In the current economic environment, many businesses may feel pressured to get creative with their marketing and pricing strategies to remain competitive. For example, promotional terms such as “Sale”, “Marked Down” or “End of Line” are frequently used in marketing campaigns to attract consumer attention and boost sales. While these representations may offer short term commercial advantages, businesses must exercise caution, as the Competition Bureau (the Bureau) is increasingly cracking down on potentially misleading pricing practices, particularly where claims may misrepresent the nature and duration of promotions and ordinary selling prices.
The compliance risk in this area extends across all sectors, including apparel, consumer electronics, automotive, food, health and medical devices industries. Any business that makes price comparison claims must ensure strict adherence to the ordinary selling price (OSP) provisions of the Competition Act.1 Failing to do so may result in hefty penalties, including civil penalties of up to $10 million or 3 per cent of a corporation’s worldwide gross revenue.
Ordinary selling price claims
Imagine this: a retailer advertises a product with an artificially inflated “ordinary” or “regular” price, then subsequently crosses it off and marks it down, claiming it is on “sale”. While a consumer who purchases the product may believe they are securing a bargain, they may, in fact, be paying the product’s true regular price. This type of deceptive price comparison representation is specifically prohibited by the OSP provisions in the Competition Act.
The OSP provisions specifically prohibit businesses from making—or allowing others to make—any materially false or misleading statements to the public regarding a product’s ordinary selling price. Businesses can make a price comparison claim only where the reference price, i.e. the seller’s own regular price or a prevailing market price, can be validated by satisfying one of two tests:
- Volume Test: this test requires that a substantial volume of the product was sold at that price or higher, within a reasonable period of time before or after the claim. According to the Bureau’s Enforcement Guidelines on Ordinary Price Claims, this test will be met if 50 per cent or more of that product was sold at that price (or higher) in the past year.
- Time Test: this test requires that the product has been offered for sale in good faith at that price or higher for a substantial period of time. According to the Bureau’s Enforcement Guidelines on Ordinary Price Claims, a “substantial period of time” means more than 50 per cent of the preceding six months from making the claim.
The Bureau’s Enforcement Guidelines also state that a price comparison representation that fails to meet both the volume test and the time test may not raise an issue under the OSP provisions if a business can establish that the representation was not otherwise false or misleading in a material respect. For example, a “clearance sale" may fail both tests, but if a business can demonstrate that: i) the sale was clearly marked as a clearance, ii) the representation refers to the original price (and any subsequent interim prices), and iii) the original price was offered in good faith, then in such instance, the price comparison representation may not be considered misleading.2
Price comparison representations are also subject to the general civil and criminal deceptive marketing provisions of the Competition Act, which prohibit false or misleading claims made to promote the supply or use of a product or any business interest.3
It is not simply the “what” but also the “how” that matters when it comes to advertising. The Competition Act4 requires consideration of both the relevant representation’s general impression and its literal meaning when determining whether the ordinary selling price is false or misleading in a material respect. Therefore, a representation may be considered misleading even if it is technically correct. Significantly, it is not necessary to prove that any person was actually deceived or misled under the Competition Act.
Why should you care?
While price comparison strategies and promotional pricing can offer short term commercial gains, businesses must ensure that both the literal meaning and general impressions of such representations are not materially false or misleading. Failure to do so could expose a business to significant legal and reputational risks.
Non-compliance with the Competition Act, including breaches of the OSP provisions or the civil deceptive marketing practices provisions can result in significant consequences for a business, including being ordered to pay an administrative monetary penalty of the greater of $10 million or 3 per cent of a corporations annual worldwide gross revenue. Further, in more egregious cases, the breaches may attract criminal liability under the criminal deceptive marketing provisions, including, upon conviction for an indictable offence, imposition of a fine (with no caps), imprisonment for up to 14 years, or both.
How we can help
Navigating compliance with ordinary selling price claims can be tricky and requires careful legal and operational oversight. In today’s competitive and fast-paced retail landscape, it is essential for businesses to establish a dynamic and flexible pricing compliance program that is consistent with the Competition Act.
For more guidance and information on dealing with these issues, please reach out to any member of our experience Advertising & Marketing team.
