It says “sale,” but is it a bargain? According to a number of class action lawsuits filed in recent years, the answer is no.
The situation is this: You go to the store. You see a nifty looking widget and HOLY BUCKETS it is 50% off! But are you really getting a deal? If the store is following the law, you are…but a recent series of putative class action lawsuits have alleged that the deal might be no deal at all.
The past few years (and 2015 in particular) have seen a significant number of class action lawsuits filed against retailers across the country for allegedly false and misleading price advertisements. The lawsuits generally claim that the retailer advertised products as on “sale” or “discounted” from higher, “original” or “former” prices when in reality the product was always on sale. The lawsuits allege that the phantom or sham markdowns are part of the retailers’ scheme of giving the false and misleading illusion of a discount to entice sales.
So what is the rule? How do you accurately advertise a sale? The standards can vary from state to state, but intentionally creating a misleading or false illusion of a discount is likely a problem. The Federal Trade Commission’s guidelines are a good starting point and guidepost for advertisers. With respect to advertisements comparing a former price to the current price, the regulations promulgated by the FTC provide:
“One of the most commonly used forms of bargain advertising is to offer a reduction from the advertiser’s own former price for an article. If the former price is the actual, bona fide price at which the article was offered to the public on a regular basis for a reasonably substantial period of time, it provides a legitimate basis for the advertising of a price comparison. Where the former price is genuine, the bargain being advertised is a true one. If, on the other hand, the former price being advertised is not bona fide but fictitious — for example, where an artificial, inflated price was established for the purpose of enabling the subsequent offer of a large reduction — the ‘bargain” being advertised is a false one; the purchaser is not receiving the unusual value he expects. In such a case, the ‘reduced’ price is, in reality, probably just the seller’s regular price.
“A former price is not necessarily fictitious merely because no sales at the advertised price were made. The advertiser should be especially careful, however, in such a case, that the price is one at which the product was openly and actively offered for sale, for a reasonably substantial period of time, in the recent, regular course of his business, honestly and in good faith — and, of course, not for the purpose of establishing a fictitious higher price on which a deceptive comparison might be based. And the advertiser should scrupulously avoid any implication that a former price is a selling, not an asking price (for example, by use of such language as, ‘Formerly sold at $XXX’), unless substantial sales at that price were actually made.” 16 CFR §233.1(a) and (b).
The FTC has similar regulations and guidelines for comparisons to prices charged by competitors ( 16 CFR §233.2), advertising against an MSRP (16 CFR §233.3), bargain sales—e.g. two for the price of one—(16 CFR §233.4), and “miscellaneous” price comparisons (16 CFR §233.5).
While the FTC regulations are a good start, and advertiser should consult the laws in the state(s) in which they will advertise. For example, advertisers in California should be particularly aware of California Business and Professions Code Section 17501, which sets out a specific rule for when and how a discounted price may be advertised:
“No price shall be advertised as a former price of any advertised thing, unless the alleged former price was the prevailing market price as above defined within three months next immediately preceding the publication of the advertisement or unless the date when the alleged former price did prevail is clearly, exactly and conspicuously stated in the advertisement.”
Failing to comply with these advertising laws can translate into a risk to the bottom line, and advertisers should take steps to make sure they do not become the target of a lawsuit or FTC enforcement action. When in doubt regarding whether a promotion complies with the applicable rules, consult with a qualified attorney.