In brief
Whether entering the Canadian market or operating as an established Canadian business, manufacturers and retailers should be mindful of Canadian pricing rules, particularly as they relate to savings and pricing claims. This has never been more important given the various high-profile pricing investigations involving large Canadian companies, from clothing and home furnishings retailers to e-commerce businesses and telecommunications providers. Recently, through its investigation into the retail pricing practices of a regional Canadian furniture retailer, the Competition Bureau of Canada (“Bureau”) has expanded the list of potentially problematic pricing claims to now include “urgency cues”, i.e., the use of marketing tactics to increase a consumer’s perception of having to act immediately and/or to elicit a “fear of missing out”. While it has always been required that businesses make technically accurate and truthful pricing and saving claims, they also need to ensure that their pricing practices and consumer/user experiences overall do not raise deceptive marketing concerns, including by creating an unwarranted sense of urgency.
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Given the effectiveness of discount marketing, the promotion of sales, deals and clearances has long been an attractive tool for retail marketers, but it remains a double-edged sword. Savings claims, like general marketing and advertising claims, must be accurate and truthful and are subject to strict requirements under the Canadian Competition Act (“Act”) to ensure they do not imply a misleading regular price. Discount marketing continues to be an enforcement priority for the Bureau, and manufacturers and retailers alike must exercise caution when adopting such strategies.
Because savings claims are generally intended to convince consumers that now is the right and/or best time to make a purchase, or to encourage consumers to purchase older inventory, retailers and manufacturers are prohibited from misleading the public with respect to the reference price (i.e., the “regular” or “ordinary” price) of a product. While this often occurs through an intentional discount marketing strategy, it may also occur unintentionally when promotions draw comparisons between a reference price and a sale or discounted price.
Whether a savings claim is found to be accurate and truthful depends on the validity of a product’s “ordinary sales price” (OSP) which is defined by the Act and can be determined in one of two ways: (i) the price at which the product was offered for sale in good faith at the ordinary price for more than 50% of the time for a substantial period of time (i.e., “Time Test”), or (ii) the price at which more than 50% of the product was sold at the ordinary price over a reasonable period of time (i.e., “Volume Test”). The Bureau has a long history of stringently enforcing the OSP provisions of the Act, which prohibit the making of any materially false or misleading representation to the public as it relates to the OSP of a product or allowing such a claim to be made.
In November 2022, the Bureau announced that it had obtained a court order requiring the production of records and information and commenced an inquiry into Dufresne Group, Inc. and its affiliates (“Dufresne”), which operate retail furniture stores. While details on the exact advertising claims being investigated have not been made public, the Bureau has suggested that its focus is on whether Dufresne has advertised inflated regular prices (i.e., the OSP) to make savings claims seem more attractive to consumers.
This is not the Bureau’s first investigation into OSP claims made by companies selling home goods. In 2019, one of Canada’s largest multi-department retailers, was required by the Canadian Competition Tribunal (a specialized court that adjudicates claims under the civil provisions of the Act) to pay a CAD 4 million fine plus costs in connection with OSP claims that suggested significant savings to consumers on sleep sets, but that the Bureau alleged were based on a misleading OSP as the retailer did not meet either the Time Test or the Volume Test by selling or offering sleep sets in sufficient volumes or for sufficient time at the purported regular price.
Even where an OSP is valid according to the tests under the Act, retailers and manufacturers may remain liable for failing to meet requirements of other pricing and savings claims. In the Dufresne case, in addition to OSP claims, the Bureau has articulated a concern over the use of “urgency cues”, and has intimated that such cues could be subject to independent scrutiny as deceptive marketing practices.
Urgency cues (also known as scarcity marketing tactics) are becoming increasingly popular through strategies such as:
- The use of countdown clocks on social media and website banners
- Time limited discount codes given to social media influencers
- Online claims such as “today only” or sales in connection with specific dates (e.g., Black Friday or Cyber Monday sales)
- Claims that a product is almost sold out when there is ample supply such as “almost sold out” and “now or never”
- False claims that other people are also currently looking at or have recently looked at product
As part of the investigation into Dufresne, the Bureau has suggested it is also focusing on “urgency cue” claims related to the end date of a sale, where the need for immediate action is signaled for what may be an arbitrary end date that in practice may be extended or renewed.
The Bureau’s interest in urgency cues is consistent with its historical focus on pricing claims, but can also be seen as part of a broader global trend in which marketing regulators are turning their attention towards “dark patterns” (i.e., ways in which the user experience can be manipulated to subtly trick users into taking actions, such as making purchases, that they would not otherwise have taken), and which can more easily arise where urgency cues are used.
For example, in 2022, the New York Attorney General entered into a seven figure settlement agreement involving alleged urgency cues with an operator of online travel platforms. Specifically, the Attorney General alleged that the operator heavily relied on urgency cues and consumers’ fear of missing out by misleadingly advertising the number of flight tickets or percentage of hotel rooms available for purchase (e.g., by adding 1 to the number of flight tickets consumers were searching for (“X”) and informing consumers that only (X+1) flight tickets were still available at a specific price). It is also alleged that the operator pressured consumers into completing their transactions by using messaging that indicated how many consumers were “looking” at a particular flight or hotel, even though this figure was randomly generated and not based on actual figures. Among other urgency claims, the Attorney General found that the websites also used countdown timers, which prompted consumers to “book now before the tickets run out” thereby creating a sense of false urgency.
In Canada, whether an advertising claim is false or misleading will look to the general impression conveyed by a representation, not only its literal meaning. Given the importance of this general impression test, advertisers must take into account how user interfaces and website design elements can influence a consumer’s understanding of discount and savings claims. Even where an OSP claim satisfies the Time Test or the Volume Test, the wider context of the claim could be misleading if the call to action relies on misleading urgency cues. As marketers continue to push the boundaries of creativity in relation to their discount marketing practices, it is important that the use of urgency cues be closely considered.
