Draft Guidelines for the Retail Sector on Price Discounts & Related Matters

Part 2 - Discount Price Advertising

3: Own Price Advertising and Recommended Retail Price Advertising

Genuine reference prices

In considering what is a genuine price, the seller should honestly believe that this is the appropriate price for the goods (or service). A genuine reference price should take into account a number of factors, such as:

(a) the previous reference price, which should be pitched at a level at which the trader would honestly believe that the goods could be sold,
(b) the goods must be offered for sale at the higher price for a reasonable period that would allow consumers sufficient time to

Become aware of the availability of the goods to be acquired,
View the goods, make up their minds whether to purchase them

Own Price Comparison Advertising- Section 43(6)(a)

Where a business compares the current selling price of a product or service with another advertised reference price (which it had used); this is regarded as ‘own price comparison advertising’. Retailers use this as a marketing tool across a large spectrum of products and services. It involves advertising where a trader makes a comparison with his/her own previous price (e.g. “was €100, now €50”). In the context of own price advertising, Section 43(6)(a) of the Consumer Protection Act 2007, states:

“if the commercial practice involves a representation or creates the impression (whether in advertising, marketing or otherwise) that a product was previously offered at a different price or at a particular price, consideration shall be given to whether the product was previously offered openly and in good faith at that price and at the same place for a reasonable period of time before the representation was made, and…

The NCA is aware that some traders may have concerns on how the references to (i) “a reasonable period” and (ii) “ at the same place” should be interpreted. The following sub paragraphs wil be of assaistance.

What could be regarded as a “reasonable period” ?

Retailers have raised concerns that the “reasonable period” provision, could be interpreted by some traders to suit their own needs; and as a consequence this would have the effect of creating confusion and distorting the market. In response to these concerns, the NCA decided that there was a need for a sector- wide understanding on what may be regarded as an accepted norm. The Agency consulted with the retail sector on what could be regarded as a “reasonable period” during which the goods should be openly on sale at the higher price. Based on the responses received, the Agency has concluded that a “reasonable period” could be regarded as:

‘28 successive days in the previous three-month period in respect of all price reductions’.

Taking on board the views of the sector, arising from the consultation process, some exceptions to the “28-day rule” could apply i.e. in respect of:

Perishable goods which should be on sale for at least 7 days,
Seasonal products which should be on sale for at least 14 days in the previous 3 month period, and
Final discounts to clear stock, which had already been reduced at the commencement of a sale.

Example 1 - “Reasonable period” General price reductions

In early June, a clothing retail outlet decided to run a sale to sell off remaining spring stock, which had been on sale during the months of April and May. It advertises: “ Sale- ladies suits €200 were €500”.

The store had been selling these suits at the higher price for a full month before the sale commenced. The retailer in this case satisfies what could practically be regarded as a “reasonable period”, as recommended in paragraph 7(i) above i.e. 28 successive days in the previous three months.

Example 2 – “Reasonable period” General price reductions

In early September, a store advertises: “ Sale - clearance of summer range- 25% off – All items reduced”. The sale price of each item should be shown as well as the previous retail price.

As the advertisement (advertised in September) refers to “summer range”, it would be concluded that the items were on sale in the period up to September.

Example 3 - not taking account of the “Reasonable period”

On 1 November an electrical store took delivery of 30 TVs, which were part of a deferred order due to delayed shop renovations. The owner wanted to clear them immediately, to make way for the latest range. He decided to run a special sales promotion: “Sale - special offer on 28 inch TVs - €600 each - were €800 ”.

Comment

As the trader had just taken delivery of this model of TV he did not take the reasonable period requirement into account. However, the trader may advertise the price advantage by reference to a “recommended retail price”. (See paragraph 8).

How should price discount be advertised?

Traders advertising price reductions and promoting sale price reductions, should make their promotions clear so that the consumer fully understands what is on offer and has all the material information to enable him/her to decide whether or not to make a purchase. In cases where retailers offer new reduced prices they should indicate the previous selling price for that item and indicated when the item was available and where the item was on sale at the higher price.

Traders should also ensure that they comply with the European Communities (Requirement to Indicate product Prices Regulations) 2002. These Regulations require retailers to indicate the full and final price of products, including VAT and other taxes. Where relevant the unit price by reference to metric units e.g. Kilograms or metres should also be provided.

A number of different issues and scenarios relating to discounting prices are set out below, together with some illustrative examples.

Need for clarity - no ambiguities in relation to what items are discounted

It is important to ensure that the advertising of sale price reductions is clear and unambiguous i.e. any exclusion to sales discounts should be clearly identified.

Example - clarity

A store advertises 20% discount on clothing products. A consumer selects 3 pairs of children’s socks; she was advised at the checkout that the discount offer did not include children’s socks. This is misleading information and could be considered to breach Section 43(3)(c) of the Consumer Protection Act 2007.

Reduced to clear – Final reductions

In the final days of a sale, stores often make further cuts on the sale prices. Traders should ensure that consumers are not confused or misled by these reductions. The final reductions should be clear and should provide the necessary information to enable the consumer make an informed decision about buying the item.

The original price, (having regard to the “reasonable period” consideration), the sale price and the final discount price should be clearly indicated, either on the label or on advertising close to the product. If a retailer is claiming that these are “ final reductions” he should ensure that this is in fact true and not make a misleading representation.

Example – Final reductions

Nearing the end of the winter sale, a store has some remaining ladies coats, which it needs to clear to make way for the spring range. It further reduces the items to clear. It places a notice on the relevant rail stating “ all items must go - final reductions; further 10% off discount on the reduced sale price”.

For clarification purposes the original price, the original sale price and the final discount price should be indicated on the label. As the advertisement indicated that this would be the “final discount” it should in fact mean this.

Special Lines/Special Purchases

Retailers when running seasonal sales often (display/offer for sale), special product lines, which are brought in specially to complement their sales stock. As these items were not previously on sale at a higher price, they should not be advertised or represented as “sale items”.

In these types of cases, stores bringing in special lines (particularly clothing items) must clearly identify these as “special lines” or “special purchases”. Otherwise the store would not meet the “reasonable period requirement”.

Example – Special Lines

A clothing store, advertises in banner headlines “Sale - up to 50% off - new lines added”. These additional lines should be items, which had already been on sale in the store at a higher price for a “reasonable period”. The store should not include new lines specially brought in for the sale. Any special purchases should be clearly identified as such. (The store should make this clear by displaying them separately and advertising them as “special purchases”.)

Clarification on special sale offers

It is not possible to cover every type of sale-promotion scenario in the guidelines. However requests have been received from the sector for clarification on how retailers should:

Market re-introduced lines, or
How a store could market discontinued designer or branded products, (purchased directly by the retailer from the designer company).

Marketing of re-introduced lines

A trader may wish to sell off unsold products, which had been removed from sale but had been kept in stock for a significant period, possibly as long as 12 months. If the trader wishes to clear this stock, he is likely to offer the items for sale at a lower price than the original one.

Given the time lapse since the items had been on sale, the “reasonable period of 28 days in the previous three month period”, recommended in these guidelines would not be met. The CPA’s objective is that consumers should not be affected by misleading trading practices. Consequently, traders should provide all relevant information to consumers. In this case the trader should indicate the previous selling price, and state when and where the items had been previously on sale.

Example - Re-introduced lines

A clothing store is advertising a range of cardigans, which were on sale approximately 12 months previously for €18 per item. The store is now re-introducing the same range of products at the reduced price of €12 per cardigan.

As the store does not meet the “reasonable period” requirement, it should be made clear to the consumer when the previous price applied, in which stores the items were previously on sale and for how long they had been on sale.

Marketing of discontinued lines of branded products and designer goods

Certain traders purchase out of season or discontinued lines of branded or designer items (such as perfumes or high fashion clothing), from the manufacturer/producer or the manufacturer’s representatives; they then sell these items at significantly reduced prices.

These products may have been purchased outside the State and retailed at a higher price in High Street stores in London or elsewhere. As such, they could not be regarded as coming within the provisions of Section 43(6) (a). In these circumstances, the consumer should be given the relevant information to enable him/her make an informed decision about the product.

Accordingly, the trader should provide information relating to where the item had been retailing at the higher price and when it had been sold at that price and give reasons for the discount e.g. – discontinued product etc.

Example - Discontinued lines of branded or designer items

A trader buys a range of previous season designer dresses from a Londondesigner at a significantly reduced price. These dresses originally were on sale to the consumer for Stg £500 each in retail outlets in London. He places these dresses for sale in his Dublinboutique. He advertises: “Designer dresses – Last year’s summer range- only €200 each”.

Perishable Goods

It is common practice for retailers to reduce the price of foodstuffs and other perishable products a few days before the “sell–by date” expires. In these types of cases, retailers should ensure that the price reductions and savings are clearly indicated. The “reasonable period” requirement referred to above should be taken into consideration.

Example 1 – Perishable Goods

A supermarket offers: “frozen turkeys - €6 each was €12”. In this case, the reasonable period is regarded as seven days; i.e. the turkeys should be on sale for at least 7 days at the higher price.

Example 2 – Perishable Goods

A food chain is selling yogurt six- packs for €3. The sell by date is 28 February. On 26 February the retailer wants to dispose of the yogurts before the “sell by” deadline. It decides to reduce the price to €1.50. The reduced price should be clearly shown on the item, as well as the original price. Wording such as “reduced to clear” could be used.

Example 3 – Perishable Goods

A store advertises: “pre packed grapes 750 gram - half price - €2.50”. (The original cost of the grapes was €5). This could be misinterpreted; the consumer might assume that the - €2.50 price was the original price rather than the discounted price.

It is also in contravention of the “European Communities (Requirement to Indicate Product Prices Regulations) 2002, as it fails to give the unit price in Kilograms.

Seasonal goods

Seasonal products require special consideration due to their nature and limited sales period. Halloween or Christmas decorations are a case in point.

When the relevant sales period is over, or virtually over, stores tend to reduce the items to clear. Retailers advertising these discounts should make the reductions clear and have regard to the “reasonable period” requirement. The information should be shown on the product or in advertising close to the product.

Example 1 - Reasonable period

A store selling artificial Christmas trees advertises: “Christmas trees - €60 each - were €90”. In this case, a “reasonable period” could be accepted as 14 consecutive days in the previous three-month period; i.e. the Christmas trees should be on sale at the higher price for at least 14 consecutive days during the previous three months.

Example 2 - Final reductions

A store advertises “Christmas tree lights - reduced to clear - further 20% off the discount price”. The label on the item should indicate clearly the original price the discount price and final discount price in a manner that would allow the consumer to make an informed transactional decision. This would provide the full information to the consumer.

Special Offers

Certain retailers advertise items, (particularly, in the grocery sector) with representations such as €x or 25% off the normal selling price. This reduction is included in the marked price on the product.

While a reference may be made to this effect, it is not sufficiently clear to the consumer, who may expect that the price reduction would be on top of the marked price. In order to avoid consumer confusion/misconception and to ensure that the practice fully complies with the requirement of the Consumer Protection Act 2007, traders who are advertising /making these type of price reductions should provide both the original price and the reduced price.

Example - Special offers

A store is selling pre-packed sirloin roasts for €16. It wants to clear the remaining stock, so it decides to offer a 25% discount and sell the roasts for €12. To avoid confusion, both the original price should be shown as well as the discounted price - use wording such as “25% reduction - was €16 now €12”.

If the weight is provided then the unit price per Kilogram, before the original offer was made should be provided. The retailer may also choose to provide additional information by giving the unit price of a kilogram in respect of the special offer.

How should an “at the same place” reference be interpreted?

The NCA is aware that retailers may be trading as sole traders, or part of a trading entity with a number of trading outlets. “At the same place” may be interpreted as an identifiable geographic location or as part of a trading group.

In all circumstances the principle of good faith should be applied to ensure that consumers are not disadvantaged by a pricing system structure, which is too specific or narrow, i.e. whereby a single trading outlet could convey the impression of a price advantage with reference to another trading outlet belonging to the same group.

Example 1 - Acceptable interpretation

A multiple or chain-store group, offered a product at a reduced price in all of its outlets, including a newly opened store. As this store had just been recently commissioned, it would not have been possible for the group to claim that the product had been on sale at the higher price in the new store.

In this type of circumstance, it could be accepted that the group is operating in good faith, as the product was available at the higher price in all other stores.

Example 2 - Acceptable interpretation

A retail group is operating central pricing- because of limitations in the size, of some of the smaller stores; they may not be able to carry the entire product range. The group offers an item at a discounted price. This was made available in a number of the smaller stores that had not previously sold the product at the higher price.

In these circumstances, it could be argued that the principle of good faith would not be prejudiced, provided that the group could demonstrate that at least 90% of the stores had sold the product in sufficient quantities (having regard to the type of product) at the higher price.

Example 3 - Unacceptable interpretation

A nationwide retail group offers a product at a discounted price. However, the product was only on sale at the higher price, in just four of its city stores.

It could be argued that the chain store, in this case, had not given the required consideration in relation to whether the product had previously been “offered openly and in good faith at that price and at the same place”. Consequently it would not satisfy the considerations as set out in Section 43(6)(a) of the Act.

Recommended Retail Price (RRP) - Section 43(6)(b)

A recommended retail price (RRP) is the price recommended by the manufacturer, producer, or supplier of the product (other than the trader).

In circumstances where a product is being offered by a retailer at or below the recommended retail price, the trader should, under Section 43(6)(b) of the Consumer Protection Act 2007, give consideration to whether the RRP was made in good faith by the manufacturer, producer, or supplier.

The underlying objective of Section 43(6)(b) is that price comparisons with the RRP, must not mislead the consumer and that the recommended retail price is made in good faith. In this regard, the following points should be taken into account:

(a) the RRP must have regard to the full cost of production, including marketing, distribution and sales,

(b) the RRP should not be pegged at an artificially high figure with the objective of giving retailers wide scope to make and advertise cosmetic or contrived discounts that do not reflect the actual value of the product,

(d) traders should not use an RRP if they know the product could not be sold at that price,

(e) the RRP should be set at a level that it could reasonably be expected that consumers would purchase the product at that that price,

(f) the RRP must be realistic, and can only be made by an operator (other than the trader offering the product for sale), and

(g) the RRP cannot be made by a sister company of the trader /retailer or by any party which has direct links to the retailer.

In essence, in order to comply with the requirements of Section 43(6)(b), traders advertising products at prices below the manufacturer’s recommended retail prices must ensure that their advertising is not misleading and that they have taken all necessary steps to ensure that the price reductions are genuine including, giving consideration to whether the manufacturer’s RRP was made in good faith.

Example 1 - RRP trader acting in good faith

An electrical retailer advertises: “42 inch LED flat screen TV, €1000-recommended retail price €1800”. In line with the requirements of Section 43(6)(b), the trader, having regard to his knowledge of the business, should consider if the RRP was made in good faith by the manufacturer/supplier i.e. could the TV be sold at that price in reasonable numbers?

Example 2 - Subsidiary company RRP

A trader has set up a subsidiary company to source and supply products for retail in his stores. Because of the link between the two companies, any RRP made by the subsidiary company should not be used by the trader, for comparison with the prices being offered by the retail stores.

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