Are retailers getting away with misleading consumers?

Today’s news that a review by the Competition & Markets Authority (CMA) found evidence of retailers misleading consumers, with confusing pricing promotions, probably surprised no-one.

Most savvy shoppers have learnt to check carefully when a “discount” appears too good to be true. But the simple tactics of checking prices at other shops on your phone, or looking carefully at quantity, or seeing if it’s still cheaper to just buy one – may not be enough.

Here is today’s headline grabbing coverage from the BBC:

Few consumers have the time to record or track past prices. One of the issues raised by the CMA is what it terms reference pricing. That is a discount being expressed by comparison to a previous price charged. The CMA found examples where the law was being breached or at least muddied. Legally, the period of the reduced price cannot exceed the period of the higher reference price. But many shoppers would report seeing products that are nearly always on promotion at “reduced price“. Which, who prompted this inquiry are right to challenge that.

Now, to be fair to retailers, the CMA only found a small number of breaches. After examining the pricing of 150,000 products, it found only 800 potentially misleading prices. However, my concern is that the standard of testing “misleading” is not high enough to protect the consumer.

In the spirit of a past post, suggesting that retailers could learn from customer insight within Financial Services, let’s consider the tests applied there.

Soon after the creation of the Financial Conduct Authority (FCA), it became clear that this new regulator was very keen on Behavioural Economics. Perhaps I should say, very keen to use that academic understanding to crack down on consumers being manipulated. Some of the language used in their first occasional paper on the subject made clear how they viewed communications or promotions which exploited behavioural biases. They stated that they would be looking for early warning signs of abuse to which they attached the following colourful labels:

• Rip-offs: Uncompetitively high margins
• Suckers: Concentrated profits in small customer group
• Bargains: Innovative propositions that appear very cheap
• Traps: Contract features that often target BE biases
• Regret: Reported or potential regret
• Folly: Choices out of line with common sense
• Confusion: Observed or likely confusion

That level of testing would surely raise questions about the experience of shoppers in the Retail sector. How often have you felt confused or regretted being taken in by an apparent bargain that you later regretted buying?

The solution may be for regulators across different industry sectors to take behavioural biases as seriously as the FCA seems to be doing. Admittedly the purchase or a can of beans does not rival the potential detriment of buying an inappropriate long-term investment. However, with Financial Services feeling like a “seller beware” market these days, is it time to level the playing field more?

Within the 10 behavioural biases that the FCA has published, which we’ve listed previously, a number are routinely exploited by retailers:

1. Reference Dependence = this does not just relate to prior pricing but also comparison to other products which are being sold at higher prices in order for the target product to appear cheaper
2. Framing = information about products and promotions in stores are optimised to ensure they result in higher purchase not greater understanding of quality or appropriateness by the consumer
3. Projection Bias = this is being exploited by creating an environment that will make the shopper feel hungry or outdated in clothing etc so they are likely to project greater need in future & spend more
4. Emotional Drivers = covers all aspects in which consumers are influenced by temperature, lighting, sounds & even smells to feel more relaxed and ready to like or trust the retailer more – relax here a while & buy more whilst you sleepwalk round our store

Now I may be over stretching the point. At its core all marketing relies on influencing or manipulating behavioural biases (even to get the consumer to notice that communication). But I care about this issue because of the Financial Services clients with whom I work. Many I see work very hard to understand their customers and ensure their communications are clear, fair, nor misleading and take into account biases which could lead to negative customer outcomes.

For these customer insight leaders to see retailers get away with such manipulation feels like a cause the CMA should really get their teeth into.