Consumers love to find a bargain, and promoting discounts and sales is a central tool in retailers’ arsenal to drive sales and traffic. However, discounted pricing strategies can have serious legal implications if relevant laws and guidelines aren’t followed.
Recent Proliferation of Deceptive Pricing Lawsuits
Over the past year or so, putative class action lawsuits over false “reference prices” or “fake discounts” have more than doubled. Currently, new lawsuits are being filed nearly every day, particularly in locations where the law is deemed favorable, such as California. Initially targeting large retailers such as Macy’s and Banana Republic, plaintiffs are now targeting retailers both large and small, including those with only an online presence, selling apparel, furniture, mattresses, carpeting, luggage and other goods — even paper towels.
These lawsuits arise from several situations. The first situation arises when retailers advertise a product at a “sale” price compared to a higher “regular” “original” “compare at” or “strikethrough” price. The lawsuits claim these reference prices are fictitious and deceptive, as the products were not offered at those prices within a reasonable amount of proximity and/or for a reasonable period of time. The lawsuits claim that defendant retailers are misleading consumers by suggesting they are receiving a deal at the discounted price, when in fact they are effectively just paying a price that is perpetually discounted.
Advertisement
While cases have been filed in multiple jurisdictions, they are most commonly filed in California state or federal court based on California’s plaintiff-friendly consumer protection laws, including the Unfair Competition Law, the False Advertising Law and the Consumers Legal Remedies Act. Even for retailers domiciled outside California, they almost always have a substantial enough ecommerce business and/or generate significant sales in California to make the exercise of jurisdiction appropriate.
Deceptive Pricing Laws
The law at the center of the vast majority of these lawsuits states that “no price shall be advertised as a former price of any advertised thing, unless the alleged former price was the prevailing market price…within three months next immediately preceding the publication of the advertisement.” The typical complaint recites a litany of consumer behavior studies regarding the psychology of getting a bargain and asserts that members of the putative class only purchased the items at issue because they mistakenly believed they were on sale.
Proactive Strategies for Retailers
While most of these lawsuits do not progress to trial, defending such lawsuits nevertheless presents a costly nuisance. Yet there are a number of actions savvy retailers can take to better protect themselves against such suits:
- Ensure all discounted items are offered at the reference price for reasonable periods during each 90 day period. An effective strategy is to rotate which items are on sale;
- Consider offering volume discounts, or implementing buy one get one free/discounted (BOGO) programs;
- Utilize winback promotions (i.e., provide gift cards/discounts for future purchases);
- Incorporate class action waiver and/or arbitration provisions into the terms of service that govern a transaction. This is most easily done with online sales, but can be accomplished in-store through the terms and conditions of a loyalty or rewards program.
Conclusion
The rising number of consumer class actions lawsuits over allegedly deceptive pricing schemes presents a substantial challenge for retailers, but one that can be overcome by understanding the governing laws and implementing compliant pricing strategies. Consulting with experienced counsel regarding the above strategies can help prevent these lawsuits and minimize any impact even if such a suit is threatened.
Ellen Robbins is an Akerman LLP litigation partner and senior trial lawyer based in Los Angeles. Her work includes commercial matters such as breach of contract, fraud, class actions, unfair competition, deceptive pricing, trade secrets, alter ego, misappropriation, securities law, product liability, environmental, insurance coverage and insolvency. Her practice focuses on a wide variety of complex commercial disputes, litigation, alternative dispute resolution and business resolutions. Scott Allbright is an Akerman litigation attorney based in Miami. His work includes deceptive pricing, fraud, class actions, unfair competition and insurance coverage. He counsels and collaborates with insurance companies to help them navigate the complex and challenging reality of litigating insurance class actions while providing strategic counsel that aligns with the priorities of the business.
