Sales are a staple of the e-commerce ecosystem, but rules do apply. For example: Perpetually advertising an item at a discounted rate is against FTC promotional guidelines. Authorities consider it marketing fraud and they fine dearly for indulging in the practice.
Fictitious Pricing: An FTC No-No
The Federal Trade Commission is the nation’s “consumer watchdog,” and it’s responsible for punishing businesses that use fraudulent marketing and promotional techniques. (Click here for a list of FTC marketing and advertising rules.)
And yes, according to commission guidelines, perpetually advertising something as a sale item qualifies as fraudulent marketing.
Fictitious Pricing Class Actions are on the Rise
Lately, fictitious pricing class actions have been bulldozing their way through courts across the country, especially in California. Typically, a class of claimants will assert that a brand lied to consumers by advertising something at sale price when it never sold at the higher rate.
And yes, brands frequently lose these types of cases and must shell out multi-million-dollar settlement fees.
A Typical Fictitious Pricing Case
One of the more famous fictitious pricing cases involves retailer J.C. Penney (Spann v. J.C. Penney). The plaintiff bought $200-worth of branded merchandise and explained that the difference between the “original price” and the “sale price” swayed her to make the purchase. The suit claimed that the sale was misleading because buyers likely wouldn’t have bought the product if they didn’t think they were getting such a steal.
In the end, the shoppers won and J.C. Penny had to fork over about $50 million. The courts have also busted Tween Brands Inc., the Ascena Retail Group, Ross, Ann Taylor, Overstock.com and Burlington Coat Factory for fictitious sales.
How Long Can you Keep an item on Sale?
Frustratingly, there’s no clear answer as to how long something can be on sale. The best guidance we currently have is an FTC memo stating that items must be offered in the “regular course of . . .business, honestly and in good faith” at the non-sale price before they can be sold “to the public on a regular basis for a reasonably substantial period of time.” What constitutes a “reasonably substantial period of time,” however, varies from jurisdiction to jurisdiction.
Connect with an FTC Compliance Attorney
Consult with a marketing and advertising attorney to avoid getting caught in a fictitious pricing legal battle. He or she can review your plans and suggest needed changes. They can also point out any other compliance issues that may plague your marketing campaign.
If you are facing a legal action involving fictitious pricing, we can also help.Connect with an E-commerce Lawyer»