Court makes big change to recommended retail price promotions
26 June 1997
Analysis of comments made by Judge Green in sentencing Bond and Bond to a record $63,000 Fair Trading Act fine shows that his decision makes a significant change to when using recommended retail prices is misleading and a breach of the Fair Trading Act.
Judge Green's decision is considerably more restrictive than the interpretation previously used by the Commerce Commission.
Judge Green said in his decision:
"The principal error in recommended retail price comparisons is that it suggests that the recommended retail price is the normal or usual price that the particular establishment sells those goods ...
"... recommended retail price comparisons are misleading in terms of the Act when the particular vendor does not sell at the recommended retail price ..."
The Commission's previous view was that it was acceptable to compare a price to a recommended retail price, if the recommended retail price was charged in that market by either the company or one of its competitors.
Judge Green decided that it is only acceptable to make a comparison to a recommended retail price if that was the company's own previous price. He stated that the recommended retail price comparison is with prices charged by "the particular establishment" and "the particular vendor".
Judge Green's comments do not prevent a promotion comparing a company's prices to "elsewhere" prices. However, if the comparison is to a competitor's prices, then this must be clearly stated, or the promotion risks breaching the Fair Trading Act.
Commission Fair Trading Manager Rachel Leamy said that the Commission is updating all the information it provides about price comparisons to take account of Judge Green's decision.
"This is a significant change in how we understand and apply the law," Ms Leamy said. "It is important the business people know that the advice we have given them previously was too liberal. The courts have taken a more restrictive view.
"To avoid the risk of customers, competitors or the Commission taking action against them, businesses should consider Judge Green's decision very carefully."
The Commission has written to the Merchants' Association, Manufacturers' Federation, Appliance Guild, Booksellers' Association, Newspaper Publishers' Association, Television Commercials Approvals Bureau and the Advertising Standards Authority explaining Judge Green's decision and asking them to advise their members of it.
It is also writing to all businesses against whom it has taken enforcement action over the use of recommended retail prices to advise them of the decision.
It has produced an insert for its publications Comparative Pricing and the Fair Trading Act - A Guide for Advertisers and Traders. In the future, these publications will be amended.
The Commission's comparative pricing checklist has been revised. The new version, dated June 20, follows. Copies of the previous version of the checklist should be destroyed.
Comparative Pricing Checklist
Was or $xxx
Have the goods I'm advertising been sold by our store at the previous price for a reasonable period of time immediately before this offer?
(As a guide a reasonable period should be around 30 days but this will depend on the sales volume for the product)
Elsewhere Can I prove that goods the same as those I'm advertising are currently being sold by another trader in our local market for the elsewhere price I'm stating in my advertising?
(As a guide the local market should only include those areas where an average person would normally shop for the item advertised. For example if advertising electric jugs in Auckland you should not state an elsewhere price that is being charged in Whangarei)
Recommended Retail Price
Can I prove that the Recommended Retail Price is the actual Recommended Retail Price suggested by the manufacturer?
If yes then:
Can I prove that the Recommended Retail Price has been charged by my store for a reasonable period of time immediately prior to this offer?
Worth Can I prove that the item is worth the advertised value in the current market?
Save $X Are consumers actually saving the stated amount. Are we or one of our competitors currently charging the higher price?
Sale Price Are the goods advertised genuinely reduced from their normal selling price?
If advertising a storewide sale have we got a substantial proportion of our stock at prices which are lower than before the sale started?
Is the reason for the sale genuine? (eg We need to have had a fire to advertise a 'fire sale')
Media contact: Fair Trading Manger Rachel Leamy
Phone work (04) 498 0908, cellphone 021 662 773, home (04) 386 3110
Communications Officer Vincent Cholewa
Phone work (04) 498 0920, home (04) 479 1432