We’ve all seen discounts so big, they make us doubt their validity. It’s as if something is telling us that there is no way the purchase can be this advantageous. A very recent ruling of the Commission for Protection of Competition (CPC) clarifies some of the necessary requirements for the validity of discounts on goods or services.
The dispute in question was led between two insurance agencies. More accurately, the issue concerns the advertisement of insurance packages on the web page of one of the agencies. Among a line of arguments, the ones concerning the visual portrayal of a discount for one of the offered packages – Home insurance – is of particular interest. This news article will cover problems with advertising a price discount, which have been systematically outlined by the CPC.
Firstly, the CPC emphasizes the main reason for the anticompetitive effect of some misleading discount advertisements — influence over consumer behavior. The act of misleading itself (in fact even the potential to mislead would suffice) could influence the economic behavior of the advertisement campaign’s targets. The main goal of the provisions restricting such advertisements – Art. 32 and 33 of the Protection of Competition Act (PCA) – is to limit the spreading of misinformation, unclear messaging, as well as the exaggeration and suppression of information.
The CPC correctly points out the key significance of messaging regarding the price of goods and services, and even more so – regarding discounts – through the lens of the huge influence they have over the final will of the consumer.
Who carries the responsibility and for what?
First of all, it’s important to emphasize that responsibility in such cases can be attributed only to the advertiser, who is simultaneously also the provider of the goods or services. Naturally, the presence of an advertisement in accordance with the PCA must also be established. An advertisement in this sense would be any notice in connection with trade, art, or profession, aiming to promote the sale of goods or services.
Conditions for the validity of the discount
The good or service needs to have been offered at the old or standard price, and for no less than a month before the announcement of the discount. This aims to limit unrealistically big discounts and discounts that are offered indefinitely.
The announcement of a discount has the goal of highlighting the cost that will be saved by the buyer or consumer. The bigger the difference between the standard and the discount price, the stronger the feeling that the product or service can’t be found cheaper anywhere else. This harms competitors and free market competition as a whole.
This is why, with the goal for the discount to be realistic, the good or service need to have been offered at the given standard price. It’s not acceptable for the old price to solely play the role of a reference point. Legal requirements for the content and scope of price discounts naturally also point out the minimum time span for the offering with the old price tag — no less than a month prior to the discount. Additionally, the discount must not be offered for an unlimited time.
What does the standard price mean in the context of this legal dispute, if not an actual price that the product was offered at? The CPC found that, in this particular case, the standard price constituted a mere actuarial assessment, i.e. an estimated guess at the value of the service on the market. The misleading element here being the fact that standard price is widely understood as sale price. In reality, customers will never get to pay that standard price.
To sum up, in order to offer a good or service with a particular discount, the following conditions must be met:
- The standard price needs to have been offered before (not just as a reference point or an estimated market value)
- The old price needs to have been offered for no less than a month prior to the new one
- The discount can’t be offered indefinitely