Strike-through “comparison” pricing is a popular marketing technique where a higher “regular” price is listed on advtertising materials and crossed out in close proximity to a lower, “discounted” sale price. The practice is enforced when “unfair or deceptive” by federal and state regulatory bodies, as well as private plaintiffs.
FTC Guides Against Deceptive Pricing
Section 233.1 of the Federal Trade Commission’s Guides Against Deceptive Pricing addresses comparison pricing.
It addresses former price comparisons, retail price comparisons and comparable value comparisons, advertising retail prices which have been established or suggested by manufacturers (or other nonretail distributors), bargain offers based upon the purchase of other merchandise, and other conduct that many also violate the FTC Deceptive Pricing Guides. The basic principle underscored by the FTC Deceptive Pricing Guides is non-misleading advertisements that do not convey that a price is a legitimate, bona fide discount, when it it not.
Generally speaking, a seller must offer an articel for a reasonable, substantial period of time in good faith, and in the regular course of business, prior to disseminating an advertising that a different price is a “discount” from a former price. Additionally, when an advertiser represents that it is selling below the prices being charged in its area for a particular article, it must be reasonably certain that the higher price advertised does not appreciably exceed the price at which substantial sales of the article are being made in the area. Additionally, for offers based upon the purchase of other products, like buy-one-get-one offers, if the advertiser increases its regular price of the article required to be purchased, or decreases the quantity and quality of that article, or otherwise attaches conditions to the offer, there is a danger a consumer may be deceived. Terms should be clearly and consicuously disclosed in close proximity to the “Free” offer.
California’s Strike-Through Pricing Law
California Business and Professions Code Section 17501 is the statute that governs strike-through and “former” pricing. Pursuant to the statute, an advertised former price must legitimately reflect the prevailing market price within a recent, specified timeframe.
The “prevailing market price” is the common or predominant price at which a product is sold in the market (not just by the retailer) within the three months prior to dissemination of an advertisement. The prevailing market price has a nexus to the advertisement’s locality and time. Retailers must consult with advertising compliance counsel in order to understand the requirements of the California law, as well as the differences amongst other states laws and the FTC Deceptive Pricing Guides.
In general, in California the former price should accurately reflect the prevailing market price at which the product was offered for sale in the recent past. What’s more is that the former price must have been the prevailing market price within ninety days preceding the advertisement. Otherwise, a retailer is required to clearly and conspicuously disclose the last date the article was sold at that price. Under no circumstances may an advertiser inflate former prices to create a false impression of a bona fide discount.
The California statute is intended to ensure that consumers are offered legitimate “discount” prices. Advertised prices must be truthful and non-deceptive. Advertisers should maintain records of prices at which articles are sold, as well as how long the prices were utilized with respective dates. Advertisers may also wish to conisider developing and implementing written policies and employee training materials designed to ensure complianc with applicable legal regulatory requirements.