Retailers are under the spotlight of The Office of Fair Trading (OFT) after the publicity surrounding the accusations of fake pricing by high street furniture and carpet retailers earlier in 2013.
The OFT said the stores reviewed had all advertised price cuts which were not genuine. In particular, they advertised reductions from previously higher prices, which tricked customers into thinking they were getting a bargain. During its inquiries, the OFT said it found systematic examples of inflated "reference pricing".
The only real defence a retailer has with the OFT is clear evidence of the reduced products actually being sold at a higher price, and not just having a higher published price. The investigation in 2013 into high street furniture and carpet retailers, found that on average 95% of sales were at the lower or "now" price, suggesting to the OFT that the original prices were not genuine.
Even in this technology age retailers are still using very basic customer physiology to convert influence into buyers, often by using time limited price reductions which are too often based on reference pricing. The OFT's investigation revealed that high reference prices can persuade people to buy goods when otherwise they would not and Gaucho Rasmussen of the OFT said, "Reference pricing can mislead consumers into thinking the item they have bought is of higher value and quality." Dr Dimitri Tsivrikos a consumer psychologist states: *When we are excited by a bargain, this interferes with your ability to clearly judge.”
The OFT has real teeth and once warned it can fine the retailer up to 30% of its turnover; and although any fine is unlikely to be this large the fine can be considerable and proportional to the size of the retailers business.
The government pricing practices guide (Department of Business, Innovation and Skills) states that the length of the new lower price sale should not be longer than the old higher price was available for and that "a previous price used as a reference price to make a price comparison should be a genuine retail price."
Retailers must use a far more sophisticated approach to influence customers and increasing sales rather than currently or run the risk of an OFT financial sanction. A more sophisticated approach is available in today’s digital age, its called personalisation.
Retailers that use personalisation by leveraging the technology available will build long-term customer loyalty rather than the current short-termism of a price reduction based strategy. The retailers that use the strategy of reference pricing, regular sale activity will only be encouraging transient customer behaviour and run the running the risk of falling foul of the OFT.
The law for retailers on price promotions
Any price advantage claimed must be real
Price comparisons should be reasonable in terms of time
Previous prices used as reference prices should be genuine
Consumer protection law
Consumer law bans using misleading information to trick consumers into making a purchase
Any price drop comparison should be with the most recent price, available for at least 28 consecutive days
Comparisons should not be made with prices from more than six months ago