False and Misleading Prices



False or Misleading Representations about Price
Price is usually a major factor in a customer’s decision to buy, and false or misleading representations about the price of goods and services are prohibited by section 13(g) of the Fair Trading Act. Under the Act, the definition of the “price” offered by a trader is not limited to that stated in advertising. It can also include special concessions, bonuses or deals which in some way affect the actual and final price a buyer pays for goods or services.


1. Comparative Pricing
Price comparisons can take a number of forms. You may compare a special price with a previous price, such as: “was $250, now only $199”. Or you may compare your price with that charged elsewhere, with a statement like “our price $14.95, elsewhere $19.95”.

All comparisons must be based on actual market prices. When using comparisons based on prices you have previously charged, you must not mislead consumers about those earlier prices. As a general rule, the product should have been sold by you at that price for a reasonable time immediately before the reduction.

What will be considered a “reasonable time” depends on the individual market circumstances for the products involved. It will be affected by the value of the goods and their rate of turnover. As a rule of thumb, the Commission considers a reasonable time to be around thirty days. However, high priced goods, which typically have a low turnover, would be expected to be on sale at the previous price for a longer period than lower priced items.

Raising your prices, and quickly lowering them again in order to claim larger “savings”, is deceptive and would be a breach of the Act.

The basis for your price reduction should be made clear, especially if the reason for the reduction is common to all traders in a market. Customers are attracted to a particular shop because they expect to save more than if they bought an identical product elsewhere. They can be misled if the basis for the reduction is the removal of a tariff, tax or duty, or because it is not clearly stated that the comparison is between different models.

Comparisons with other traders’ prices can be misleading. Any comparison must be between prices charged in the same market. Central Auckland traders could not usually compare their prices with those charged by Waiheke Island traders who face higher transport costs. You must also be sure that you are comparing identical products or services.

If you have not previously sold an item, but on stocking it you wish to charge a competitive price to attract new customers, you can compare your price with that charged for the same product by your competitors. However, you must ensure the comparison is based on current prices being charged by your competitors and is clearly stated to be a comparison with prices charged elsewhere (for example, “elsewhere $5, our price $3.50”).

You cannot compare the price to one you might have charged if you had stocked the product earlier. A statement “usually $5, introductory offer $3.50” would be misleading as the usual price of the product has not been established by you as you have not sold the good previously.

It is not acceptable to use the wholesale price plus a mark-up as the basis of a price comparison. The prices used must actually have been established in the marketplace.

Comparisons with a purely hypothetical benchmark, such as the “manufacturer’s price” or “recommended retail price”, can give a misleading impression of the true savings to be made. You should not use these terms unless the prices shown are your normal selling price.

Likewise, comparisons with a product’s “worth” or “value” are meaningless and misleading unless they reflect true market prices.

Examples

An appliance retailer advertised a number of sales over a period of four months. Each product advertised had a stated RRP's with the retailer's "sale" price which was significantly cheaper and the percentage saving. The RRP's were not the retailer’s normal selling price, in fact the sale price was the normal selling price. The company was convicted and fined $63,000. Judge Green made the following comments:


The principal error in recommended retail price comparisons is that it suggests that the recommended retail price is the normal or usual price that the particular establishment sells those goods. ... recommended retail price comparisons are misleading in terms of the Act when the particular vendor does not sell at the recommended retail price because the recommended retail price is not its usual or regular price.


A retailer advertised a massive half-price diamond ring sale. The advertisement featured ‘was’ and ‘now’ prices. However, no sales had been made at the ‘was’ prices on eighteen of the items advertised. The retailer was fined $10,800 plus costs of $1,350.
A retailer promoted an appliance sale through the newspaper by comparing sale prices with normal prices. In nine instances there was no reduction of the price in force over the preceding two-month period. The retailer was convicted and fined $4,500 plus costs of $595.