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29 Aug 2013

Stephanie Roe published in Lexis Nexis – “Pricing strategies – when are promotions misleading?”

Commercial analysis: What happens when consumers are influenced by misleading promotional pricing? Stephanie Roe, a solicitor at Corker Binning, advises lawyers acting for retailers, big or small, to ensure that their clients are up to date with the law and that regular training is provided to employees.

Original news

£300,000 fine for Tesco over promotion

Financial Times, 20 August 2013: A £300,000 fine has been imposed on Tesco following a misleading ‘half price’ promotion on strawberries. Consumer law requires a discounted price to be offered for not much longer than the original price. However, Tesco offered strawberries at a discounted rate of £1.99 for almost 14 weeks despite having only offered the original price of £3.99 for one week. The case was brought by Bir-mingham City Council’s trading standards.

What are the most important points about the law behind this?

Tesco has been prosecuted under the Consumer Protection on Unfair Trading Regulations 2008, SI 2008/1277 (CPUTR 2008) which implements the Unfair Commercial Practices Directive 2005/29/EC (UCPD). The aim of this legislation is to protect consumers from unfair commercial practices by traders/retailers. Under the CPUTR 2008 a commercial practice is deemed to be unfair in a number of circumstances–for example, if it leads a consumer to make a decision to purchase which they would not otherwise have done because of misleading or aggressive commercial practices by the retailer.

In the case of Tesco the selling of strawberries was deemed to be a misleading action under CPUTR, reg 5(4)(g). It was misleading as the advertised price contained false information and was therefore untruthful in relation to the price displayed and the manner in which the price was calculated. The consequences of this being that the average consumer may make a transactional decision that he or she would not have otherwise taken.

The Department for Business Innovation and Skills has produced the ‘Pricing Practitioners Guide’ which sets out a number of recommendations for traders which are to be considered alongside the legal obligations of the CPUTRs. The guidance deals specifically with the comparison of a trader’s previous price. Guideline 1.2.3(a) states that a price used as a base for comparisons should be the most recent price which must be available for 28 consecutive days, and the new discounted period should not be for so long that it becomes misleading. In the case of Tesco the discounted strawberry offer ran for 14 weeks at £1.99 and the original price of £3.99 and then £2.99 was only for two weeks prior to the ‘half price’ offer. It has been alleged that Tesco made a huge profit from this promotion and that consumers were influenced and mislead by the ‘dis-counted’ price.

How do Trading Standards operate?

Trading Standards have officers in all local councils. The officers are responsible for investigating complaints and protecting consumer rights (provided under a number of different statues) within the council area. The recent case against Tesco was prosecuted by Birmingham Council Trading Standards as the original com-plaint was made by a shopper at the Sheldon Tesco store in Birmingham.

Is it common for retailers to come up against Trading Standards?

It is very common for retailers to come up against Trading Standards but not necessarily in an adversarial context. Trading Standards work closely with retailers to try and reduce any potential complaints by consumers. However, there are still some prosecutions.

How is the level of fine determined, and what other sanctions could there be?

A person found guilty of an offence under the CPUTR 2008 will receive a fine of up to £5,000 in the Magis-trates’ Court for each offence, or an unlimited fine or imprisonment of up to two years in the Crown Court. In this case as the ‘person’ is a corporation (Tesco) it could not receive a term of imprisonment as a punish-ment, only a financial penalty. However, if Trading Standards had taken the view that the corporate offence was committed with the consent or connivance of an officer of the corporation, or the offence was attributable to any neglect on the part of the officer then the officer as well as the corporation could have been prosecut-ed, in which case the available punishment could have included a term of imprisonment. An ‘officer’ of a body corporate includes a director, manager, secretary or other similar officer.

Who can report retailers to Trading Standards?

Anyone can report retailers and unfair practices to Trading Standards. All complaints are investigated in the same way whether it is reported by consumers or competitors.

What can lawyers do to help manage the relationship between a business and Trading Standards?

Lawyers acting for retailers big or small, need to ensure their clients are up to date with the law and that regular training is provided to employees and is documented. Additionally, they should encourage their clients to have regular contact and a working relationship with all the local Trading Standard offices in the area in which the stores are located. This would ensure that any complaints can be dealt with appropriately and hopefully a prosecution and negative publicity could then be avoided.

Stephanie Roe is a leading criminal defence expert and has extensive experience of advising and representing clients at the police station through to Magistrates’, Crown and High Court in relation to a variety of allegations.
Interviewed by Kate Beaumont.