Defining the fair price promotion

Pricing and price promotions have become increasingly important in retailing as consumers become cost-conscious. There are policy and legal issues too.

The Chartered Trading Standards Institute is revamping its Pricing Practice Guide following a number of consumer protection cases and a ‘super-complaint’ by consumers organisation Which. It’s likely that there will be impacts on pricing strategies for both grocers and brand owners given the constraints they also face from competition law. And might there also be implications for things like price-marked packs?

MMS Michael Dean
Michael Dean is a partner and head of the EU, competition and regulatory department at law firm Maclay Murray & Spens LLP

Are the rules getting tightened as a result of complaints?

The CTSI is updating its policy, but in some ways the new guidelines are expected to be less prescriptive than before. For example, the 28-day rule to establish reference prices at which goods were previously sold has been removed. However, in the consultation, CTSI observed that the current guidelines wrongly gave the appearance of ‘safe harbours’. It is now planning a more rounded approach to determine whether a business has behaved fairly towards consumers.

What are they likely to clamp down on?

Pricing promotions which were previously the norm may no longer be considered fair for consumers. For example, placing a product on sale for 28 days at an inflated price to establish a reference point for comparison with a promotional price so that a “saving” can be claimed is capable of being considered unfair – much depends on the circumstances. Some firms are already taking voluntary action: Asda recently gave a formal commitment to the Competition and Markets Authority on price promotions and multi-buys, so that “now” prices will not be advertised for longer than “was” prices.

Can brand owners set prices?

Brand owners who are considering lowering their pricing may be keen to ensure price reductions are passed on to consumers, but in the context of any ongoing pricing reviews, it is important to consider the competition law risk inherent in discussions with retailers. Competition law requires that retailers are free to set pricing. In general, any attempt to set a minimum or fixed price at which a product must be resold is illegal and carries with it risks of proceedings by competition authorities and significant fines if businesses are found to have breached the law. While brand owners can recommend a price point, retailers must be free to deviate from this if they wish.

Given the general law’s strict approach to pricing, what can brand owners do?

Setting maximum pricing is not considered anti-competitive, so this is one approach which could be considered. Just how keen the larger retailers are to accept such a contractual provision or how such a provision can be enforced is, of course, more complex. Conversations with retailers to ensure they understand the brand strategy and how the recommended price point sits within this may be another option, although both parties need to take care that such meetings do not cross the line into a discussion that fixes the resale price.

How should brand owners and retailers protect themselves from prosecution risks regarding pricing?

Brand owners and retailers face a maze of both consumer protection regulations and competition laws when revising pricing policies. Charting a course can seem daunting, but ensuring the business has an effective competition compliance policy in place and that employees involved in brand positioning, setting of pricing strategies and price negotiations with customers and suppliers are trained in competition law will help to reduce risk and ensure the price remains always right.

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