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Price comparison advertising

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Sale prices can be displayed in many different ways. For example: ‘was $20.00, now $15.00″, “$20.00, $15.00”, “don’t pay $20.00, pay only $15.00”, “save 25%” or “25% off”.

The danger with such price comparison advertising is the risk that it may constitute misleading and deceptive conduct under the Trade Practices Act 1974 (Cth) (“TPA”) or the Fair Trading Act 1999 in Victoria or other like State or Territory legislation.

To reduce the risk of breaching such legislation, the golden rules arising from the Courts in various relevant cases and from the ACCC are instructive. a summary of these is set out below:

  • That the goods or services need to have been offered for sale and available at the higher price for a reasonable period of time immediately prior to the promotion in the same geographic market or region which is intended to be offered at the discounted price
  • The higher price must not be artificially high and the discount must be genuine
  • The promotional period must be shorter than the period for which the item was offered at the higher price. After the promotional period, the price should increase again

Highlighting some of the elements of these principles:

Timing of higher price

In ACCC v Prouds Jewellers Pty Ltd [2008] FCA 75, it was made clear that the “was” price must have been a price at which the products were offered for sale immediately preceding the promotional period, not just at some comparatively proximate point in the past.

Period at the higher price

In relation to the period of time for which the price at which the product must be offered at the higher price, a comment was made by Justice Moore in the Prouds case that, in his view, there would be no contravention if that particular item had been offered for sale at the “was” price for a period of two months immediately prior to the promotional period. However, what is “reasonable period” may depend on factors such as the type of product or the market involved and the usual frequency of price changes.

In a press release in June 2008, the ACCC criticised businesses for placing stock on shelves in specific store locations at the base price for a brief period “in some cases, for as little as 6 weeks” before purporting to sell the goods at the lower price. The ACCC took action against Laura Ashley on the basis of this type of conduct.

Period of lower price

A further criticism by the ACCC was where the lower price continued sometimes for months or even years and, therefore, was not a legitimate lower price but the usual price. Laura Ashley admitted this type of conduct.

Estimated higher price

In another situation, Urban Rhythm Furniture purchased bulk furniture from local wholesale distributors and imported other furniture from overseas. Its advertising indicated a higher “was” price. However, some of the directly imported items had never previously been sold by Urban Rhythm Furniture and the “was” price was an estimated price based upon the likely retail price that Urban Rhythm Furniture believed it would have charged consumers for those items, has those items been purchased by it from a local wholesale distributor.

The ACCC believed that this was misleading because the discount was based upon an estimated rather than an actual historical selling price and this had not been conveyed to consumers. Urban Rhythm Furniture admitted that this was potentially misleading and deceptive conduct and gave a court enforceable undertaking not to engage in such conduct again.

Frequently asked questions

Q: In the case of special purchase orders or where volume discounts have been given by suppliers, can I estimate and state the higher price that the goods would have been sold at, but for the volume discount or special purchase order?

A: In short, no. This is very similar to the Urban Rhythm Furniture case. If you have not sold that product at that actual higher price for a reasonable period of time in the same geographical region, immediately prior to the items being discounted, you cannot merely state the estimated higher price. You need to clearly and fully disclose in your advertising that it is an estimated higher price, rather than an historical actual higher price and you need to explain the basis upon which it is estimated.

Q: If the Supplier’s recommended retail price is $89.95, my usual price is $69.95 and my sale price is $49.95, can I say “was $89.95, now $49.95”?

A: On the basis of the guidelines above, it would be misleading to simply state “was $89.95, now $49.95″ or even suppliers recommended retail price $89.95, sale price $49.95”. This is true if the product has not been sold in the geographical region or territory at the supplier’s recommended retail price immediately prior to the price reduction.

It would be accurate and, therefore, not misleading to represent the price as either :our usual price $69.95, sale price $49.95″ or to include all three price brackets, supplier recommended retail price, your usual price and the sale price, all within the catalogue or on the sales ticket.

Q: If I have several stores, on of which is a clearance store, and sale price in most of my stores is the same as the usual price in my clearance store, what do I put in my advertising so as not to mislead or deceive?

A: To avoid any misleading or deceptive conduct in relation to the usual price of a clearance/outlet store, it may be appropriate to insert an easily readable footnote in the catalogue that the “usual” price for non-clearance stores does not include the prices usually offered at outlet/clearance stores.

For futher information please contact one of our Corporate Advisory lawyers.

Author: Louise Wolf