Make sure the price is right: using reference pricing in ads – Committee of Advertising Practice releases update on pricing practices
What are the key points to be considered when using reference pricing in your promotions?
The key takeawayThe ASA’s updated guidance is a short but useful reminder of how businesses are expected to responsibly utilise reference pricing promotions, including “was-now” and RRP.
The background
The ASA has revisited its research into consumer understanding of reference pricing, which showed that consumers have a limited understanding of pricing practices, particularly reference pricing, and expect that reference prices are regulated and can therefore be trusted. The research was initially published in 2018 and clearly the ASA still thinks that more needs to be done in this area to ensure that trusting consumers are not taken advantage of. To this end, the ASA has published updated guidance as a reminder of the key points to consider when using referencing pricing in promotions.
What is reference pricing?
Broadly, reference pricing relates to pricing initiatives where a competitive price is made more attractive to consumers through comparison to a less attractive “reference price”. Retailers often compare the lower advertised price of a product to the higher reference price, which may be the price at which the product was previously sold (often represented using “strike-through” and “was-now” prices) or a price recommended by a manufacturer or a competitor’s price (the recommended retail price (RRP)). The ASA regulates and enforces reference pricing through the CAP Code, which reflects the Consumer Protection from Unfair Trading Regulations 2008.
Key reference points
The ASA guidance suggests that responsible businesses should consider these five key points to ensure that reference pricing in ads are not misleading:
1. Use the selling price for that particular sales channel. If the advertised reference price is not the usual selling price through the same sales channel in the ad (eg online or in store) or it was only charged at a limited number of stores, it is likely to mislead consumers.
2. Reference prices should be charged for longer than promotional prices. Generally, the higher reference price should have been charged for a longer period of time than the promotional price. A promotional price that has been charged for longer than the higher reference price may itself become the reference price and is likely to be misleading.
3. Sales matter. The number of sales made at the higher reference price will be taken into account. There should be evidence of “significant sales” at the higher reference price (significance will depend on the product and usual buying behaviours for that type of product) or that the reference price was a realistic selling price. Where only a small number of sales were made at the higher price, the reference price will not be deemed to be the usual selling price.
4. Use the most recent established price at which the product was sold. Beware increasing the price for only a short period of time immediately before the promotion, as this will likely be viewed by the ASA as a misleading exaggeration.
5. Use the usual price. Reference prices should be genuine and not artificially inflated or created. In particular, Rule 3.40 of the CAP Code prohibits the use of RRPs which differ significantly from the price at which a product is generally sold. RRPs should accurately reflect the price consumers will generally pay for the product across the market.
Why is this important?
The ASA’s succinct guidance serves as a helpful reminder of what is expected of businesses that use reference pricing in their marketing. It is important to consider the ASA’s key points and get this right from the outset; recent ASA decisions, such as the upheld complaint in respect of Zestify Media’s “was/now” reference pricing (see our previous Snapshot), demonstrate that businesses may fall foul of the rules, even where they had no intention to mislead consumers, if key pricing elements are not satisfied.
Any practical tips?
Businesses wanting to utilise reference promotions should ensure that they comply with the ASA’s five key points to ensure their pricing does not mislead consumers. Practical steps may include:
- thinking about how the chosen sales channels may affect the promotion. For example, be sure to use the usual selling price on the website for website promotions and use a reference price charged across a majority of stores for store promotions. A reference price used online for a product previously only sold in stores is unlikely to be acceptable
- track the length of time that promotional prices are used. Once the promotional price has been changed for longer than the reference price, it is likely to be considered the new reference price for the product
- if there are not already “significant sales” of the product at the reference price, think realistically about the chance of sales at that price before using it
- avoid increasing product prices immediately before the promotion – you could be misleadingly exaggerating the saving
- base RRPs on the usual price at which the product is sold in the market. It will not be enough to say that the RRP was recommended by a manufacturer and RRPs cannot be objectively used where there is only one product on the market.