Promotions and price reductions are powerful tools in the retail sector, and are subject to legal regulations. From sales and liquidation sales to special offers, coupons, contests and price comparisons, retailers must strike a balance between effective marketing and legal compliance. In this blog series, we explore key legal principles to help navigate promotional strategies as well as the main pitfalls. It is not an exhaustive overview of the rules but rather a guide to the main points to keep in mind.
This series will cover:
- Price reduction announcements: the legal framework and best practices
- Sales periods: rules, restrictions, and compliance
- Liquidation sales: when and how to legally conduct them
- "Buy One, Get One Free? " The legal do's and don'ts of joint offers
- Promotional contests: how to organise them without legal risks
- Coupons and vouchers: don't forget the required information
- Gift cards: legal considerations and recommendations
Professional legal support is highly recommended when running promotional actions, whether for examining envisaged promotional actions, validating advertising material or drafting the applicable general terms and conditions. Indeed the Economic Inspection keeps a close watch and can impose heavy penalties on retailers failing to comply with the rules.
Part one – Price reduction announcements: the legal framework and best practices
This first part of our "Retail promotions & pricing: legal essentials for businesses" series gives an overview of the rules and best practices governing price reduction announcements.
As a general rule, retailers are free to set their own prices and to offer discounts. However, they must consider the many rules concerning protected designations (i.e. sales and liquidation sales), the prohibition on sales at a loss, as well as the subject of this blog post, the rules on price reduction announcements.
In principle, any price reduction announcement must indicate the previous price that the retailer applied during a specific period before the discount is applied.
What are price reduction announcements?
A price reduction announcement refers to any communication
indicating a discount or rebate compared to the previously applied
prices. This ranges from classic percentage discounts ("30%
off"), fixed amount discounts ("€25 off") and
crossed out prices ("€99 €79") to other
types of announcements such as ("VAT-free every Sunday"
or "Special launch price in April: €79 – From next
month: €99".
Other general announcements that create the impression of a discount are also considered price reduction announcements, e.g. "special offers", "promotion", "clearance" or "Black Friday discounts".
Any advertisement concerning prices is not necessarily a price reduction announcement subject to the rules below. For example, the following practices are in principle not considered price reduction announcements:
- Price comparisons;
- Unannounced price changes;
- General pricing claims such as "best price" or "lowest price";
- Joint offers ("Buy one, get one free");
- Personalised discounts offered to customers, such as birthday discounts.
- Discounts that a customer may receive under a loyalty programme.
Do I have to display the previous price?
When announcing a price reduction, the retailer must display the previous price alongside the new sales price and calculate the discount based on this previous price. This previous price serves as the reference price for the reduction.
In practice, the previous price means the lowest price applied by the retailer during a 30-day period before the price reduction is applied. However, there are exceptions, such as when the retailer operates multiple stores, for products that have been on the market for less than 30 days, for perishable or expiring products, or when the price reduction increases gradually over a continuous period of up to 30 days.
How to display the previous price?
If a general advertisement (such as in a folder or on a website) does not include prices, but instead announces a general discount (e.g. "20% on this category of products" or "Promotions up to 70%"), then it is not necessary to indicate the reference price.
However, whenever a reduced price is indicated, the reference price must be stated in writing, unambiguously, legibly and in a clearly visible manner (such as a crossed-out price next to the discounted price or a reduced price displayed in a different colour). The simple indication of a percentage is not sufficient, as it implies an effort on the part of the consumer to know the reference price.
Advertising a general price reduction on the store or on the website (such as up to 70%) is permitted provided that:
- both the price reduction and reference price are also specified for each product on the specific product display;
- the practice is not misleading, which will have to be assessed on a case-by-case basis (such as putting a single product of low interest/value at 70% when all other products are at a 20% maximum).
The duration of the price reduction announcement is up to the retailer's discretion, but the prohibition on unfair commercial practices must always be taken into account. For example, advertising the reduced price for a very long period when the reference price has been applied for a very short period is likely to be misleading.
Conclusion
Retailers are certainly allowed to advertise price reductions for a good part of the year, but they must comply with certain rules. First, it is important to identify whether the practice is indeed a price reduction announcement. If so, the reduced price must be calculated correctly on the basis of the reference price and the information concerning the price and the reduction must be given in a way that is clear and fair to customers.
The Economic Inspection carries out numerous inspections, and retailers that fail to comply with these price reduction announcement rules may face heavy fines (up to €80.000 or 4% of annual turnover, whichever is the higher).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
