Background
Inflation is currently soaring at a near 20-year high. This has left consumers across the UK feeling the pinch as wages struggle to keep up with inflation and the cost of living increases. It is not a surprise therefore to see that consumer confidence is close to all-time lows with the UK Consumer Index showing figures that at the end of 2022 and the start of 2023 are the lowest since tracking started.
Against this backdrop, it is a natural consequence that businesses are ramping up efforts to entice customers through advertising and marketing and that regulators are keeping a keen eye on these activities.
These activities include price promotions. Price promotions are a popular marketing tool used by retailers and businesses to increase sales and attract customers. However, these promotions must adhere to certain rules and regulations to ensure that they are fair and not misleading to consumers.
In this article, we look at:
- the existing regulatory landscape that currently applies to price promotions in the UK, with a focus on what this means for some of the more common techniques such as strike-through pricing, % off claims, and conditional purchases; and
- what the recent scrutiny may mean for UK businesses.
The Existing Regulatory Landscape
The Consumer Protection from Unfair Trading Regulations 2008 (the “CPRs”) underpin the general principles prohibiting businesses from using unfair commercial practices that deceive or mislead consumers. These include false or misleading price indications, such as inflating prices to make discounts look more appealing.
On a more granular level, the Advertising Standards Authority (the “ASA”) has a set of rules and guidelines that businesses must follow when creating price promotions. The key rules are found in the CAP Code and the BCAP Code. Each of these Codes includes a section on pricing.
In addition to the CAP and BCAP Codes, there are other regulations that businesses must adhere to when promoting price promotions. As mentioned, these include more generally the CPRs but also the Pricing Practices Guide issued by the Chartered Trading Standards. These provide guidance on how businesses should promote prices and discounts.
Strike-through Pricing
Strike-through pricing is a common technique used by retailers to show a discounted price alongside the original price. The discounted price is usually shown with a line drawn through the original price.
The strike-through price should not be used if the product has not been sold at the higher price for a reasonable period. This means that businesses cannot artificially inflate the original price to make the discount look more significant.
% off Claims
% off claims are another popular technique used by retailers to promote their products. This involves showing the discount as a percentage off the original price.
Businesses must ensure that the percentage discount is calculated accurately and based on the genuine and most recent price that the product was sold at. In addition, the discounted price must be available for a reasonable period after the promotion ends.
Conditional Purchases
Conditional purchases are promotions that require the customer to buy one product to receive a discount on another product. For example, buy one get one free or buy one get one half-price.
Businesses must make it clear what the customer needs to do to qualify for the promotion. This includes stating any conditions or limitations, such as a minimum spend or a limit on the number of items that can be purchased.
What has changed?
Pricing has once again garnered the attention of the CMA. On 31 January 2023 the CMA launched a grocery unit pricing review with the aim to help shoppers spot the best value for their money. This follows the work done in relation to the 2015 Groceries Super-Complaint and aims at evaluating current compliance with the outcomes of that investigation.
More recently, on 29 March 2023, the CMA issued an open letter to online businesses urging them to consider both urgency (e.g. scarcity, popularity, ‘act fast’ or time limited claims) and price reduction (e.g. discount or special offer pricing which refers to a higher comparison price) claims as it has become concerned that businesses are undertaking their advertising in such a manner that may mislead consumers contrary to the CPRs.
While the review is still ongoing, the open letter is a particularly interesting development. In the letter the CMA states that “the CMA is actively monitoring this area, and therefore we urge you to review your practices urgently to ensure they are compliant”. It also provides a variety of examples of non-compliance that business should refer to in order to evaluate their own practices alongside the view that the CMA is likely to take in that scenario.
This is not an issue unique to the UK. In Europe, the implementation of the recent Omnibus Directive (Directive (EU) 2019/2161) amended the existing Price Indication Directive (Directive 98/6/EC) (the “PID”) meaning that, since May 2022, businesses in the EU have been required to display the lowest price in the last 30 days (at least) of the product to which the price promotion applies.
Comment
Businesses must ensure that their price promotions adhere to the applicable rules and regulations. This includes making sure that the original price is genuine and that the discounted price is available for a reasonable period after the promotion ends. Businesses should make sure they are aware of all the advertising rules that apply to them in order to avoid enforcement.
Looking to the future, businesses should expect further scrutiny on price promotions from the Government and the CMA. The CMA has been clear that it will be focusing on enforcing the rules of pricing promotion practices and we expect the level of activity by the CMA to increase.
If you would like to discuss this topic further, please contact Amanda Leiu or another member of our Commercial team.
This article was written by Will Flaim.