European Commission publishes guidance on price promotions under the Omnibus Directive
How should businesses interpret the pricing practices regulations that form part of the Omnibus Directive?
The key takeaway
The Omnibus Directive represents a major shift in consumer regulation within the EU. It contains specific rules on price promotions, which need to be clearly understood by all consumer-facing businesses. A notice produced by the European Commission (EC) (the Notice) provides clarity on what is required of affected businesses particularly around the new 30-day rule on promotional pricing.
The EU has updated existing legislation and implemented a number of new Directives as part of its commitment to improving consumer protection (including the Directive on Representative Actions and the Digital Content Directive). These updates and implementations come as a result of (i) EU infringement risks which appeared to be undermining consumer trust, and (ii) market developments including an increase in e-commerce. This commitment to increased consumer protections forms part of a strategy which was adopted in early 2018 and which has been labelled the “New Deal for Consumers”, and which includes “The Omnibus Directive” (the Directive).
A key part of the Directive includes updates to existing Directive 98/6/EC on consumer protection in the indication of the prices of products offered to consumers (often known by its catchier title, the Pricing Indications Directive, or 'PID'). The updates address EU rules on pricing practices and specifically was/now pricing, through the addition of new Article 6a.
Article 6a requires that, where any announcement of a price reduction is made, retailers must additionally indicate the prior price of the goods. Under the Directive, the prior price of the goods (often referred to as the “reference price”) is the lowest price applied to those goods over the 30 day period prior to the promotion being applied (although note that there is a derogation that permits member states to provide for a shorter period where goods have been on the market for less than 30 days).
The drafting of the newest PID provision is complex and has drawn criticism from industry trade associations (see the “Joint paper on the interpretation of price reduction rules under the Omnibus Directive”); the European Commission has consequently released the Notice concerning its interpretation, intended to aid affected businesses.
The updated Notice relates specifically to the scope of the key pricing provision (Article 6a) and the indication of the prior price. It clarifies that Article 6a applies to promotional statements by the seller that it has reduced the price that it charges for the good(s) (this could be in terms of a percentage or by indicating a new (lower) price together with the indication of the previously applied (higher) price (such as waterfall and was/now pricing)). Fundamentally, Article 6a is aimed at addressing “announcements” of price reduction. Therefore, it does not cover long-term arrangements that allow the consumers to benefit systematically from reduced prices and specific individual price reductions. As Article 6a only applies in a situation where there is an announcement of a selling price reduction of a product that is already being sold by “any natural or legal person who sells or offers for sale products which fall within his commercial or professional activity” (ie the trader that is the party entering into a contract with the consumer) it will not apply to intermediaries.
The Commission explains that the Article 6a terms do not apply in situations where there is not a price reduction in the context of a promotion, for example:
- general discounts on all products or for a range of products
- price fluctuation and price decreases that do not involve an announcement (as these are not seen as a promotion)
- general comparative marketing claims that compare the seller’s price against that of a competitor (provided the impression of a price reduction is not created), and
- other techniques of promoting price advantages that are not a price reduction.
As stated above, the key element of Article 6a to note is that, subject to some exceptions which EU Member States can choose to introduce, any announcement of a price reduction must also indicate the prior price of the goods. Article 6a requires that this is the lowest price applied to those goods over the previous 30 days. To explain:
- the prior price will be the lowest price within the 30 day reference period immediately preceding the announcement (30 days is the minimum period Member States can set for establishing the prior price). This is to ensure that traders do not “juggle” with prices (eg by inflating the price for a short period only to then decrease it and claim a significant price reduction that is misleading to consumers)
- Article 6a does not prevent traders from opting for a prior price applied during a period which is longer than the previous 30 days – however, if Member States want to implement national legislation requires such a longer period, this would need to be assessed for compliance with EU law
- if the discount is “20% off”, and the lowest price in the previous 30 days is €40, the 20% reduction must be calculated by reference to the €40 as the prior reference price (this is even if the last price applied for the goods is higher than €40)
- there is no need to indicate the duration of the prior reference price but there is an obligation to indicate the prior reference price at the start of the price promotion and to keep displaying it during the promotion
- if the reduction lasts longer than 30 days without a break, then the prior reference price remains the lowest price applied for at least 30 days before the reduction
- if different sales channels are used (eg in-store vs online) and the goods are displayed at different prices, the prior reference price for any goods will be the lowest price applied to those goods in the respective sales channel during at least the previous 30 days.
Why is this important?
This Notice is important as it helps us interpret what is a complex piece of legislation that will have wide-reaching implications for retailers operating in the EU. That said, in our view, the guidance itself could have been clearer, noting that many businesses are still likely to struggle to wrap their heads round these new rules.
Any practical tips?
Keeping accurate records of previous pricing is critical, in particular in meeting the requirements of the 30 day rule. As a start point, however, we recommend that businesses get to grips with the new 30 day rule as soon as possible to ensure that the marketing and pricing teams properly understand the impact of these new regulations. There is not long to do this, given that Member States must apply the new rules by 28 May 2022!