Rules on Price Reduction Announcements in Practice: Necessary or Absurd?
- 02/09/2024
- News
On 25 August 2024, the Flemish public broadcaster VRT NWS published a news article (available here) regarding recent price reduction announcements by consumer electronics retailer MediaMarkt which, at first sight, seem rather strange. For example, one of the advertisements for a portable speaker declares that the speaker can now be bought for EUR 86 instead of EUR 87, a discount of only EUR 1. What may initially appear to be a minor oversight or a trivial pricing tactic is actually the result of price reduction regulations aimed at curbing questionable promotional practices.
The Belgian Law of 8 May 2022 (the Law), which entered into force on 28 May 2022, implemented the Omnibus Directive into Belgian law and introduced new rules on announcements of price reductions (new Articles VI.18 and VI.19 of the Code of Economic Law). The updated pricing rules aim at protecting consumers from deceptive pricing practices, and particularly the common tactic of raising prices prior to a promotion to artificially inflate discounts. The Law requires any announcement of a price reduction to display the lowest price at which the product was sold during the 30 days preceding the price reduction announcement (the Prior Price Rule). The intention is clear: to guarantee that when a business advertises a price reduction, the consumer truly benefits from a better deal, rather than a cleverly concealed regular price.
The Prior Price Rule applies to all consumer-targeted announcements of price reductions for products and services, irrespective of the sales channel (i.e., physical stores, online, or elsewhere). The Prior Price Rule applies only to announcements of price reductions. General statements merely implying a price advantage, such as "lowest prices", "round prices" or "promo prices" without a specified discount, fall outside of its scope. In the case of general price reduction announcements that apply to entire categories of products – for example, “20% off all laundry detergents” or “30% off a specific brand of shampoo” – each individual item within the category must comply with the Prior Price Rule based on its own reference price. This ensures that every discount is genuinely fair. Additionally, businesses with multiple locations or e-commerce platforms must ensure that each point of sale independently complies with these requirements (meaning that the discount as shown in the physical shop can differ from that shown online). For franchises or businesses with varying pricing across different locations, this may require a detailed price history analysis and meticulous record-keeping.
There are a few exceptions to the Prior Price Rule. One key exception concerns progressive price reductions. For example, it is possible to increase a discount from "-20%" to "-30%" and then to "-50%" without recalculating the reference price each time, as long as the progressive price reductions are part of a single, continuous campaign of which the duration does not exceed 30 days. If the campaign extends beyond 30 days, the reference price will have to be recalculated.
In addition to misleading consumers, non-compliance could result in enforcement actions being taken against any non-compliant company. The Law imposes stringent penalties for non-compliance. Fines can be as high as EUR 80,000 or 4% of the total annual turnover of the last completed financial year preceding the imposition of the fine for which turnover data is available, whichever is higher. Therefore, it is important for businesses to adhere to these rules on price reductions, in particular given the increased scrutiny by the supervisory authority with respect to pricing practices.