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

2. 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?

3. 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?

4. 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?

5. 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?

6. 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

7. 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

8. 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

9. 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

10. 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)

11. 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

12. See the full study at
Thanks for listening

13. 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)