How to avoid false or misleading pricing representations
Pricing representations receive ongoing scrutiny from the Commerce Commission. The Commission frequently brings enforcement action in this area and in recent years the Commission has signalled that it receives a significant number of complaints from consumers who have been misled by or are concerned about pricing practices.
The Commission has published useful guidance in this area – a pricing factsheet, a price promotion tips sheet and an open letter to New Zealand retailers published in 2017, attempting to improve trader compliance in this area.
The Commission’s message in its guidance is clear – any representations a business makes about price must be clear, accurate and unambiguous. But how do we make sure that we are achieving this?
Some of the pricing practices that require extra care include:
- Discounts and strike-through pricing
- Offering “free” gifts with purchase
- The use of price ranges
Discounts and strike-through pricing
A common technique is to compare the discounted price with the non-sale price of the good or service to highlight the saving to the consumer. Any comparison with the “usual”, “everyday”, “was” or “strike-through” price must refer to the price at which a good or service was commonly sold before the price was marked down. A comparison with the “usual” price may mislead consumers if the claimed “usual” price is:
- one of many prices at which the good or service was commonly sold;
- inflated knowing it will lead to no or few sales so that the good or service can subsequently be offered at a discounted price;
- out of date. A usual price will become out of date if it has not been charged for a reasonable period of time. The Commission’s guidance suggests what a reasonable period is “will depend on a number of things such as what the good or service is and the market in which it is being sold”;
- the usual offer price but not the price at which the goods are usually sold.
Enforcement action in this area includes proceedings brought by the Commission against Bike Retail Group in 2017. The Commission alleged that Bike Barn had misled or deceived customers by using exaggerated discounting strategies giving the impression that customers were purchasing bikes at significant mark downs from the normal retail price. In fact, the discounted prices were Bike Barn’s usual selling prices – out of nearly 6000 bike sales analysed by the Commission, only 30 were sold at the so-called “full price”.
Similarly, in Australia, the Full Federal Court ruled on appeal that strike-through pricing comparisons used by jewellery retailer, Ascot Four Pty Ltd were misleading because the strike-through price was not the price before the sale period. While the items had previously been offered at the strike-through prices, evidence was given that they had never actually been sold at or near those prices, given the discount culture and negotiable pricing practices in the jewellery industry.
A ‘sale’ is an opportunity to buy goods at reduced prices for a limited time. Creating a sense of urgency for consumers to act now to get the discount can be misleading and for that reason businesses should:
- ensure that any goods or services promoted as part of a sale are priced below the price they are usually sold at. If a sale is limited to certain products, businesses should clearly disclose that not all of the stock is being offered at sale prices;
- describe the reason for the sale in a truthful way. Clearance sales can only be used for clearing certain stock items and liquidation sales should only be used where the business is closing;
- ensure that any sale applies for a limited time only; and
- take care when promoting goods ordered specifically as sale stock and ensure that they are not promoted using was/now prices given that they have not been sold prior to the sale.
When promoting “free” gifts with purchase, businesses should take care to ensure that:
- the gift is truly “free” and that the cost of the gift is not built into the base price of the product; and
- if special conditions apply to the offer these are clearly disclosed.
In proceedings brought by the Commission against Hill & Stewart Appliances Ltd, Hill & Stewart pleaded guilty to charges for misleading representations that washing powder was supplied for free with the purchase of a washing machine, when in fact Hill & Stewart had inflated the price of the washing machine to cover the cost of the powder.
Businesses should take care when advertising a range of prices. Advertising that goods are on sale “from $30” when only a small proportion of goods are on sale at $30 can give consumers a misleading impression that a promotion is more attractive than it is. The Commission’s guidance states that “…if there is not enough space to list individual prices, a business should give the most common saving.” An example of language that could assist is: “most items 30% off”.
Similarly, when advertising a “from” price accompanied by a picture of the item, the item displayed must truly be available at that price. The items pictured cannot be used as an inaccurate lure to attract consumers to their products. For instance, in the Australian case of ACCC v Metricon Homes Qld Pty Ltd, Metricon, a home building company, agreed that some of its advertising and promotional material was false or misleading. Metricon’s brochures specified a “from” price and depicted houses with substantial features and fittings that were supplied by Metricon but which were not included in the advertised “from” price. The Federal Court held that Metricon had misled consumers.
Commerce Commission v Bike Retail Group Ltd  NZDC 2670, (2017) 14 TCLR 545.
Ascot Four Pty Ltd v Australian Competition and Consumer Commission  FCAFC 61, (2009) 176 FCR 106.
Commerce Commission v Hill & Stewart Appliances Ltd DC Auckland CRI-2007-004-003838, 30 November 2007.
Australian Competition and Consumer Commission v Metricon Homes Qld Pty  FCA 797,  ATPR 42-410.