Advertising of Prices –a Study by the OFT Jason Freeman, Legal Director, Consumer Market Group OFT

What practices are really harmful? It is not possible to take on everything… How do you prioritise cases? Impact–direct and indirect Strategic significance –legal and economic Resources available Risks How do you identify real harm?

Market Impact Focus on the outcome on the market Consider the Theory of Harm What outcome do we want? What is the actual harm (in practice)? Will the market self correct? Eg can consumers learn, will competition solve it What would the market look like without the harm? What is the remedy –what do we want the market to look like? Which legal tools bring about this outcome? Can we prove the illegality? Can we draft an Order to cure the harm?

The AoP study’s aims To identify which suspect practices actually influence consumers Important for UCPD assessment of impact on the transactional decisions of consumers To identify whether these practices are really harmful Are they worth intervening against?

The Pricing Practices Drip pricing Baiting sales Reference pricing Price increases through the buying process Baiting sales Only some products available at the discount price Aim is to attract consumer’s attention –in order to sell something else, or simply to get the consumer’s personal data Reference pricing Recommended Retail Price –what is it based on? “Was £50, now £20”, “50% off” –is the reference price genuine? Impacts consumer’s assessment of value Time limited offers “one day only sale”, sales for a stated period Complex prices/volume offers Eg mobile phone contract, gym membership 3for2: hard to assess the value of whole deal against purchase of individual components Free offers Is a product really “free” or just included?

Advertising of Prices Theories of harm: Price Framing v. Real Value Inflating consumers’ willingness to pay more Anchoring and adjustment (focus on reference price) Loss aversion and endowment effects (attachment to product) Omission bias (fear of losses) Obscuring the total price paid –increases search costs Reduced competition on price, increased brand loyalty, reduced switching Detriment Financial, both buying too much and too little of a product Wasted time Emotional stress and frustration

The approach for each practice Scope of practice examined Consumer expectations and attitudes Impact on consumer decision making Consumer Detriment Shopping errors Emotional reaction Learning Conclusions –Core concerns

Conclusions Key assessment is “what does consumer reasonably expect?” And, has the trader behaved reasonably in relation to this expectation? Pricing information should be useful not spurious –to help the consumer make informed and efficient decisions We should concentrate on most harmful practices We identified several key factors to consider in prioritising cases

Potential for harm Most potential for harm (in order) Drip pricing Time limited offers Baiting sales and complex offers Reference pricing Volume offers We should concentrate on these

Specific harmful practices Fake ‘Recommended Retail Prices’ (RRPs) Extending time limited offers at short notice Omitting information to help consumers assess whether a volume offer is better than separate purchases Not presenting, upfront in the shopping process, the cost of genuine options or varying surcharges Not making clear the limits of a price promotion Calling a product “free” when it is in fact paid for in the offer price Not making clear the consumer’s total minimum financial commitment with a complex product Not making clear the limits of a price comparison (eg independence, scope, not like for like)

Market and compliance factors Frequency of purchase Ease of cross market comparisons do price comparison sites help? –issues with independence and impartiality Ease with which consumer can independently verify quality Expense of the item Reasonable consumer understanding of the practice Size of market and spread of practice Adhering to ASA Code and BIS Pricing Practices Guide

See the full study at http://www.oft.gov.uk/OFTwork/markets-work/completed/advertising-prices/ Thanks for listening Jason.freeman@oft.gsi.gov.uk

Questions for discussion 1) To what extent does your agency focus on actual harm to consumers? 2) How does this compare with the OFT's 'most potential for harm' list? Drip pricing ( Price increases through the buying process) Time limited offers (“one day only sale”, sales for a stated period) Baiting sales (Only some products available at the discount price, aim is to attract consumer’s attention –in order to sell something else, or simply to get the consumer’s personal data) Complex prices (E.g. mobile phone contract, gym membership) Reference pricing (E.g. “Was £50, now £20”, “50% off” –is the reference price genuine? Volume offers (e.g. 3for2)