The new rules on price reductions or how to organise a Black Friday campaign9 November 2022
There is no Black Friday without price reduction announcements. According to a recent survey, 8 out of 10 Romanians plan to shop on Black Friday, expecting the discounts to be substantial. Ironically, Romanians are also particularly skeptical about the fairness of Black Friday offers, with 63% of respondents believing that many retailers take advantage of this period and raise prices before applying price cuts.
In any case, Black Friday is a great opportunity for retailers to increase their revenues. However, this must be done in accordance with the law, as the penalties are more burdensome than in the past, and the reputational costs are increasingly severe (consumers being more diligent and in many cases more concerned about the integrity of the trader).
With Directive (EU) 2019/2161, dubbed the Omnibus Directive (which we have discussed in detail here and here), the European legislator wanted, amongst others, to provide additional consumer protection by discouraging traders from continuing the practice of artificial price increases to give the impression of valuable discounts. The Omnibus Directive was transposed into our legislation by Emergency Ordinance No 58/2022 (which we have analysed here) and by Government Decision No 686/2022, which further amended Government Decision No 947/2000 on the manner of indicating the prices of products offered for sale to consumers (“GD 947/2000”).
In this article, we address the most important issues concerning price reduction announcements, in particular in the light of the new legal provisions and with reference to the European Commission’s Guidelines on the interpretation of Article 6a of Directive 98/6/EC (“Commission’s Guidelines”).
Price reduction announcements
The rule on price reduction announcements, according to art. 41 para. (1) of GD 947/2000, is that any such announcement must indicate the prior price applied by the seller in the same sales area for a determined period of time before the price reduction is applied. As regards the prior price, it is defined as the lowest price actually charged by the seller in the same sales area during the last 30 days before the date of application of the price reduction, as per art. 41 para. (2) of GD 947/2000.
These rules apply to all promotional statements made by the sellers which show that they have reduced the price of the goods in question. For example, discounts can be announced by stating a new, lower price together with the higher, previously applied price. Where appropriate, the previous price may be shown as having been cut, e.g., “RON 30 / RON 50”. Another commonly used way is a percentage discount, e.g., “40% discount”, or a discount by a specific amount, e.g., “RON 25 discount”.
At the same time, these provisions apply regardless of whether the price reduction in the announcement is a measurable price reduction or not. For example, some announcements may create the impression of price reductions, falling within the scope of art. 41 of GD 947/2000, such as “special offers” or “Black Friday discounts”, the former price being required to be indicated for any goods covered by the announcement.
It should be noted that these rules apply to products, in the sense of goods. According to art. 2 para. (1) and (2) of Government Emergency Ordinance No 140/2021 on certain aspects of contracts for the sale of goods (“GEO 140/2021”), goods are: (a) any movable tangible object; (b) water, gas and electricity when offered for sale in limited volume or fixed quantity; (c) goods with digital elements, i.e., any movable tangible object which incorporates or is interconnected with digital content or a digital service, so that, in the absence of such digital content or digital service, the good would not be able to perform its functions. Thus, the provisions of GD 947/2000 do not apply to services, including digital services, or digital content, but essentially only to movable property.
The provisions on price reductions apply both when they relate to goods in the seller’s offer as well as when they are made through a general price reduction announcement. However, art. 41 of GD 947/2000 does not apply to general marketing claims which promote the seller’s offer in comparison with other sellers’ offers, without creating the impression of price reductions, e.g., “best prices” or “lowest prices” messages.
Finally, the rules of art. 41 of GD 947/2000 apply to price reduction announcements in all distribution channels, whether in physical or online shops.
The new provisions of GD 947/2000 are applicable to the trader who is the actual party to the contracts with consumers, i.e., the seller of the products, including those using intermediaries (in particular online marketplaces). By contrast, these new provisions do not apply to intermediaries who only provide traders with the means to sell their products (e.g., online marketplaces), or who only aggregate and display price information provided by other sellers (e.g., price comparison platforms). However, intermediaries are subject to these legal provisions when they are the actual sellers of the goods or when they sell on behalf of other traders. Also, according to the Commission’s Guidelines, these provisions apply to traders established outside the European Union who direct their sales to EU consumers, including traders offering goods via platforms.
In addition to these new provisions, we also recall the provisions of art. 33 of Government Ordinance No 99/2000 on the marketing of market products and services (“GO 99/2000”), which may be applicable to traders and which contain a similar rule to the one in art. 41 para. (1) and (2) of GD 947/2000, but which also cover services, and not just products.
Notion of prior price
According to the Commission’s Guidelines, the purpose of the minimum 30-day reference period is to prevent traders from price-juggling and presenting false price reductions, such as increasing the price for a short period of time and then reducing it by presenting the new price as a significant reduction of the prior price, thereby misleading consumers. In other words, the 30-day period imposed by law for determining the previous reference price guarantees the authenticity of the reference price, which is no longer merely a marketing ploy whose sole purpose is to make the discount more attractive.
The Commission stresses that, whatever marketing strategy traders use to announce the price reduction, the prior price must remain the lowest price of the last 30 days, and any percentage reduction must be based on that price. An example of this is given where the trader announces a 50% price reduction, with the lowest price in the last 30 days being RON 100. In this case, the seller will have to show the price of RON 100 as the previous price, on the basis of which the 50% discount will be calculated, even if the last sale price of the good was higher (e.g., RON 160).
The new rules do not require traders to indicate the period during which they have applied the previously indicated price (e.g., “the prior price of RON 150 is the lowest price of the last X days”), nor do they affect the duration of the price reduction campaigns (which can be of essentially any duration). These provisions only require traders to indicate the prior price at the start of each price reduction, which they can keep for the whole period of the price reduction. However, if the price reduction lasts for more than 30 days without interruption, the prior price to be indicated will remain the lowest price applied during the period of at least 30 days preceding the reduction.
Where a trader sells goods through several different channels or points of sale (e.g., through different physical stores; both physical and online, etc.) at different prices, using a general price reduction announcement, the trader must indicate as the previous price for each individual channel or point of sale the lowest price charged in that channel or point of sale in the last 30 days. Otherwise, there is a risk that such conduct by the trader constitutes a misleading commercial practice.
At the same time, traders are not prevented from extending price reduction campaigns, as long as consumers are clearly informed that it is an extension, not a new promotional campaign, and the general presentation of the campaign is not such as to create a false impression.
If the price reduction is stated in a general announcement (e.g., a banner displayed on a building or an online communication, announcing a 30% reduction on all items), the prior price should not be displayed in the same medium as the price reduction announcement. The previous price should, however, be indicated for each individual product affected by the campaign, at the point of sale (i.e., on product labels in shops or in the price sections of online shop interfaces). At the same time, two distinct scenarios should be considered:
▸ in the past 30 days, the trader has not increased the price of individual products, included in the promotional campaign, and has not organised any other general price reductions during that period. In this case, the prior price will be the sales price previously applied to the products (e., the price on the product label or in the online shop interface). Therefore, the trader will not need to change the prior price information;
▸ the trader has increased the price or organised another general price reduction in the last 30 days. In this case, the trader must change the product labels or the prices displayed online to show the correct prior price for the products in the price reduction campaign.
Customer loyalty programmes and personalised discounts
According to the Commission’s Guidelines, art. 41 of GD 947/2000 is not applicable to customer loyalty programmes, e.g., discount cards or vouchers, which entitle the consumer to a price reduction on all the seller’s products or on a specific range of products, over long and continuous periods (e.g., one year) or those which allow the accumulation of credits/points for future purchases.
These new legal provisions also do not apply to actual, personalised price reductions, which are not of a nature to constitute an announcement of a price reduction. For example, the situation where the consumer receives, when buying a product, a voucher for a discount for the next purchase (e.g., “30% discount on the next product purchased this month”). Other examples of price reductions, to which the new legal provisions do not apply, are discounts offered on special occasions for the customer, e.g., on the customer’s birthday or when joining a loyalty scheme, as well as discounts applied at the time of purchase of products, but which were not previously announced.
However, art. 41 of GD 947/2000 remains applicable to price reductions which, although apparently personalised, are in fact offered to all consumers. Such cases include, for example, campaigns announcing certain discounts, subject to the use of a publicly displayed promotional code, or those where, for a certain period, only members of a loyalty scheme benefit from discounts on all items, as long as they are accessible or used by many customers. In these cases, the trader must ensure that the previous price of all products included in the campaign is the lowest price publicly available during the last 30 days.
Misleading price reduction practices
Price reductions can also constitute a misleading commercial practice. According to art. 6 para. (1) letter (d) of Law No 363/2007 on combating unfair practices of traders in consumer relations and harmonising regulations with European consumer protection legislation (“Law 363/2007”), a commercial practice is considered misleading if it contains false information or misleads or is likely to mislead the average consumer, so that it either causes or is likely to cause the consumer to take a transactional decision that (s)he would not have taken otherwise, even if the information is factually correct in relation to, inter alia, the price or the manner in which the price is calculated or the existence of a specific price advantage.
There are also other cases of price discounting that could constitute misleading commercial practices. For example, the scenario in which the periods of price reductions are excessively long compared to those in which goods are sold at an undiscounted price (e.g., the case where products are offered almost permanently at a reduced price). Another example is where the discount is advertised as being up to a certain, usually high, percentage (e.g., “discounts up to 50%”), when in fact only a few products are discounted by that percentage, the rest being discounted by a significantly smaller percentage (e.g., 10-15%).
These are goods that are likely to deteriorate or perish quickly, and for these it is often necessary to apply more frequent discounts, especially when the expiry date is approaching. For perishable goods, the rule is essentially the same, the only difference being the shorter period to which the price reduction relates, i.e., the period of the last 10 days before the date of application of the price reduction (instead of 30 days, which is applicable to non-perishable products), according to art. 41 para. (3) of GD 947/2000. There is no definition of perishable goods, but the Commission’s Guidelines state that compliance with the objective criteria of rapid deterioration or perishability must be assessed on a case-by-case basis. In our view, perishable goods are, for example, fresh fruit and vegetables or other categories of food (dairy products, bread, meat, cereals, etc.) and beverages.
It is also important to note that the rule for perishable products cannot be applied to goods which “expire” from a commercial point of view, and not as a result of their composition and physical properties, such as seasonal items.
“New arrival” products
A particular situation is that of products which the trader has been selling for less than 30 days when announcing the price reduction (the so-called “new arrival” products). According to art. 41 para. (4) of GD 947/2000, in the case of products that have been on the market for less than 30 days, the prior price is the lowest price charged by the seller in that period before the date of the price reduction.
This provision would not apply to cases where the products are already present on the market, such as where the seller resumes the offer for the same products after a break period, e.g., seasonal goods (summer or winter clothing) or goods temporarily out of stock.
Progressive price reductions
According to art. 41 para. (5) of GD 947/2000, if the price reduction is gradually increased, during the same price reduction campaign, the previous price is considered the price without reduction before the first application of the price reduction. This rule applies only when the price is gradually reduced, without interruption, within the same promotional campaign. In other words, the previous price will be the lowest price during the 30 days prior to the application of the first price reduction announcement, and will remain the previous price for all subsequent price reduction announcements made within that campaign.
For example, let’s say the lowest price of the good, in the 30 days before the campaign started, was RON 100. This will be the price indicated by the seller as the previous price both when announcing the first price reduction (e.g., 20%) and later when further price reductions are announced (e.g., 40%, 50%).
The situation is different for successive sales over a 30-day period, e.g., “10% discount every Tuesday in November” or successive Black Friday or Christmas sales campaigns in the last months of the year. In such successive campaigns, where the price is increased over short and intermittent periods, the general rule laid down in art. 41 para. (1) and (2) of GD 947/2000 (outlined above) is applicable, the prior price for each successive price reduction being the lowest price of at least the last 30 days (thus including the price reduced in previous promotions).
It should be noted that, according to the Commission’s Guidelines, art. 41 para. (5) of GD 947/2000 must be interpreted restrictively, in order to avoid circumventing the general rule laid down in art. 41 para. (1) and (2) of GD 947/2000. Therefore, these provisions are applicable only when the price is reduced progressively, without interruptions and without increasing the prior price indicated during the period of continuous price reduction.
This type of sale is now comprehensively regulated. According to art. 2 letter (f) of GD 947/2000, outlet sales are sales in sales structures where products bearing the manufacturer’s brand are sold and which meet one of the following conditions:
▸ products that are part of collections from previous seasons;
▸ products which are surplus production or end-of-line products or second quality products;
▸ products which are part of experimental product lines;
▸ returned products and/or cancelled stock surpluses;
▸ products in used and resealed condition, marketed at a reduced price;
▸ products with minor defects, expressly indicated to this effect in the trader’s offer, with written information to the consumer.
The general rules, laid down in art. 41 para. (1) and (2) of GD 947/2000, are also applicable to structures that practice this type of sales. However, if these structures compare sales prices with the manufacturer’s factory shop price or catalogue price or another equivalent reference price, they must provide clear, legible and easily identifiable written information on the reference price used for comparison.
Finally, if the product has not been displayed for sale in the last 30 days in outlet outlets, the previous price is the manufacturer’s factory shop price or catalogue price, as evidenced by documentation from the manufacturer or seller, showing which price is the lower one.
Failure to comply with the provisions of GD 947/2000, presented above, concerning the indication of the prior price applied by the seller following a price reduction announcement, constitutes an infringement and is punishable by a fine of RON 5,000 (approx. EUR 1,000) to RON 30,000 (approx. EUR 6,000). The fines are much higher than in previous versions of GD 947/2000, which, prior to this year’s transposition of the Omnibus Directive, ranged from RON 500 (approx. EUR 100) to RON 2,500 (approx. EUR 500).
At the same time, other existing provisions in other existing legislation should also be taken into account, which may also be applicable to promotional campaigns:
▸ GO 99/2000, which provides for additional specific rules regarding price reduction announcements (g., the notion of reference price is extended to services, not just products);
▸ Law 363/2007, on unfair and deceptive practices in relation to prices, or how the prices are calculated or the existence of a specific price advantage. In such cases, traders can be sanctioned with a fine ranging from RON 20,000 (approx. EUR 4,000) to RON 100,000 (approx. EUR 20,000), which can even go up to RON 200,000 (approx. EUR 40,000) or up to 4% of the annual turnover achieved in the financial year preceding the sanction (for widespread infringements and widespread infringements with a EU dimension), as recently amended following the transposition of the Omnibus Directive.
Promotional campaigns announcing price reductions are an essential component for traders which can significantly increase their revenues. It is important that these campaigns are carried out in accordance with the legal provisions outlined above, in order to really capitalise on the extra revenue, and avoid both heavy penalties imposed by the authorities, as well as the negative reputational impact on the company.