Furniture and carpet businesses: misleading reference pricing
Office of Fair Trading (OFT) closed consumer enforcement case.
Case references: CMG/0039 and CRE-E/28859
Issue
In 2012, the OFT opened a number of formal investigations under Part 8 of the Enterprise Act 2002 to consider whether six retailers within the furniture/carpet sector, namely Carpetright Plc (Carpetright), DFS Furniture Company Limited (DFS), Dreams Limited (Dreams), Furniture Village Limited (Furniture Village), Homestyle Operations Limited's (Homestyle) trading brands Harveys and Bensons for Beds and A. Share & Sons Limited (trading as ScS), were engaging in the use of misleading reference pricing.
One of the OFT's priority themes in its Annual Plan 2013/2014 is to address those pricing practices that act as a barrier to fair choice and effective competition. These investigations build upon the findings of the OFT's Advertising of Prices market study, published in December 2010, which identified a number of harmful pricing practices including the use of misleading reference prices.
Reference pricing refers to those offers which aim to demonstrate to consumers that they offer good value by including a reference to another, typically higher, past or future price (such as 'Was £800, Now Half Price £400' or 'Now £400, After Event Price £800').
The OFT takes the view that the use of misleading reference prices is likely to deceive the average consumer and influence their transactional decisions and could put other businesses at a competitive disadvantage.
Relevant legislation
The Enterprise Act 2002 and the Consumer Protection from Unfair Trading Regulations 2008 ('CPRs').
Summary of work
Consumers should be able to trust that the price comparisons made by businesses are fair and meaningful and that the advertised 'savings' are genuine. The OFT would be concerned if the reference prices used and displayed were not genuine and so could mislead consumers.
All the relevant circumstances would have to be considered but in the OFT's view a genuine reference price is the price at which a retailer expected to, and usually did, sell a significant number of products at. The OFT has identified the following non-exhaustive list of factors, which would lead it to question whether genuine reference prices were being used.
- Relative volume of units sold: Whether the reference price is the price at which the retailer has sold a significant number of units of the product relative to the number of sales at the discounted prices. The greater the proportion of sales made at the higher price the less this will call into question whether that higher price was a genuine retail price.
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Legitimate expectations: Whether the reference price is a retail price at which the retailer has a legitimate expectation of significant sales of units of the product relative to the number of sales at the discounted prices. The following practices suggest a lack of legitimate expectation:
i. Repeated use: Whether the retailer repeatedly uses a reference price, when the retailer knew that it had not sold a significant number of units of the product at the reference price relative to the number of sales at the discounted prices.
ii. Duration: Whether a reference price is advertised to show a specific price advantage and/or discount, in circumstances where the sale price has been used for longer than the reference price, whereby the sale price has, in fact, become the usual retail price.
iii. Proportion of stores: Whether the reference price was used in all or a significant proportion of stores before and/or after the advertised discount.
iv. Online: Whether a reference price was available on a retailer's main online store or only through a secondary or lower profile business or website, before being used to promote savings and/or discounts in all its stores.
v. Parallel discounts: Whether, during the time that the reference price is the current retail price, a retailer runs parallel discount offers to attract sales. For example, by offering money off vouchers, in store discounts and/or 'bundling' offers whereby discounts are offered for multiple purchases.
The OFT monitored the retailers' pricing practices and following an information gathering exercise under the Enterprise Act 2002, the OFT considered that the reference prices used, displayed and advertised for some products were not genuine. In August 2013, the OFT sent consultation letters outlining its concerns to the retailers and asked them to change their reference pricing practices. The OFT closed its investigation into DFS on 13 December 2013.
Commitments
Following the investigation, all the remaining retailers have confirmed a commitment to the use of genuine reference prices and, without any admission of liability, have made changes to their reference pricing practices. On the basis of the commitments received the OFT has closed its investigations.
Next steps
After 1 April 2014 the Competition Markets Authority (CMA) will monitor pricing practices within the sector to check whether retailers are complying with their legal obligations.
When considering if it would be appropriate to take action in the future, the CMA would be assisted in reaching a decision by the OFT's non-exhaustive set of factors. The OFT will be sharing its views with the wider enforcement community, including Trading Standards Services, and industry bodies to encourage wider compliance within the sector.
Related documents
- Advertising of Prices market study
- Press release Furniture and carpet retailers change pricing practices after OFT investigation (21 March 2014)