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OFT Promo Principles

OFT Promo Principles

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Published by CPMInternational

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Published by: CPMInternational on Dec 11, 2012
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06/04/2014

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Office of Fair TradingFleetbank House2-6 Salisbury SquareLondon EC4Y 8JXSwitchboard: (020) 7211 8000www.oft.gov.uk
Principles on food pricing display and promotional practices
The following principles are applicable to food and drink (alcoholic and non-alcoholic) produce, for human consumption off the retail premises (that is, not in-store catering).
Internal reference pricing
‘Internal reference pricing’ means those promotional communications (includingadvertisements, displays, shelf-edge labels, etc) which use a past selling price(implicitly or explicitly) to convey the fact that the current selling price is a valueoffer, for example through the use of such claims as ‘was £3, now £2’, ‘halfprice’, ‘discount’, ‘reduction’, etc.
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Prices should never be artificially manipulated so that future planneddiscounts are made more attractive (for example, actively ‘establishing’ ahigher price in order to advertise a later ‘discount’, where that later ‘discount’price is in fact just the normal selling price of the product).Good example Bad exampleA retailer reduces the price of theproduct below its genuine sellingprice for a limited period andaccordingly promotes this as aspecial offer price reduction.In order to advertise a discount, aretailer actively establishes a higherprice by selling it in a limited numberof stores with low prominence andwith low expectations of sales, andthen rolls the product out across allstores at a lower price and with anadvertised discount. There would beparticular concerns where this patternof limited distribution/high price androll-out/low price is repeated (‘yo-yopricing’).A retailer reduces the price of theproduct below its previous genuineselling price until stock is cleared,In order to advertise a discount, aretailer actively establishes a higherprice when the product is out-of-
 
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and accordingly promotes this as aclearance sale. In doing so, theretailer may reduce its price in orderto generate sales where demand hasbeen overestimated or wheredemand has fallen away (forexample, when the sales season fora product has passed).season and then lowers the price intime for the expected productdemand. The seasonal product is thusadvertised as being on offer from theoutset and throughout its salesseason.
2.
 
Where a price has been marketed as a discount price for longer than theperiod of time for which the higher selling price was initially charged, retailersshould generally consider that the value of the product is now established atthe lower price and that it is no longer appropriate to continue to describethis as a discount. This principle can be described as the ‘1:1 ratio’. Whereretailers depart from this principle, they should be prepared to justify this andexplain why the extended discount price is not in fact a normal selling price.Good example Bad exampleA retailer sells a product at £3 forone month and then reduces it to £2.The retailer removes its ‘was £3,now £2’ promotional stickers beforethe expiry of one month followingthe price reduction and continues tosell it at £2.(NB: Where this 1:1 ratio is notexceeded, the OFT is unlikely to beconcerned with the length of time forwhich the higher price was initiallycharged.)A retailer sells a product at £10 forone month and then reduces it to £5.The retailer uses a ‘half price’promotional sticker for well over onemonth. There would be particularconcerns where more stock of theproduct is being bought in to be soldas ‘half price’.
 
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3.
 
References to previous selling prices should only be used where they give arelevant and meaningful basis for comparison.Good example Bad exampleA retailer refers to previous sellingprices that were last charged fewerthan two months ago and thereforegive genuine indications of thecurrent value of products.A retailer refers to previous sellingprices that were last charged manymonths ago and therefore no longergive genuine indications of the currentvalue of products.A retailer only refers to the previousprice charged in the same storeunless there is good reason forreferring to the price chargedelsewhere (for example, because thatstore did not previously stock theproduct).
 
A retailer charges different prices indifferent stores (for example, £2 inStore A and £3 in Store B), and refersto the higher price in stores wherethat price was never charged (forexample, ‘Was £3, now £1.50’ inStore A).A retailer refers only to theimmediate last selling price.(If a retailer wishes to display asticker referring to series ofreductions, such as ‘was £2, was£1, now 75p’, the retailer shouldremove this sticker before theproduct has been available at £1 or75p cumulatively for longer than itwas sold at £2).A retailer refers to an historic higherprice that was superseded by anintervening price lower than thecurrent price.A retailer refers to the previousselling price of the identical product.The pack-size/volume of a product hasbeen reduced and a retailer refers tothe previous selling price of theproduct before the reduction in pack-size/volume.

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