Two-price comparison advertising
Businesses often make comparisons between the prices they are currently charging for a product and:
- the business' own previous pricing (including 'was/now' or 'strike through' pricing or by specifying a particular dollar amount or percentage saving)
- the 'cost' or wholesale price
- a competitor's price
- the recommended retail price (RRP).
Businesses that use such statements must ensure that consumers are not misled about the savings that may be achieved.
Comparisons with own previous pricing (‘was/now’ or ‘strike through’ pricing)
The use of ‘was/now’ or ‘strike through’ price statements (such as 'was $150/now $100' or '$150 now $100') is likely to represent that consumers will save an amount (being the difference between the higher and lower price advertised) by purchasing the product during the sale period.
In determining whether the represented saving will be achieved, a critical issue is whether relevant consumers would have paid the ‘was’ or ‘strike through’ price to purchase that item for a reasonable period before the sale commenced.
What’s considered to be a reasonable period in the circumstances will vary from case to case and will depend on the type of product or market involved and usual frequency of price changes for that product or in that market.1
Statements such as 'was $150/now $100' or '$150 now $100' are likely to be misleading if product had not been offered for sale at the specified 'was' or 'strike through' price of $150 before the sale commenced, but had instead been offered for sale at a lower price. In such circumstances, a consumer would not make the represented saving of $50 by purchasing the product for $100 during the sale.
Offer prices are not, however, the end of the enquiry. If a business offered a product for sale at a certain price before the sale, but rarely or never sold the product at that price, it should still exercise caution when deciding whether to use ‘was/now’ or ‘strike through’ pricing for this product. Using the ‘was’ or ‘strike through’ price could be misleading, unless the business is able to show in some other way that the relevant consumers would have bought the product at the ‘was’ or ‘strike through’ price.
This could be very difficult to do, particularly if the business has an established practice of discounting its products because, intuitively, this would suggest that no or very little of its products are ever sold at the ‘was’ or ‘strike through’ price.
The business would need to point to other indicators that suggest that the relevant consumers would have bought products at the ‘was’ or ‘strike through’ price.
Every case will turn on its facts and it’s important to bear in mind that using ‘was/now’ or ‘strike through’ pricing, where there were very little or no sales at the ‘was’ price, is likely to be a risky choice of advertising for businesses. It is recommended that businesses seek legal advice before doing so or alternatively, to consider some other way of promoting and selling their products.
The guidance above applies equally when a business uses a dollar or percentage amount (such as ‘60% off’) that a consumer will save if they purchase the product at the time the representation is made.
Other price comparisons
Comparisons between the sale or retail price and the ‘cost’ or ‘wholesale’ price can be misleading if the specified 'cost’ or ‘wholesale' price is greater than what the business paid for the products. Consumers may be enticed to buy products if the gap between the ‘cost’ or ‘wholesale’ price and sale or retail price is perceived to be small. If this is not actually the case, consumers are likely to be misled.
Price comparisons can also be misleading where, for example, a business uses a competitor's price for identical goods, but the competitor’s price is taken from a different market or geographical location.
Businesses using statements such as 'savings' or 'discounts' when comparing a sale price to the RRP of goods and services may convey to potential customers that they are getting a good deal because the sale price is less than the RRP. If the product has never been previously sold at the RRP, or the RRP does not reflect a current market price, then this type of comparison may, depending on the circumstances, misrepresent the savings that may be achieved.
It is good business practice and fair trading risk management to keep records substantiating any two-price comparison claim, as you may be required at some later point to substantiate such a claim to an ACL regulator, including the ACCC. The ACL regulators have the power to compel you to substantiate such claims.
It is also important to remember that a 'sale' or 'discounted' price should only be available for a limited period. This is because if a reasonable amount of time has elapsed and an item is still 'on sale', the discounted price effectively becomes the new selling price, so it may be misleading or deceptive to continue to call it a 'discount' or 'sale' price.
Real case study: The Federal Court and Full Federal Court on appeal found that the Jewellery Group Pty Ltd (Zamel’s) made false or misleading representations by use of its two-price advertising such as ‘Was $275 Now $149’ or ‘$99 $49.50’ in catalogues and a flyer. The court relevantly found that:
- the catalogues were directed to consumers who were unaware of their ability to obtain discounts outside Zamel’s sales periods
- the two-price statements conveyed to those consumers that they would save the difference between the two prices if the jewellery item was purchased during the sale period when that was not the case because:
- Zamel’s had not sold the item at or near the ‘was’ or ‘strike through’ price, or had sold it in limited numbers at or near that price, in the four months prior to the sale period2 (or a shorter period in circumstances where an item appeared in a previous sale and the period between the ending of a previous sale and the beginning of the next was less than four months)
- Zamel’s had a vigorous discounting policy outside sale periods which meant the ‘was’ or ‘strike through’ price was rarely paid by a Zamel’s customer.
Zamel’s was penalised $250 000 and the court also ordered that Zamel’s publish corrective notices in newspapers and on its website, implement a trade practices compliance program and pay the ACCC’s costs.
Case law: Federal Court of Australia - [2012] FCA 848
Media release: Court finds Zamel's misled consumers
Case law: Full Federal Court of Australia - [2013] FCAFC 144
Media release: Full Federal Court confirms false or misleading representations by Zamel's
Case law: Federal Court of Australia - [2013] FCA 14
Media release: Zamel's ordered to pay $250,000 for misleading consumers
1 If the goods were offered for sale at the 'was' price but there were no actual sales of the goods at all, then using a 'was' price may not necessarily be considered misleading. The issue is whether the goods would have been purchased at the 'was' price before the sale period and consumers would actually achieve a saving.
2 Note in ACCC v Jewellery Group Pty Ltd the Federal court considered that it was appropriate to have regard to a period of four months before a sale. Notwithstanding this decision, every case will be different and it would be open to the Court to find in another case, depending on the particular factors, a different period.