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Retailers: have you responded to draft revised pricing practices guidelines?

In October the Chartered Trading Standards Institute (CTSI) published draft Pricing Practices Guidelines (PPG), which are intended to replace the existing PPG published by The Department for Business, Innovation & Skills (BIS) back in November 2010.

The deadline for responding to the consultation on the draft PPG is 5 January 2016. We suggest all retailers who have not yet done so familiarise themselves with the proposed changes and take the opportunity to respond. The new guidelines, if adopted, are likely to have a significant impact on pricing and promotions throughout the retail sector.

What are the proposed changes?

Retailers are likely to find the revised PPG a more ambiguous document than the existing BIS guidelines. 

This is a deliberate move on the CTSI’s part. In general it feels the PPG in its current form is too prescriptive and that retailers are relying on it as a one-stop-shop for how to comply with the Consumer Protection from Unfair Trading Regulations (the CPRs). Instead, the CTSI seeks to revert to the principle-based nature of the legislation by removing all prescriptive rules from the guidelines.

The CTSI hopes this will encourage retailers to better engage with the principles of the legislation.

Which rules does the CTSI intend to remove?

The CTSI proposes removing the following requirements:

  • The 28 day rule - The current BIS guidance states that a product should have been on general sale for at least 28 days before it can be marketed with a price discount. The CTSI plans to scrap this rule. The CTSI says it is concerned that the 28 day rule has been interpreted as providing a kind of “safe harbour” for retailers, which does not accurately reflect the law. 
  • 1:1 ratio - The BIS guidelines state that products should not be marketed at a discounted price for longer than the original reference price (sometimes referred to as the 1:1 ratio). This rule has been removed. Interestingly, the draft PPG now includes an example in which a product is on sale at a discounted price of £500 for longer than the original price of £1,000, yet the CTSI stops short of saying this would be misleading. Instead the guidelines merely state that "the longer that the higher price was charged compared to the time that the lower price is available, the more likely it is that the higher price is the genuine price for the product." This language is much more relaxed than the current BIS guidance. 
  • 10% rule - The BIS guidelines state that "half price sale" or "up to 50% off" should not be used unless the maximum reduction quoted applies to at least 10% of the range of products on offer at the start of the sale. This reference has also been removed. If implemented, it will be up to retailers to decide an appropriate threshold. 
  • "Free" - The BIS guidelines sets out a number of circumstances in which products should not be marketed as 'free'. This has been replaced by much more generic guidance on the subject, which is aimed at getting retailers to focus on whether the product in question is 'truly free' from the point of view of the consumer. 

Is this a good thing for retailers?

As always there are pros and cons. One way of viewing the guidance is that it is less strict than before. Some may welcome this change. At times the prescriptive rules in the BIS guidance can come across as inflexible or (in the case of the 28 day rule) arbitrary. This does not reflect the ever-changing nature of pricing and promotion in a dynamic sector. Nor does it reflect the principles of the CPRs.

However, in our view the changes are likely to make life more difficult for retailers when in it comes to interpreting the law in practice. 

Many retailers appreciate the clarity that the existing BIS guidelines provides. What constitutes a ‘genuine’ retail price? At what point does an offer become 'unfair'? 

If the existing BIS guidelines fall away, the risk is that different retailers may interpret these questions in different ways. Should retailers continue to follow the 10% rule or not? Is the 28 day rule now redundant? Some retailers may not welcome more uncertainty in this area.

In addition to considering the impact the changes might have on their own internal pricing codes, retailers should also consider how their competitors might react if the PPG is adopted. All retailers have to compete, to differing extents, with rival discounters enticing customers with tantalising offers. Under the existing BIS guidelines, retailers can at least draw some comfort from knowledge that their rivals’ offers are subject to the same clear rules.

Certainly the increased flexibility under the CTSI’s proposals comes at the cost of commercial certainty.  

How to respond

Retailers can read and find out how to respond to the draft PPG here. We suggest that all retailers who have not yet done so consider the proposals carefully and take this opportunity to contribute to the consultation. 

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at December 2015. Specific advice should be sought for specific cases. For more information see our terms & conditions on www.TLTsolicitors.com

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