Despite the proliferation of deceptive pricing class action lawsuits, the FTC (Federal Trade Commission) Guides against price comparisons and “sale” prices are often overlooked by marketers seeking to offer “discounts.”  These issues are perhaps most prevalent in the dietary supplement marketing niche, though marketers in all industries are advised to take note.

Warnings against deceptive “sale” prices

The Guides caution that one of the most commonly used forms of bargain advertising is to offer a reduction from the advertiser’s own former price for an article.

If the former price is the actual, bona fide price at which the article was offered to the public on a regular basis for a reasonably substantial period of time, it provides a legitimate basis for the advertising of a price comparison. According to the Guides, where the former price is genuine, the bargain being advertised is a true one.

However, if the former price being advertised is not bona fide, but fictitious (e.g., where an artificial, inflated price was established for the purpose of enabling the subsequent offer of a large reduction), the “bargain” being advertised is a false one. Here, purchasers are not receiving the unusual value they reasonably expect. In such a case, the “reduced” price is, in reality, probably just the seller’s regular price. As an example, it is considered misleading to offer an item of merchandise at the “reduced price” of $10 if it has never been sold at a stated “suggested retail price” of $20.

A former price is not necessarily fictitious merely because no sales at the advertised price were made. An advertiser must take care, however, to ensure that the price is one at which the product was openly and actively offered for sale, for a reasonably substantial period of time, in the recent, regular course of his business, honestly and in good faith.

A distinction, though: any implication that a former price is a selling, not an asking price, must be avoided. For example, do not use “Formerly sold at $10,” unless substantial sales at that price were actually made; use “Formerly offered at $10” to avoid misleading the consumer.

The use of a price at which the article was never offered at all is obviously a fictitious price comparison. The same is true when an advertiser features a price that was not used in the regular course of business, or that was not used in the recent past but at some remote period in the past, without making disclosure of that fact.

Likewise, the use of a price that was not openly offered to the public, or that was not maintained for a reasonable length of time because it was immediately reduced, is considered deceptive.

If the former price is set forth in the advertisement, whether accompanied or not by descriptive terminology such as “regularly,” “usually,” “formerly,” etc., an advertiser must ensure that the former price is not a fictitious one. If the former price, or the amount or percentage of reduction, is not stated in the advertisement, as when the ad merely states, “sale,” an advertiser must ensure that the amount of reduction is not so nominal as to be meaningless.

The savings should be sufficiently large that consumers, if they knew what it was, would believe that a genuine bargain or saving was being offered (e.g., a claim that an item has been “reduced to $9.99,” when the former price was $10).

Warnings against deceptive “free” add-ons or urgency offers

Frequently, online marketers choose to offer bargains in the form of additional merchandise to be given a consumer on the condition that he purchase a particular article at the price usually offered by the advertiser. Representative language includes “free,”’ “buy one, get one free,” etc.

Here, however, the advertiser is not offering anything for “free” if a consumer is required to purchase a product in order to receive the “free” item.  The language used in such advertising promotions should be critically examined by an FTC advertising compliance and defense lawyer prior to implementation.

In conjunction with such offers, an advertiser cannot increase the  regular price of the product required to be bought, decrease the quantity and quality of that article, or otherwise attach undisclosed conditions to the offer.  Advertisers must, at all times, clearly and conspicuously advise consumers of all material limitations, restrictions, conditions and exclusions.

“Limited time” offers designed to create a “false sense of urgency” are also considered deceptive.

Bargains must always be bona fide and truthful.

The Commission is empowered to initiate action against marketers that make claims inconsistent with the Guides, including issuing cease and desist orders, requiring corrective advertising and enforcing the imposition of civil penalties.

Consumers also rely upon the Guides when seeking to establish the violation of state law claims that may govern unfair and deceptive practices.

Please see the Guides for additional information pertaining to retail price comparisons, comparable value comparisons, miscellaneous price comparisons and advertising retail prices established or suggested by manufacturers.

ADVERTISING MATERIAL. These materials are provided for informational purposes only and are not to be considered legal advice, nor do they create a lawyer-client relationship. No person should act or rely on any information in this article without seeking the advice of an attorney. Information on previous case results does not guarantee a similar future result. Hinch Newman LLP | 40 Wall St., 35thFloor, New York, NY 10005 | (212) 756-8777.

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Richard B. Newman is an Internet marketing compliance and regulatory defense attorney at Hinch Newman LLP focusing on advertising and digital media matters. His practice includes conducting legal compliance reviews of advertising campaigns, representing clients in investigations and enforcement actions brought by the Federal Trade Commission and state attorneys general, commercial litigation, advising clients on promotional marketing programs, and negotiating and drafting legal agreements. Follow Richard on LinkedIn if you are interested in learning more about this topic and its implications.