The Competition and Markets Authority (CMA) has published an open letter to online B2C businesses, highlighting certain practices that may mislead consumers. The focus is on claims relating to the need to act urgently and price reductions. As we explain below, enforcement action is already being taken over these issues – and with plans to allow the CMA to impose substantial fines for breaches of consumer law, the risks of non-compliance are poised to escalate.
CMA warns online B2C businesses against misleading urgency and pricing claims
Overview
What are the CMA's concerns about false urgency?
The CMA is concerned about businesses using a range of techniques to generate a false sense of urgency on the part of consumers, including:
- Countdown timers which imply that an offer ends after a particular time, when the reality is that a comparable offer will continue to be available.
- Misleading claims that stock is limited e.g. "Only 5 left" when there is no stock shortage or the business will quickly be able to replenish any low stock levels (so the implication of an imminent shortage is false).
- Misleading claims that urgent action is required because demand is high e.g. "Act fast! 10 people are viewing this now" when in fact, stock levels are sufficient to meet demand or could easily be replenished. Attention should also be paid to the relevant time period e.g. if the reality is that "10 people" relates to the number that viewed the offer over the last hour, then in the CMA's view, claiming that "10 people are viewing this now" is likely to be misleading.
- Misleading claims about demand e.g. "200 sold in the past hour", when in fact this figure relates to demand for various different models under the same brand, rather than the particular model that the consumer is looking at.
Countdown timers at checkout may also give rise to concerns. These may be legitimate where, for example, the seller wishes to prevent consumers effectively "hoarding" products in their basket for an extended period without paying (so that when the counter expires, the seller is free to offer them to other buyers). But if the timer appears to be used primarily to pressure the consumer into completing the transaction, its use may be harder to justify. The CMA's open letter can be accessed here.
False urgency claims: enforcement action
As we reported in December 2022, the CMA is already investigating online mattress and bed seller Emma Sleep over its use of countdown timers and other techniques which may suggest that discounted prices would end soon. It has recently announced that it is also investigating Wowcher, which describes itself as "a 'deal a day' site that uses the power of group buying or bulk buying to get unbeatable offers." As with Emma Sleep, the concerns appear to relate to potentially misleading countdown timers and other urgency claims.
What are the CMA's concerns about price reduction claims?
Whilst countdown timers and claims about how many people are viewing a product now are unique to the online environment, the CMA's concerns about price reduction claims reflect longstanding guidance from Trading Standards on pricing practices and would also apply to bricks and mortar retailers.
A typical price reduction claim would be along the lines of "Was £100, Now £70". Businesses wishing to make such claims need to be able to establish that the reference price of £100 represents the usual selling price. For example, if the product was only on sale at £100 for a month before being reduced and sales were low during that period, this may indicate that the price had been set at a level which was regarded as too high by most consumers. By using £100 as the reference price, the business is implying that the product has a market value which is significantly higher than the reality – which is likely to be closer to £70. As a result, the CMA would be likely to regard "Was £100, Now £70" as giving a false picture of the extent of the price reduction. Given the focus on the length of time the reference price was in place for and the number of products sold at that price, it is essential for businesses to have robust data in order to rebut any suggestion that their price reduction claims are misleading.
Price reduction claims: enforcement action
The forerunner of the CMA, the Office of Fair Trading, has taken action against misleading price reduction claims in the past; for example, in 2012, it launched an investigation into several major furniture and carpet retailers over allegedly misleading reference prices. That inquiry was closed in 2014 after the relevant businesses made voluntary changes to their existing practices (no further details were provided). However, the CMA's latest open letter states that it has identified price reduction claims as a focus of its work and is "actively monitoring this area". As we explain below, the CMA is also expected to gain new enforcement powers, including the ability to impose fines.
More recently, the Advertising Standards Authority (ASA) has ruled that statements claiming savings of "up to 50%" on Carpetright's website breached the CAP Code. It concluded that the statements gave a misleading impression of the extent of price reductions because relatively few products in the promotion were eligible for the maximum discount. It is worth noting that the complaint to the ASA was made by competitors.
What else should B2C businesses watch out for?
The open letter is part of the CMA's ongoing work on ways that "Online Choice Architecture" (OCA) may lead to harmful selling practices. It has stated that it will use its full range of powers to tackle these and that "all sectors are under scrutiny". In that context, it is worth noting proposals to give the CMA significantly stronger enforcement powers including the ability to impose fines of up to 10% of turnover. The relevant legislation is expected to be put before Parliament later this year.
Looking beyond urgency and price reduction claims, businesses may also want to review their use of some of the practices highlighted in the CMA's OCA Discussion paper, such as those listed at the end of our briefing on the Emma Sleep investigation. Once the CMA has stronger enforcement powers, it is likely to target businesses which it views as having failed to heed warnings about the need to pay closer attention to the requirements of consumer law.
