Deceptive Pricing Examples
Many cases demonstrate brands misleading customers into believing that they're buying products at a discount. The price may remain the same or even increase. This can happen due to a price increase before a discount or additional mandatory payments.
Examples include misleading cost or price claims, offering a product or service that is not available, using bait-and-switch techniques, omission of material limitations or conditions from an offer, or failing to provide a promised service.
Key Takeaways: On July 1, 2024, a new law in California will prohibit businesses from advertising a price that is less than the actual price that a consumer will ultimately have to pay for a good or service.
These include the failure to disclose pertinent facts, misleading price and savings claims, bait and switch advertisements, careless use of the word “free,” and comparative misrepresentation—making misleading comparisons between your product and the product of another company.
Some forms of deception include: Lies: making up information or giving information that is the opposite or very different from the truth. Equivocations: making an indirect, ambiguous, or contradictory statement.
What Is Bait and Switch? Bait and switch is a morally suspect sales tactic that lures customers in with specific claims about the quality or low prices on items that turn out to be unavailable in order to upsell them on a similar, pricier item.
Businesses that engage in deceptive pricing practices may face legal repercussions, including lawsuits from consumers and actions from regulatory agencies. These legal ramifications can result in hefty fines and sanctions, as well as damage to the company's reputation and consumer confidence.
Dishonest pricing practices
Specific example: When charging users via the use of a premium rate phone number clearly and conspicuously showing the costs that the user will bear, such as the price per call and/or the price per minute of the call.
In California, there are usually three statutory based consumer claims: (1) the Unfair Competition Law (“UCL”); (2) the False Advertising Law (“FAL”); and (3) the Consumer Legal Remedies Act (“CLRA”).
In California, there are laws to help victims that have been defrauded to recover damages for any type of intentional fraud or negligent representation. Certain legal elements and specific facts must be alleged with particularity in a civil complaint.
Acts or practices that have the potential to be deceptive include making misleading cost or price claims; using bait-and-switch techniques; offering to provide a product or service that is not in fact available; omitting material limitations or conditions from an offer; selling a product unfit for the purposes for ...
They advertise goods as being “on sale” or sold at “marked down prices”, while referencing also a “regular” price at which the good is purportedly usually sold. But the regular price is a ruse, since the good is rarely, if ever, sold at this price. These advertised discounts are sometimes referred to as “fake sales”.
A common example of this is using the phrase “15% free” when increasing the volume of a product, if the price of the product has increased then the additional volume is not actually free. Another example is with a 'buy one get one free' offer.
Penetration pricing strategy, also known as an aggressive pricing strategy, is where price points are set deliberately low. This aims to encourage greater volumes of trade and attract more customers, potentially luring them away from competitors.
The 3 Most Common Pricing Strategies
Cost-based or cost-plus pricing. Market-based pricing. Value-based pricing.
Another ethical concern associated with pricing issues is misleading pricing tactics, such as bait-and-switch. This involves advertising a product at an exceptionally low price to attract customers, only to pressure them into buying a more expensive item once they're in the store.
Illegal price fixing occurs whenever two or more competitors agree to take actions to raise, lower, maintain, or stabilize the price of any product or service. Price-fixing schemes are often worked out in secret and can be hard to uncover, but an agreement can be discovered from "circumstantial" evidence.
Final answer: Price discrimination and price fixing are pricing practices that are legally restricted. Others can include predatory pricing and tying sales which restrict competition and consumer welfare.
Monetary penalties and fines
In California, businesses can be hit with substantial fines for inaccurate pricing. Misdemeanor charges can result in penalties of up to USD 1,000 and potential jail time of up to one year. For less severe infractions, penalties can reach USD 100.
Decoy pricing is when a business presents customers with several different prices in an effort to steer them to a particular product or service, called the target. By introducing another slightly less desirable option, called the decoy, the target looks more appealing.
Gillette is a famous example of a company that employed a loss leader pricing strategy in its business model. Several years ago, Gillette became the leader in selling razor blades by following an ingenious strategy: selling their mechanical razor well below cost to draw new customers.
One of the most common illegal marketing tactics is sending spam emails or messages without receiving explicit consent from the recipient. Under the CAN-SPAM Act in the U.S., it is illegal to send unsolicited commercial emails or texts to people who haven't opted in.
High low pricing is a pricing strategy in which a firm relies on sale promotions to encourage consumer purchases. In other words, it is a pricing strategy where a firm initially charges a high price for a product and then subsequently decreases the price through promotions, markdowns, or clearance sales.
The FTC has issued a Notice that it has determined that bait and switch sales practices are unfair or deceptive trade practices, and violate the FTC Act.