Is Your Business Unknowingly Engaged in Deceptive PricingFind out when 'deep discounts' cross the line and violate FTC guidelines.
In your retail store, you can pretty much price products however you wish. But when it comes to advertising discounts, “anything goes” doesn’t apply.
Some large retailers have been sued for alleged deceptive pricing practices — specifically, for misleading consumers by artificially inflating their regular prices to make sales seem like better deals than they were.
The Federal Trade Commision has provided guidelines for retailers to help them stay above board when it comes to advertising discounts. They are contained in Title 16, Part 233 of the Electronic Code of Federal Regulations.
While it’s unlikely you’d get called on the carpet for violating the guidelines, it’s a good idea to follow them just in case.
“We’ve seen a lot of class action cases recently,” said Charulata B. Pagar, partner at VLP Law Group in Southern California. “These have involved big retailers, but if class action lawyers have some success, I wouldn’t be surprised to see them turning to smaller businesses next.”
Here’s a quick list of do’s and don’ts to keep in mind.
Making comparisons to former prices
What the guidelines say: One of the most common ways to advertise discount pricing is to offer a discount based on your own pricing. That’s legitimate, as long as you do it honestly. The former price must be one that the product was actually sold to the public for, and for a reasonable period of time. Otherwise that original price could be considered fictitious.
Where you can go wrong: Imagine you put a product on sale, specifying that it’s 50 percent off a price that you never really offered in the store. Or perhaps you ran the price for only a very short time just to establish that original price with the intention to offer it on sale right from the beginning.
Making comparisons to comparable value
What the guidelines say: Comparing your sale price to the price at other retail establishments, either in your area or online, is fine too — but again, these need to be “real” comparisons. If you’re selling socks for $3 a pair and want to contrast that price with a $5 price elsewhere, you can. But the higher price needs to be reflective of an average price of similar items.
Where you can go wrong: Don’t compare your product’s price to an outlier — a boutique shop that sells similar items at higher prices than the average. And be sure you’re comparing apples to apples. Don’t contrast your basic $3 socks with another store’s premium socks.
Using the MSRP
What the guidelines say: The manufacturer’s suggested retail price (MSRP) can be a handy benchmark to show value through pricing. After all, as a retailer you are generally free to discount the product however you like. Comparing your price to the MSRP can make you look like a pricing hero.
Where you can go wrong: Consumers generally expect that the MSRP is the baseline price they should expect to pay for a product, but that’s not always the case. Many products are never sold at or even close to the MSRP, and in these cases, citing the MSRP to make it look like your price is a bargain violates the spirit of the guidelines.
Offering bargains based on quantity purchased
What the guidelines say: There are some nuances when it comes to having a good old “buy one get one free” sale. In a nutshell, take care not to mislead your customer. Clearly specify all of the terms and conditions of the sale. With that in mind, you can get creative and offer any sort of deal on buying multiple items you like.
Where you can go wrong: Transparency is the name of the game. Don’t, for example, change or misrepresent the original price in order to offer a two-for-one sort of deal. You also can’t change details like the quantity of items in a pack. If you’re offering a buy-one-get-one-free on six-pack boxes of socks, for example, you can’t repack the boxes into four-packs.
Protect yourself now
If you follow the intent of the FTC guidelines, you probably don’t need to worry. But it’s smart to be prepared in the unlikely event that you’re challenged. “It’s prudent for smaller retailers to think about compliance,” advised Pagar.
That means implementing a compliance program if you don’t already have one. Keep records of your sales so you can show that you comply with the guidelines. “Before you make a discount claim,” said Pagar, “be sure you can show that it was legitimately available at higher price. Document it.”