The Case:
A court recently settled an enforcement action against Allstar Marketing Group for its promotion of multiple “buy-one-get-one-free” offers which included Snuggies, the Magic Mesh Door, and other “as-seen-on-TV” type products in which some 218,000 consumers took part. As part of the settlement, the FTC is mailing refund checks totaling $7.2 million to those who participated in the offer, with consumers who bought products receiving checks averaging $33.14. The New York Office of Attorney General filed a parallel action against Allstar also assisted with the refund planning process.
This case and the allegedly deceptive offers have been going on for some time: In March 2015, the FTC first alleged that since at least 1999 Allstar used deceptive direct marketing TV commercials to sell its products. While the products varied, Allstar’s sales pitch was often the same-a “buy-one-get-one-free” offer. However, the FTC alleged that Allstar did not disclose all the costs and in addition that the ordering process was confusing, resulting in some customers being charged more than expected and for more products than they wanted.
One example of such deceptive practices was a commercial for Magic Mesh which promised that it would ‘double the offer’ for consumers if they just paid processing and handling fees. The FTC said in its press release: “While consumers were led to believe that they would then be getting two $19.95 products for ‘less than $10 each,’ in fact, the total cost with the undisclosed $7.95 ‘processing and handling’ fees jumped from the advertised price of $19.95 to $35.85.” Consumers who called All-Star were often immediately instructed to enter their billing information and were charged for at least one “set” of products. Since the set was the only sale offered, it was not really a buy one get one free offer.
The Law:
Marketers are required to disclose all costs, including processing and handling fees and sales or bargain claims and must be based on bona fide comparisons. Claims such as “Buy one, get one free”, “Buy one get another for half price”, “Suggested retail price: $25. Our price: $5.95”, “Yours for only $95. You save $50” are ubiquitous but unless those pricing claims are strictly true, they can violate Section 5 of the FTC Act as well as many state laws.
The FTC Guides against Deceptive Pricing set forth certain principles:
- Comparisons of the sale price to a former price must compare against a former price which is bona fide and which has been offered for a substantial period of time in the near past.
- The price comparison must be made against comparable products.
- “Suggested retail price”, “MSRP” or “List Price” does not change the analysis: the resulting claim of a bargain is deceptive if the product does not sell for those comparative prices in the marketplace of the seller.
- Bargains based on the purchase of something else requires literal accuracy. If the original selling price is increased, or if the size or quantity of the bargain-priced product is reduced, to make up the difference in the regular price and the bargain ‘two for one’ or ‘buy one get one at a reduced cost’ offer, that is deceptive.
- False claims to explain a sale price such as “going out of business” or “limited time offer” are common advertising gimmicks but must be true or are likewise deceptive.
Takeaway:
Make sure that your sales price claims are truthful and based on legitimate properly comparative facts.
