An OFT investigation examining price promotions used by six leading high street carpet and furniture retailers has found that many are misleading consumers into thinking that they are getting a bargain by artificially inflating prices in order to promote sales and price cuts that are not genuine. Big industry names Dreams, Carpetright, DFS, SCS Upholstery, Furniture Village, Harveys and Benson Beds owner Steinhoff are all under question, reports the Telegraph and Retail Week.
The practice, known as reference pricing, usually sees a retailer include a reference to a higher artificial price when advertising the current price of a product to demonstrate it as being of good value for money.
Examples of reference pricing that the OFT came across which is of concern were when current prices were compared to 'was' prices that the retailer had formerly charged for the product; after sales prices (ASPs) that the trader intended to charge in the future; or recommended retail prices recommended by a manufacturer.
"Reference pricing can mislead consumers into thinking the item they have bought is of higher value and quality," says Gaucho Rasmussen of the OFT.
The OFT found systematic examples of reference pricing amongst, where the price is artificially inflated, within the industry. During the period that the OFT monitored these six companies the overall average of sales at the reference price was 5% and only one had a reference sale price average higher than 10% (16%). There were a significant number of products amongst certain high street retailers where no sales at all took place at the artificially inflated reference price. In all cases no explanation of how and when these reference prices were established were provided.
The OFT believes that these higher reference prices are applied to products with no expectation of the products selling at the higher price but are instead used to mislead customers into thinking that they are getting a bargain.
Carpetright said in a statement: “Carpetright received a letter from the Office of Fair Trading in respect of a consultation under Section 214 of the Enterprise Act 2002, relating to Carpetright’s pricing practices and consumer protection legislation. Carpetright strives to operate fully within all laws and regulations at all times. Carpetright is co-operating fully with the OFT and will respond to the letter in due course. There is no suggestion in the letter of Carpetright having behaved in a manner which breaches competition law.”
OFT research has shown that displaying high reference prices can make consumers buy goods when they otherwise would not, often to their detriment. Consumers may buy there and then without searching further in the market for truly better deals, feel pressure to buy if they believe the chance of a deal may soon be lost or on seeing high reference prices purchase the good believing that it is of higher value and quality.
The OFT believes that these are false and infringes consumer protection law regulation.
The OFT has written to the high-street carpet and furniture retailers asking them to cease using pricing practises that mislead consumers by signing legally enforceable undertakings. The parties have until Autumn 2013 to respond. If they fail to agree to these undertakings then the OFT will consider what further action it will take.
Gaucho continues: "We have contacted a number of carpet and furniture retailers asking them to review their pricing practices and sign legally enforceable undertakings. This bank holiday sale season we would recommend that consumers ask sales staff when and for how long the reference price was used and also how many sales they achieved at this price. This will help them to determine whether they are getting a good deal."
Which? executive director Richard Lloyd says: "The OFT's warning sends a clear message to carpet and furniture stores that special offers really have to be special. It's unacceptable that shoppers are misled into thinking they're getting a good deal when that might not be the case."