Pricing practices are a hot topic in the consumer law world and will be a continued area of regulatory interest and enforcement.
The Digital Markets, Competition and Consumers Act ("DMCC Act") contains new rules to restrict "drip pricing" – i.e. stating a certain price before adding further, non-optional charges later in the consumer transaction.
As we have covered in other articles, the Competition and Markets Authority ("CMA") has been actively targeting certain promotional pricing claims – for example, discount claims or so-called "reference pricing", for example "Was £X, Now £Y". The CMA secured undertakings from Simba Sleep that it would comply with the rules and issued court proceedings against Emma Sleep as Emma Sleep did not provide similar undertakings to resolve the matter out of court.
However, "Dynamic pricing" or "real-time pricing" has also come under scrutiny, i.e. changing prices in real-time to respond to market demands. Dynamic pricing is generally allowed, and is common in some industries like travel, but if not done correctly, it could amount to an unfair commercial practice.
You may have seen recent regulatory interest in dynamic pricing practices used during the sale of the Oasis concert tickets.
The CMA is also reviewing loyalty pricing to consider if some existing loyalty pricing practices could mislead shoppers.
What do you need to do, and what developments can we expect in 2025?
Businesses will need to carefully review their pricing practices to make sure they are not inadvertently breaking the rules.
In particular, to avoid drip pricing, businesses should look at the consumer journey and products they offer to assess whether any "add-on" prices are truly optional or whether these prices should instead be included in the headline price.
For reference pricing, businesses should assess whether any "Was/Now" pricing promotions comply with the ASA's latest guidance. They should also have regard to the CMA's recent guidance – especially by ensuring that:
- the higher 'was' price has been applied for as long as (or longer than) the 'now' price, (the "duration requirement"), and
- there has been a "sufficient number" of sales at the higher "was" price.
For the online mattress sector, the CMA has suggested a 1:2 ratio (meaning one product should have been sold at the higher price for every two products sold at the discounted price (the "volume requirement"). However, this is a contentious point, which is being challenged by Emma Sleep, so businesses should watch out for any outcome of the Emma Sleep case to see if the courts agree with the CMA's position, and if so we may see the CMA roll it out more widely. Until then, it is unlikely the CMA is going to apply this test more widely - but we will need to watch this space.
The message from the ASA and CMA appears to be that, as a minimum, retailers and traders should be measuring the quantity of each item being sold and at what price, so retailers and traders should consider carefully how they will achieve that, if they are not doing so already.
Separately, the CMA has also issued draft guidance relating to the new unfair commercial practices provisions in the DMCC Act which sheds further light on how the DMCC Act provisions may be interpreted in relation to pricing practices (in particular, drip pricing). Businesses would do well to review the guidance in light of their own practices. The CMA is currently consulting on its draft guidance with the consultation ending very soon (22 January 2025), so, any businesses that would like to respond to the consultation will need to act quickly.
What else do I need to know about the CMA's approach and powers?
To date, the CMA's approach has been to first investigate certain companies in a particular sector where it believes potentially problematic practices are commonplace, name and shame some of those companies (and issue a public statement about its concerns), elicit undertakings from those companies under threat of prosecution (which it usually makes public), then issue guidance to the industry later. Typically, CMA investigations have taken quite a long time, usually lasting over a year. They do not tend to consult with industry on any new guidance.
Under the Digital Markets, Competition and Consumers Act, the CMA can issue unilateral fines of up to 10% of annual global turnover. These new powers are expected to be activated in spring 2025 and after that we expect the CMA to change its approach to enforcement. It will be able to issue fines for breaches of undertakings/assurances given to it by any company, as well as any fresh instances of breaches of consumer laws by any company selling to UK consumers, whether they have been previously investigated or not.
The CMA is likely to want to reduce the time its investigations take, so will want to move expeditiously (and will expect companies under investigation to do the same). This means businesses will only have a short amount of time to pull together the relevant information and craft their response.
So, what do YOU need to do?
As the consequences of "getting it wrong" increase significantly from April 2025, businesses should proactively review pricing practices to understand what sort of pricing practices they employ, consider whether any of these practices are likely to be open to challenge, and whether any changes need to be rolled out.
See our Get DMCC Ready Hub for further information on the DMCC Act, including guidance, insights, news and events.
