Price Sale Items Carefully

Vendors beware: Truth in advertising isn’t just a slogan for the Canadian Competition Bureau, which is determined to enforce the ordinary selling price provisions or the Competition Act.

Those provisions state that before a company advertises items on sale, it must sell a substantial volume of the items at the pre-sale price for a period of time. Specifically, a retailer cannot claim that a price is the ordinary selling price when the company has not:

The Competition Act contains criminal and civil provisions to address false or misleading representations and deceptive marketing practices. The criminal provisions prohibit all materially false or misleading representations made knowingly or recklessly, deceptive telemarketing and notices of winning a prize, double ticketing, and pyramid sales schemes. The civil provisions also ban all materially false or misleading representations and specifically prohibit performance representations that are not based on adequate and proper tests, misleading warranties and guarantees, false or misleading ordinary selling price representations, untrue, misleading or unauthorized use of tests and testimonials, bait and switch selling, and the sale of a product above its advertised price.

1. Sold a substantial volume of the product at that price or a higher price within a reasonable period of time before or after making the representation.

2. Offered the product at that price or a higher price in good faith for a substantial period of time recently before, or immediately after, making the representation.

To be considered an ordinary price, at least half the merchandise must be sold at that price during the previous six months, or offered at the price for half the time.

The landmark ruling that underscores the federal agency’s determination to enforce the law was the Competition Tribunal’s finding that Sears Canada at one point used false discounts to sell tires and exaggerated the possible savings to consumers.

In its ads, Sears claimed it was offering discounts as deep as 45 per cent on five types of tires. The retailer later conceded that it sold less than two per cent of the tires at the full regular price before they were advertised on sale. Sears stated that the original price in its ads reflected the price at which competitors regularly offered the tires for sale.

However, the tribunal found that the company could not have truly believed that its regular tire prices were genuine and bona fide prices that the market would validate.Sears was ordered to pay a $100,000 penalty as well as $387,000 toward the Competition Bureau’s legal costs.

In handing down the ruling, the tribunal also upheld the constitutionality of the ordinary price provision of the law, stating that false or misleading ordinary selling price claims can harm consumers, business competitors who do comply with the law and competition in general.

The ruling was a powerful message to be careful when your business uses comparative-price advertising. There is no need to stop using these powerful marketing tools, but be sure your enterprise can legitimately establish that ordinary selling price representations are offered in good faith and not misleading. Fortunately, the Competition Bureau offers guidance to that end, including:

The general test: Would a reasonable consumer conclude that the comparison price is the one at which the item was ordinarily sold? If the comparison price isn’t the regular market price, the business is liable for prosecution. Such phrases as “Compare to,” “Was,” “$X or X? off,” “Special” and “Value” generally convey the impression that the comparison price is the one at which the product has been ordinarily sold. If a business doesn’t know the market price and the sale price is a reduction from its price, the comparison price should be qualified by saying, for example, “our regular price.” Moreover, a business shouldn’t compare its prices to those in another region. An Ottawa retailer should not rely on a Toronto regular price. Don’t rely on out-of-date pricing history. The comparison price should be one from a period that is sufficiently recent. If a business is setting an introductory price, the price should not be offered for a prolonged period of time. Consumer savings alone aren’t sufficient to avoid liability. If the actual market price, say, was $15, a business would be liable for prosecution if its ads claimed, “Reg. $20.00 — Sale price $10.00,” even though an actual $5 saving was involved. Using the term Manufacturer’s Suggested List Price can be deceptive when it doesn’t reflect a product’s ordinary selling price. The list price is also not reliable as a market price indicator because it is often significantly higher than the market price.