Businesses commonly use two-price advertising to compare the price they currently charge for a product or service against the previous price they charged consumers, the wholesale price or the recommended retail price. But how does it work exactly? And what should businesses think about when using two-price advertising?
Comparisons with Previous Prices
Many businesses will use the ‘strike through’ method ($300, now $99), or phrasing such as ‘was $300, now just $99!’ This suggests that the consumer will save $201 – the difference between the current price and the previous price. To ensure businesses don’t mislead consumers through this type of advertising, they must display the original price for a reasonable period before changing the price.
The ‘reasonable’ period depends on:
- the Industry;
- the type of product; and
- the frequency of pricing changes.
If a business constantly discounts products and uses two-price advertising, it is likely that their offer is misleading. They are suggesting consumers will save during this period, when in reality, that might not be entirely true.
Comparisons with Wholesale or Recommended Retail Pricing
Businesses also typically compare between ‘cost’ prices and the prices they offer for sale items. Comparative advertising can mislead consumers if the displayed ‘cost’ price is actually more than what the business paid. Similarly, businesses comparing their prices with the recommended retail price (RRP) must take care to avoid misleading consumers. If the business advertises that there are savings or discounts when compared to the RRP, the savings the consumer makes must be truthful. That is, the business must have been able to sell that product initially at the RRP, and the RRP must reflect the most up-to-date pricing.
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Two-Price Advertising Up-Close
We can find a recent example of two-price advertising in the case of Australian Competition and Consumer Commission (ACCC) v Jewellery Group Pty Ltd (2012) 293 ALR 335. Here, Zamel’s jewellery published brochures advertising two prices. The jeweller used ‘strike through’ advertising to promote their mark-downs, striking out the higher price and then displaying a lower ‘sale price’.
The court held that this would mislead consumers because it suggested they would save the difference in the two prices if they purchased the product during sale time. The court heard evidence that Zamel’s had in fact never sold the product at the higher price, or rarely sold it at that price before the sale period began. Zamel’s had a negotiation policy, which meant that consumers unaware of any discounts would have paid less than the higher price before the sales period anyway.
Key Takeaways
The unique circumstances of each case as well as the industry the business operates in, and how frequently pricing changes will determine whether or not two-price advertising misleads or deceives consumers.
The most important thing businesses can focus on doing is providing accurate representations of pricing, whether that be ‘cost’ pricing, RRP or sale pricing.
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