Common Pricing Techniques that are Actually Illegal

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Fair play is a basic rule of consumer business, so it goes without saying that prices of products should be displayed and advertised in a way that is clear, accurate and not likely to mislead customers. A customer who feels as though they have been duped is not only unlikely to return, but they may lodge a complaint with the Australian Competition and Consumer Commission, which raises the risk of civil or even criminal penalties.


In many industries, the difference between a product’s success or failure can be as simple as persuading customers that your business goes beyond all others in terms of offering the best value for money.


The legalities of proper pricing for goods and services purchased in New South Wales is governed by the Fair Trading Act 1987. The Act is enforced in accordance with the Australian Competition and Consumer Commission and if a business is practising illegal pricing, they can easily find themselves being prosecuted.


The basic legal rules of pricing can be understood if the business owner takes the time to review the most common errors made with regard to pricing goods and services. Once a business owner fully understands what is needed to ensure pricing remains legal, they can easily prevent any issues that may arise. Unfortunately good intentions are not enough, and even the most honest entrepreneur can find themselves in legal hot water.


It must be understood that misleading or deceptive business practices and pricing is a grave breach of acceptable business practices. This sort of conduct includes any attempt to mislead the consumer about the general value, nature, quality or use of an advertised product. This can include being silent with regard to information a seller has available to them, that is important for the buyer to know, yet is not revealed. It can also include the use of small print disclaimers that change the basic nature of the sales transaction.


The following list details many of the more common types of illegal and deceptive pricing techniques that a business owner might engage in:

  • Component Pricing
  • Wrong Price
  • Multiple Pricing
  • Supermarket Code of Conduct
  • Misleading Pricing
  • Drip Pricing
  • Comparison Pricing
  • Bait Pricing
  • Single Unit Pricing
  • Surcharges


Component Pricing:

The advertised price for goods must be the total price of the product including all taxes and fees. If the advertised price does not include this information, that is known as component pricing. In addition, if the item has been priced as an individual piece, the prices of all components of the product must be displayed in a manner that allows the consumer to easily determine the total cost of the item.


Wrong Price:

In the instance that a business owner accidentally places the wrong price on an item, the owner has the right to fix the issue. The pricing error can be rectified at the register, prior to the purchase being completed, or by removing all of the improperly priced items from display. If the product was advertised with the incorrect price, issuing a printed retraction of the incorrect price in the same form of advertisement as the initial error was advertised will suffice.


Multiple Pricing:

This happens when a business owner puts more than one visible price on an item. In this instance the business is required to sell the consumer the item for the lowest price advertised. However, there are three exceptions to this rule; if the original price sticker is completely covered over by a new sticker, if the item is priced differently depending upon the region in which it is sold, or if the price is not in Australian currency.


Supermarket Code of Conduct:

The pricing of groceries is often governed by a computerised code of practice. In some instances, supermarkets will have a policy saying that if an item scans for higher than its advertised cost, the consumer receives that initial item free and any additional purchases of the same item at the sale price. This allows for the supermarket to fairly resolve any issues pertaining to bar-codes or scanning issues of food items.


Misleading Pricing:

A business cannot use a misleading prior price to trick consumers into believing that they are getting a better discounted price than is accurate. Additionally, if a product was sold at a “before” price, the business owner must be able to prove that a reasonable number of items were actually sold at the advertised prior price. Also, the business owner cannot advertise a wholesale price that they did not truthfully pay for the item. This leads consumers to believe that they are paying close to wholesale price, when in fact, the seller paid even less than the advertised wholesale amount.


Drip Pricing:

Drip pricing is a relatively new attempt to entice a buyer to pay more for an item than advertised. For example, if a buyer proceeds to purchase an item from the internet, such as an airline ticket, additional costs are added on at various stages of the purchase. By the time the buyer reaches the final pricing stage, the item costs significantly more than expected.


Comparison Pricing:

Involves the use of two prices. One price is generated from a “before” price or from a competitor’s price, or from the recommended retail price (RRP). If this pricing strategy is used the seller must be sure that a significant number of products were sold at the before price. They must also be sure that the product they are comparing to their competitor’s product does not have any substantial variances from their product. And, if using the RRP as a comparison, the seller must be able to show that the product has previously been sold at the suggested RRP.


Bait Pricing:

A business can offer a lower priced item to entice customers to come to their store to purchase a product. However, there must be a reasonable amount of the advertised items actually available for purchase at the lower price point. A business cannot offer a lower price and then only have 1 or 2 items available for purchase at the advertised price. If a business offers a product at a reduced price, and the consumer arrives to find that there are not available, businesses can offer consumers a “rain check” to come back when there are more items available. This is not required by law, but it does foster goodwill between the business and the public.


Single Unit Pricing:

The price of a single unit of goods or services, whether hedge clippers or an hour of massage, should include any taxes, levy, duty, or other additional charges. The quoted price need not include optional charges or extras or delivery fees, unless a minimum delivery charge is mandatory.


A merchant may add a fee or surcharge for credit card purchases or on occasions such as public holidays.


While on the surface it may appear as if there are many pricing strategies that can go astray for a business owner, it is possible for a seller with a bit of common sense to understand and properly price their products. It simply takes a bit of time, knowledge and understanding to price items for sale within the purview of the Fair Trade Act and the ACCC.


At Owen Hodge Lawyers, we look forward to helping your business stay within the requirements of law while pursuing inventive marketing and advertising strategies. It’s just good business. Please call us at 1800 770 780 to schedule a consultation.

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