When shopping online, we have all seen examples of discounts and reviews that seem too good to be true. While we may like to think that we purchase products with a degree of healthy scepticism, there is no denying that attractive discounts and overly generous reviews have a powerful influence over our purchasing choices (for better or worse).
Retailers who sell into EU markets need to be aware of two important changes to consumer protection law which were introduced last year that seek to address these issues. These reforms aim to restore consumer trust by prohibiting deceptive discounting practices and combating fake consumer reviews.
The changes were introduced by The Enforcement and Modernisation Directive (2019/2161), or the Omnibus Directive, which amends existing EU consumer protection legislation. In this article, we focus on two key changes which will be relevant to all businesses selling in EU member states: price reduction announcements and reviews. As the Omnibus Directive introduces higher fines for breaches of consumer protection law (up to a maximum of 4 per cent of a trader’s annual turnover or up to €2m if the financial information required to calculate turnover is not available), it is important that traders are familiar with the new rules to avoid unwanted regulatory scrutiny.
Price Reduction Announcements (EU)
The Omnibus Directive introduced new rules that are designed to ensure that traders display genuine reference prices as part of any price reduction announcement: the new rules state that when a trader announces a price reduction, they must indicate the prior price. The prior price is defined as the lowest price applied by the same trader during a period of time not shorter than 30 days prior to the application of the price reduction.
For example, if a product’s current and “normal” selling price is €100, but it was sold at a discounted price of €80 over the weekend (ie within the last 30 days), if that product is put back on sale the following weekend at €70, the “prior price” that will need to be displayed is €80.
These new rules are designed to combat misleading artificial price inflation by ensuring that the displayed reference price is “real” and not merely a marketing tool to make the reduction seem more attractive than it actually is.
Traders must indicate the proper prior price at the start of each price reduction campaign, even if the sale lasts for more than 30 days. It is also important to note that these new rules apply to price reduction announcements in all distribution channels (ie online stores and brick and mortar shops).
The new law includes carveouts, giving Member States the option to deviate from this general rule in cases of:
- Goods that are liable to deteriorate or expire rapidly,
- Goods that have been on the market for less than 30 days, and
- Goods for which the price reduction is progressively increased (ie when the price is gradually reduced).
Of particular note is the carveout for progressive discounting. If a Member State has adopted this (and not all countries have), traders can display the higher original price as the prior price even after the product is further reduced to new lower price. For example, the lowest price of a product during the last 30 days before a sales campaign was €100. The trader displays €100 as the prior price during the first price reduction (eg 10 per cent off) and can then keep the same prior price when announcing the following 20 per cent and 30 per cent reductions. This exemption will only apply if it is clear to the consumer that the further price reduction is part of the same sales campaign or promotion (eg part of a “New Year Sale”), and that the price has reduced progressively without interruptions.
Given that these rules can be quite complex and difficult to understand, we have set out the following top tips to help retailers grapple with these new compliance obligations:
- Use other reference prices: traders can still display other reference prices as part of any price reduction announcement. However, such additional reference prices must be clearly explained and presented in a way that does not detract the consumer’s attention from the official / compliant prior price. For example, some retailers will display the original reference price and each of the progressive discounts. This ensures compliance whilst also making consumers think they are getting a good deal.
- Understand your core markets: as the Omnibus Directive allows Member States to adopt different rules, it is important that traders understand the legal landscape throughout its different European core markets. Accepted pricing practices in one jurisdiction may not be compliant in another.
- Plan appropriately: traders should implement or develop suitable price tracking systems that enable compliance. This can include investing in suitable technology that allows traders to track the price of products over the required prior 30-day window and automatically display the prior price without manual intervention. Traders should also plan their sale calendars carefully in order to maximise the impact of price reductions.
What about the UK?
Although the Omnibus Directive applies only in the EU, UK businesses will still need to comply with the new rules to the extent that they sell to EU consumers, especially if the business operates any EU sub-sites.
The UK currently regulates price reduction announcements in a less prescriptive manner, but UK regulators still emphasise that reference prices must be genuine, fair and non-misleading. This includes guidance requiring retailers to make sure that products are available at the headline reference price for longer than they are on sale at the discounted price.
Although fake reviews are not a new phenomenon, their presence in recent years has grown significantly. This has, in part, been attributed to the pandemic, which pushed consumers to shop online more than ever before. To put this into context, the World Economic Forum reported in 2021 that fake reviews influenced around $152bn in global spending on lacklustre products that year. It is therefore no wonder that fake reviews are one of the most significant factors that has contributed to the erosion of consumer confidence when shopping online.
Under the new EU rules, traders are required to confirm whether it has processes or procedures in place to ensure that published reviews originate from consumers who have actually used or purchased the products. If such procedures are in place, traders should explain how these checks are made, and provide such information clearly and transparently alongside the space where the reviews are published. It is important to note that if a trader claims that published reviews originate from verified consumers, either explicitly or implicitly, but no reasonable and proportionate steps have been taken to verify such a claim, this would be considered an unfair commercial practice and would leave the trader vulnerable to enforcement action.
Traders are also prohibited from (i) submitting or commissioning fake consumer reviews and endorsements (eg “likes”, “reactions” or “views” on social media), or (ii) misrepresenting / manipulating these consumer reviews or endorsements, such as publishing only positive reviews and deleting negative ones. These new rules are designed to ensure that product reviews reflect the real opinions, findings, beliefs or experiences of genuine customers, and that they are not merely a marketing tool used by traders to mislead consumers.
Practical steps to help retailers comply with these new rules include:
- Adding wording on your website that accurately and transparently describes if and how reviews are verified or filtered,
- Putting in place policies and procedures to prohibit the commissioning of fake consumer reviews, and
- Making sure that any claims about verification are true and backed-up by reasonable and proportionate steps actually adopted to verify reviews.
What about the UK?
There are no equivalent laws in the UK regarding reviews, but the UK Government has indicated that it plans to legislate in this space to offer similar consumer protections. This will include championing “fairness by design” principles in how online transactions are presented and strengthening consumer protections to prevent traders from publishing or commissioning fake reviews.
The Competition Markets Authority also has fake reviews on its radar. In 2021, it instigated a high-profile investigation into Amazon and Google over concerns that these organisations were not doing enough to combat fake reviews. Given the government indication that this will be an area of legislative focus, it is safe to assume that further high-profile investigations are to yet to come.
Discounts and reviews are a powerful incentive that can motivate (or demotivate) consumers to spend their money. Although these new EU rules create further compliance hurdles for traders, the legislative framework could help reinvigorate consumer faith when shopping online by empowering customers with transparent, correct and accurate information.
We have helped retailers understand the implications of the new laws for selling into EU markets, including by auditing their current discounting and sales practices and advising on improving compliance.
This publication is a general summary of the law as at the date of publication. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, February 2023