Spring into action to avoid CMA enforcement action for harmful online selling practices: learnings from the CMA’s new guidance

As part of the CMA's ongoing consumer protection work focused on tackling harmful online selling practices, a number of sectors have been subject to investigations around misleading price reductions and practices that place unfair pressure on customers. Online mattress sales have been most scrutinised, so it is no surprise that the recently published CMA guidance on reference pricing is targeted at traders in that sector.

The guidance is not just relevant to the mattress sector, with the CMA stating they will have regard to these principles when considering enforcement action in relation to the use of reference pricing in other sectors. Reference pricing refers to price promotions that aim to demonstrate good value by referring to another, typically higher, price e.g. 'was/now' prices.

Current guidance on reference pricing

The current CTSI guidance on reference pricing provides a non-exhaustive list of issues that should be considered when determining whether a price reduction is genuine including, how long the product was on sale at the higher (reference)price compared to the period for which the price comparison is made, how recently the higher price was offered compared to when the price comparison is being made, and whether significant sales were made at the higher price prior to the price comparison being made.

The guidance also contains numerous examples of what may or may not be considered genuine reference pricing, however, there remains an element of subjectivity in the interpretation. 

What are the key changes?

The new guidance provides further clarity on when reference pricing will be considered genuine. It introduces two new specific requirements, the duration requirement and the volume requirement. Both of these requirements must be met for a price reference to be a genuine, compliant price reference. We set out further details on these requirements below.

This will provide businesses with clear parameters to ensure compliance and avoid enforcement action.

The Duration Requirement

Retailers who wish to use a 'was' price, must offer the product, or bundle of products, for sale at or above that price for a sufficient period. The guidance states that compliance is more likely to be achieved if this period is at least 30 days, however, shorter periods may be compliant depending on how the promotion is structured. For example, the principles note that the Simba Sleep undertakings only commit to selling at the reference price for 21 days, prior to a 10-day discounted period, and state that some flexibility may be possible depending on the promotion's structure.

In any case, the duration of the 'was' price offer cannot be shorter than that of the discounted offer price. This requires a ratio of at least 1:1.

Note, that a 30-day reference pricing period is required for promotions offered in the EU.

The Volume Requirement

In addition to the duration requirement, a retailer must sell a sufficient volume at the 'was' price.

At least one product should have been sold at (or above) the 'was' price for every two products sold at the discounted price. This requires a ratio of 2:1.

If you need any assistance with ensuring the compliance of your reference pricing or other marketing methods, please contact us.