Fight Deceptive Pricing


July 1998

Managing:Legal Issues

Fight Deceptive Pricing

Many jewelers have given up hope that they can fight competitors' deceptive pricing. But new local efforts are yielding results. Find out what you can do if you're in a deceptive price battle


Deceptive pricing, in all its variations, presents a two-pronged threat to the honest, conscientious jeweler. First is the threat of crossing the line in the ever-greater need to compete. Second is the threat to the retailer's business and client base posed by competitors who knowingly or unknowingly engage in deceptive pricing.

Jewelers nationwide are frustrated by the lack of response on deceptive pricing by the offices of attorneys general and departments of consumer affairs – the two governmental agencies primarily responsible for fighting deceptive pricing. Jewelers know individual lawsuits against offending competitors are impractical and time-consuming. They feel there's nothing they can do individually and precious little being done on their behalf. But there's actually a great deal the individual retail jeweler can do, and much is being done at local, state and regional levels to fight the problem.

The greatest weapon in the war against deceptive pricing is educating consumers and law enforcement officials. Jeffrey Bertman, immediate past president of the Massachusetts/Rhode Island Jeweler's Association, recently worked with the Massachusetts Department of Community Affairs and persuaded it to conduct an undercover pricing study at four major retailers. Bertman is part of a pilot truth-in-pricing (TIP) program in Massachusetts funded by Jewelers of America's Venture Fund, which was created to help JA state affiliates fight a variety of local problems. The study focused on carat weight. At a press conference that drew local and national media attention, the state announced that at all of the retailers studied, at least 25% of the gemstones sampled weighed less than indicated.

The publicity alerted consumers to be careful when buying jewelry. Just because a store sells jewelry doesn't mean it is a jeweler. And if a deal looks too good to be true, it probably is. With publicity, there is a delicate balance between educating the public and scaring them, and the goal of such programs should center on education, not scandal.

Enforcement, Education
Barbara Sardzinski, a third-generation jeweler and past president of the MA/RI Jewelers Association was involved in the JA affiliate's TIP program in a different way. She was aware that enforcement of federal and state consumer laws falls primarily on government agencies. But she also knew that for a variety of reasons (lack of staffing and money or a perception that there aren't enough consumer complaints), the agencies are often unresponsive.

She has worked to educate people in the office of the attorney general and in local Better Business Bureaus, showing them types of jewelry that are similar but not identical, and explaining why they can vary considerably in price. Law enforcement officials who understand the complexity of deceptive pricing relating to the jewelry industry will be more likely to pursue complaints aggressively and will be better able to do so.

Consumers should be educated also. Bertman and Sardzinski say jewelry retailers must educate consumers at the point of sale as well as in advertising. One effective way: state associations can create a code of ethics that includes a truth-in-pricing policy. In the MA/RI TIP program, for example, participating jewelers sign an agreement supporting truth in pricing and get a poster explaining TIP to display in their stores. Some state jewelry associations also have model advertisements that can be run collectively by groups of jewelers or individuals.

Next Month: Truth in pricing model policies and the efforts of other jeweler associations to fight deceptive pricing.

William H. Donahue Jr. is an attorney practicing in New Jersey.

 Know the Rules

By definition, deceptive pricing is illegal under federal and state consumer protection laws. The underlying principles of law are the same whether you are selling diamond rings or washing machines. But the details become complicated, especially in the jewelry industry. This box covers some ways pricing can be deceptive – use it to determine whether your own pricing methods and advertising are legal and ethical.

There are two primary ways prices can be deceptive:

Quality Misrepresentations
Example: An item marked "14k gold" is actually 10k gold.

You may be liable under your state's Unfair and Deceptive Acts and Practices (UDAP) statute simply for misrepresenting the gold content. But you're also liable for deceptive pricing if you've priced a 10k gold item as if it were 14k. The rule is simple: If you represent an item to be something it's not and it's worth less than the item would be as represented, the pricing is deceptive and illegal.

Fictitious pricing
Example: A gold necklace is sold "discounted" from a non-marketable "higher" price.

If the necklace is marked up to a higher price than it would ever be likely to sell for, carried on the shelf at that price for only a short time and then deeply discounted, that's deceptive. You must be able to substantiate that the referenced "higher" price is bona fide.

Determining a bona fide reference price in the jewelry industry is more difficult than in most retail sectors. In one recent case against J.C. Penney, a North Carolina court ruled that for a reference price to be bona fide, the retailer must offer the jewelry 50% of the time at that price and 25% of the sales of that jewelry must be at that price. It's important to realize this was a North Carolina state court ruling and not binding on any other state or federal court. Exactly what constitutes a bona fide reference price varies from state to state. One thing is for certain, however. In any state, if you use a reference price for which a piece has never sold and probably never would, you leave yourself open to problems.

Also deceptive is the practice of introductory offers deeply discounted off some anticipated future selling price. Courts have held the item must subsequently be offered for sale at the higher reference price.

Representations that goods are "wholesale," "factory-priced" or "below cost" are also illegal unless true and verifiable. So are special circumstance sales such as fire, flood, bankruptcy and going-out-of-business sales unless true. Even if true, many states limit these sales to a certain duration and require that the prices offered be real reductions from prior bona fide prices. It's usually illegal to order additional stock for this type of sale.

Offering an item for "free" with the purchase of another item can also be deemed deceptive. FTC guides and most state UDAP statutes prohibit a retailer from marking up the purchased item to recover the cost of the "free" item. In many states, when an item is offered for free with the purchase of another item, the total cost must be disclosed in all advertising, not just at the point of sale.

Example: A jeweler quotes a price on an item that must be specially ordered or custom-made and takes a deposit. When the piece comes in, the customer is told market prices have gone up so the piece will cost more.

Adding handling costs is illegal also unless they were disclosed previously.


Copyright © 1998 by Bond Communications.


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