The Competition Bureau published its sixth volume of the Deceptive Marketing Practices Digest on April 17. The latest edition looks at the use of fake scarcity cues in online marketplaces and provides an update on drip pricing since a new, specific drip pricing provision was passed into law last year. The Digest provides guidance from the Bureau for digital advertising and sheds light on the Bureau's enforcement perspective. Marketing practices that may mislead consumers into making purchases that may not be in their best interests, or even what they intended, will draw Bureau scrutiny.
Online shoppers are the focus of the Competition Bureau's latest edition of the Deceptive Marketing Practices Digest. The Digest discusses two types of online marketing practices which could draw enforcement attention from the Bureau:
- Scarcity cues. These are claims that a price, product, or service has limited availability.
- Drip pricing. The practice of advertising a low price but then adding fees or mandatory charges so that the actual price is higher than advertised, particularly where those fees or charges are not government-mandated additional fees (like sales tax).
Scarcity Cues: Creating a (Fake?) Sense of Urgency
Consider someone shopping online for a hotel room. A pop-up informs her that only two rooms are left in stock for the dates she has chosen, and that over a dozen travellers are also viewing the hotel's booking site right now. Not wanting to miss out on the deal, the consumer rushes to complete her booking without doing any comparison shopping. Online shopping experiences like this illustrate the power and influence of "scarcity cues", according to the Bureau.
Scarcity cues are representations or claims that suggest low availability of a product or service. Scarcity cues signal to consumers that they must act fast before the offer is gone and may be argued to induce consumers into an impulsive or relatively uninformed decision. Businesses may compound the sense of urgency by using social proof tactics that suggest to consumers that a product is in high demand.
The Bureau lists the following examples of online scarcity cues that businesses use to let consumers know when the supply of a product or offer is limited:
- claims that only a small amount of stock is left;
- claims that certain prices are available for only a limited time so consumers should "hurry" or "act fast";
- claims that a certain percentage of stock has already been purchased (for example, 80% of available reservations are taken);
- countdown timers that tick toward a time where the product or limited time offer will no longer be available;
- countdown timers indicating that consumers have a limited time to complete a purchase or another rival consumer will gain access to the item that is in the consumer's cart; and
- pop-ups or other claims of how many other people are currently viewing or are interested in the same product.
Truthful information about the limited availability of a price, service or price is valuable information for a consumer. False or misleading scarcity cues that are intended to rush consumers into decisions without doing any comparison shopping may attract attention from the Bureau.
The Bureau's guidance indicates that it will scrutinize the general impression of any scarcity cue to ensure that no aspect of the claim is false or misleading. The Digest provides guidance using two examples. First, the Bureau states that an online retailer using an inventory counter not actually linked to inventory levels is a false claim. Second, the Bureau states that the general impression by an online hotel booking platform claiming a room is about to be entirely booked for particular dates will be false or misleading if other site visitors interested in the same room are looking at different days.
In the Bureau's view, claims about limited availability have a material impact on consumers' purchasing decisions. The Bureau considers a claim to be material if it could cause consumers to take an action they otherwise may not have.
Because scarcity cues affect consumer behaviour, businesses should carefully consider claims about limited amounts of a product or service available, particularly when the claims are intended to drive impulsive or faster purchasing behaviour from consumers (beyond merely transmitting real-time, factual information about available inventory levels).
Update on Drip Pricing Practices: Variable Fees
Drip pricing occurs when something is advertised at an unattainable price because additional mandatory (but not government-mandated) charges are "dripped" onto the original advertised price.
Last year's amendments to the Competition Act codified drip pricing as a false and misleading practice enforceable under either the criminal or civil track. The Bureau no longer needs to prove the deceptive nature of drip pricing when bringing a case for false or misleading representations. The new provisions prohibit the dripping of mandatory fixed additional charges or fees but do not address fees or other charges that vary depending on certain factors.
The Digest confirmed the Bureau's position that variable fees, like any other price-related representation, will raise issues where the general impression is false or misleading in a material respect due to variable fees. For example, if the general impression conveyed is that the advertised price is the total cost of a product (exclusive of taxes), when in fact the advertiser will supply the product only if the consumer pays certain additional variable but mandatory fees, then the Bureau may investigate the claim.
Prices are a material factor in consumer decision-making. Consumers use advertised prices when comparing similar offerings. According to the Bureau, advertising a price that is false can lead to misinformed decisions by consumers and unfair outcomes for honest competitors.
Drip pricing will continue to be an enforcement priority for the Bureau. Businesses are therefore encouraged to carefully examine their online pricing claims to ensure that they do not convey a false or misleading impression about the cost of a product, or supply a product at a price higher than the advertised price.
Conclusion
The latest edition of the Digest builds on the Bureau's past guidance for advertising in the digital economy. By focusing on online shoppers, the Digest indicates that the experiences of consumers navigating e-commerce platforms are an area of interest for the Bureau as part of its ongoing efforts to promote and maintain the integrity of the digital marketplace for consumers and competitors.
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