Among the brouhaha surrounding JCPenney these days is a proposed class action complaint that was recently filed in the Central District of California. In the complaint, the plaintiff alleges that she purchased items from JCPenney because the items were advertised as being on sale, but the prices were inaccurately advertised as discounted because the “original” price advertised was not the prevailing market retail price for the goods. As in many states, false and misleading claims in advertising are prohibited in California. See Cal. Bus & Prof. Code §§ 17500, 17508(a). California consumer protection law further state that:

No price shall be advertised as a former price of any advertised thing, unless the alleged former price was the prevailing market price as above defined within three months next immediately preceding the publication of the advertisement or unless the date when the alleged former price did prevail is clearly, exactly and conspicuously stated in the advertisement. Cal. Bus & Prof. Code § 17501.

Here the plaintiff asserts that the “original” prices, to which she compared the “sale” prices in order to make her decision to purchase numerous items, weren’t the prevailing market prices for the items at JCPenney for the three months immediately preceding the advertisement.

Pricing has become more difficult in this day and age of the “bargain.” Many people have come to expect an item to be always on sale or for there to always be some way to buy an item for less than what others are paying. While the pressures this creates on retailers are often great, retail prices cannot be amorphous. Advertising false “sale” prices could lead to lawsuits like the one filed against JCPenney. The Federal Trade Commission offers guidance about proper advertisements on its website, which can be found here. Regarding deceptive pricing, the FTC offers the following:

One of the most commonly used forms of bargain advertising is to offer a reduction from the advertiser’s own former price for an article. If the former price is the actual, bona fide price at which the article was offered to the public on a regular basis for a reasonably substantial period of time, it provides a legitimate basis for the advertising of a price comparison. Where the former price is genuine, the bargain being advertised is a true one. If, on the other hand, the former price being advertised is not bona fide but fictitious—for example, where an artificial, inflated price was established for the purpose of enabling the subsequent offer of a large reduction—the ``bargain’’ being advertised is a false one; the purchaser is not receiving the unusual value he expects. 16 C.F.R. § 233.1.

It’s hard to be a consumer goods retailer in any industry these days, but the wine industry in particular has seen substantial changes in consumer pricing expectations given the economic situation over the last few years. While trying to meet this consumer demand, it’s important to remember that when creating pricing structures, there’s a fine line between providing value and creating false value.

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