With all the new e-commerce stores popping-up, pricing has become more competitive. But business should be careful of how they price their discounts.
Pricing Tips
- Former prices, including in strike-through pricing or “compare at” pricing, should be prices that a product was openly and actively offered for sale, for a reasonably substantial, in the recent, regular course of his business, honestly and in good faith and not for the purpose of establishing a fictitious higher price.
- Do not use former prices that was never offered at all, used remotely in the past, or non-public price.
- Do not use terms similar to “formerly sold at $$$,” unless there are substantial sales at that price.
- Compare prices of products to the average business with a product of similar quality and obtainable in the area.
Deceptive Pricing Tactics
The FTC regulates “unfair or deceptive acts or practices in or affecting commerce.” The FTC has stated, any advertising, including pricing, must be truthful and not misleading.
Pricing Tactics include:
- Strike-through Pricing: A current price next to a former price that is stricken-through to show price comparison.
- “Compare at” Pricing: Offering goods at a prices lower than those being charged by others for the same merchandise in the advertiser’s trade area.
- Price Anchoring: Discounted prices are compared to inflated “original or regular” prices. There is an initial price to establish a frame of reference as an anchor to make another price seem more enticing.
- Perpetual Sales: Discounts that never change or end.
Discount Prices
In these cases, the FTC requires that former prices is the actual, bona fide price at which the article was offered to the public on a regular basis for a reasonably substantial period of time, it provides a legitimate basis for the advertising of a price comparison. Thus, the “bargain” being advertised would be true.
If, the former price being advertised is an artificial, inflated price that is established for the purpose of enabling the subsequent offer of a large reduction, the price is not bona fide and it is fictitious. Thus, the “bargain” being advertised is a false one.
These rules also apply for other types of pricing as well. When price anchoring or having perpetual sales, the prices should not be fictitious.
Comparing Pricing With Others
When comparing prices, the advertised higher price must be based upon fact, and not be fictitious or misleading. A seller must prove they are reasonably certain that the higher price advertised does not appreciably exceed the price at which substantial sales of the article are being made in the area. Thus, a seller should have evidence of a sufficient number of sales so that a consumer would consider a reduction from the price to represent a genuine bargain or saving.
In addition, the compared product should be one of similar quantity and obtainable in the area.
Example:
A. Most sellers sell a specific product for $X. Business Owner wants to write “$Y – compared at $X from competitors.” This would likely not be misleading.
B. Small retailers sell a specific product at $X. Large retailers sell a specific product at $Y. Business Owner wants to write “$Z compared at $X from competitors.” This is likely misleading as uses a price from an isolated and underrepresented price.