need to carefully reassess their practices in running these types of multiple promotions.

'Up to' and 'from' claims. Such claims are very common among retailers. Under the 2010 Guidance, traders could promote offers of 'up to X% off' or 'prices starting from £X', as long as the claim applied to at least 10 per cent of the product range on offer at the time.

Under the CTSI Guidance, traders can only make such claims if they apply to a "significant proportion" of the product range on offer at the time. It is not yet clear whether 10 per cent would still count as a significant proportion of the product range, but it seems likely that, under the CTSI Guidance, these types of claims will need to apply to a larger proportion of the product range than before.

Recommended retail price (RRP). The CTSI Guidance warns traders to take extra caution when referring to RRPs in their price promotions, noting that their use is contentious and there have been calls to prohibit their use altogether. Traders are advised to make clear to consumers that the comparison price is an RRP and not a higher price previously charged by the trader. The RRP must also be genuine and should not differ significantly from the price at which the product or service is generally sold.

Comparison with competitor. Traders are advised not to make generic claims implying that their products and services are cheaper than a competitor's, where this may only be true for specific items. Any such comparisons must be objective and verifiable. Traders are obliged to monitor any changes and promptly withdraw claims that are no longer accurate.

Record keeping. The CTSI Guidance highlights the importance of traders retaining records of the due diligence carried out for a pricing promotion. It is important, firstly, to ensure that proper due diligence is carried out and then, secondly, to preserve records substantiating the promotion.

In particular, traders should keep evidence about how the price promotion (and any terms and conditions connected to the promotion) was communicated to consumers, stock levels during the promotions, and evidence of competitor's pricing, if a comparison has been made with a competitor.

Next steps

In light of the new guidance, the CTSI is strongly encouraging businesses to review their pricing practices and reassess their fairness and effectiveness. Traders have an unofficial moratorium until April 2017 to review and amend their pricing practices in line with the new guidance. Many of our clients are combining this review with refresher training to their teams on pricing practices and consumer legislation generally.

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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