Yates Anderson is currently investigating multiple claims related to false reference pricing designed to deceive customers into thinking items are being sold at a discount.
What is “false reference” or “fake discount” pricing?
False reference or fake discount pricing refers to a situation where a company advertises goods or services as being on sale in order to persuade customers they are getting a “good deal” when the goods are services are not really discounted. These situations typically fall into “former pricing” representations, “comparison pricing” representations, or “MSRP representations.”
One of the most commonly used forms of bargain advertising is to offer a reduction from the advertiser’s own former price for an item.
If the former price 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.
Former Price Representations
Where the former price is genuine, the bargain being advertised is a true one. If, on the other hand, the former price being advertised is not bona fide but fictitious – for example, where an artificial, inflated price was established for the purpose of enabling the subsequent offer of a large reduction – the “bargain” being advertised is a false one; the purchaser is not receiving the unusual value he expects. In such a case, the “reduced” price is, in reality, probably just the seller’s regular price.
Comparison Pricing Representations
Another commonly used form of bargain advertising is to offer goods at prices lower than those being charged by others for the same merchandise in the advertiser’s trade area (the area in which it does business). This may be done either on a temporary or a permanent basis, but in either case the advertised higher price must be based upon fact, and not be fictitious or misleading to comply with the law.
Whenever an advertiser represents that it is selling below the prices being charged in its area for a particular article, it should be reasonably certain that the higher price it advertises does not appreciably exceed the price at which substantial sales of the article are being made in the area – that is, a sufficient number of sales so that a consumer would consider a reduction from the price to represent a genuine bargain or saving.
Expressed another way, if a number of the principal retail outlets in the area are regularly selling Brand X fountain pens at $10, it is not dishonest for retailer Doe to advertise: “Brand X Pens, Price Elsewhere $10, Our Price $7.50”.
Many members of the purchasing public believe that a manufacturer’s list price, or suggested retail price, is the price at which an article is generally sold. Therefore, if a reduction from this price is advertised, many people will believe that they are being offered a genuine bargain. To the extent that list or suggested retail prices do not in fact correspond to prices at which a substantial number of sales of the article in question are made, the advertisement of a reduction may be misleading.
It bears repeating that the manufacturer, distributor or retailer must in every case act honestly and in good faith in advertising a list price, and not with the intention of establishing a basis for a deceptive comparison in any local or other trade area. For instance, a manufacturer may not affix price tickets containing inflated prices as an accommodation to particular retailers who intend to use such prices as the basis for advertising fictitious price reductions.
When a seller fabricates reference pricing, it misleads consumers into believing the product or service they are buying has a higher market value, and it induces them into purchasing the product. Such practices also artificially inflates the true market price for these products.
These practices violate the Alabama Deceptive Trade Practices Act, the Florida Unfair and Deceptive Trade Practices Act, standards set by the Federal Trade Commission, and various common law theories.
If you or your client are a consumer or business affected by these practices, we would welcome the opportunity to discuss your case with you.