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News - 2 December 2010
Must End Today!

"Is OFT suggesting customers are stupid?" - BRC

The British Retail Consortium has defended the retail practice of devising offers and promotions designed to lure customers into parting with more of their money than would otherwise be the case.

An Office of Fair Trading study has heavily criticised retailers accusing them of operating practices that mislead the customer into spending more than they need to. The report suggests that the value of overspend could run to billions of pounds.

The British Retail Consortium (BRC) has defended its members saying consumers benefit from the competition, which keeps prices down. Customers expect to find special offers and discounts when doing their shopping, and are good judges of the best deals.

Tom Ironside, BRC Director of Business and Regulation, said, “Customers aren’t stupid. They make sophisticated judgements about prices and value within stores, between stores and over time and have all the information they need to do that.

“Discounts and promotions are part of our highly competitive retail market and customers benefit from them.

“BRC members abide by the rules and regulations governing price advertising. They want satisfied customers who come back again and again. They would have nothing to gain from attempts to mislead and any extra legislation or over enforcement on this issue would therefore be pointless. Enforcement activity should be directed at those who deliberately set out to mislead.”

A record number of promotional deals have been taken up at a time when household budgets are feeling the squeeze. The BRC believes this demonstrates the value consumers get from special offers. The latest figures show 37% of fast-moving consumer goods are on some sort of promotion or discount at the moment and this is an all-time high.

However, the OFT claims pricing practices are 'incredibly powerful' and can alter a person's perception of the value of an offer. When they are mis-used they are an effective way of tricking people into spending more than they need to and buying products they wouldn't have otherwise bought.

The OFT said, “We consider that there is now compelling evidence that price framing exerts a powerful effect, that the effect can lead to financial loss and other consumer harm when price frames are used in an inaccurate or misleading way, and that a significant proportion of the population have been affected”.

Out of the seven common pricing practices used, the OFT found 'drip pricing', 'bait pricing' and 'time limited offers' have the most potential to mislead consumers.

'Drip pricing' is for example, where compulsory charges are left out of the advertised price. This helps increase sales because consumers tend to focus on the headline price and underestimate the total price. It also reduces consumers' ability to shop around and compare prices effectively.

'Time limited offers' meanwhile, such as 'sale must end today', put consumers under needless pressure to buy something without comparing the offer elsewhere because they are worried about missing out on a good deal. What's more these deals can mislead consumers if they are extended without any notice being given.

'Bait pricing' is when traders offer only a limited amount of stock at the advertised price, the OFT found that a third of consumers will still buy something if the product they originally wanted isn't in stock. And if

the consumer is drawn in to purchase something that isn't included in the promotion the OFT deems that the pricing practice has wasted their time.

In its report the OFT has set out clear examples of when retailers can and cannot use different pricing strategies.


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