Professional Jeweler Archive: The Price is Right

June 2000

Managing: Legal Issues


The Price is Right

Reduced prices based on reference pricing can be perfectly legal. That is, if the reference price is bona fide


Deceptive pricing remains a corrosive threat to the integrity and reputation of the retail jewelry industry. Few products are as difficult for the average consumer to comparison-shop as jewelry. And unfortunately, pricing can be illegally deceptive in many ways.

Let’s focus on advertising that offers a reduction in price from a reference price. The reduction may be a percentage discount (such as 20% off) or an actual amount (such as $100 off). We’ll look at the laws that apply to such sales and offer some steps you can take if you’re in competition with a store using such advertising.

What’s Legal

It’s important to note before discussing percent-off claims that marking down the price of an item to sell it quickly is not deceptive pricing if the price it’s marked down from is bona fide. For example, if you’re stuck with inventory and you want to mark it down 90%, doing so and advertising it is perfectly legal.

It’s also legal for you to use deep discounts to try to bring new customers into your store. While a very deep discount of 60% or more may suggest a price-reduction claim is deceptive, the real legal focus is not on the percentage discounted but the legitimacy of the initial or reference price.

Fighting Illegal Pricing

If a competitor is involved in illegal pricing, speak up. Several organizations are already engaged in the fight.

The Jewelry Advertising Review Program, a coalition of local Better Business Bureaus, monitors the jewelry advertising practices of national retailers. When it feels an ad or advertising campaign is deceptive, it files a complaint with the National Advertising Division of the Council of Better Business Bureaus, the advertising industry’s forum for voluntary self-regulation (see “The System Works”).

Another important place to raise and resolve deceptive pricing disputes is the Jewelers Vigilance Committee, says Cecilia Gardner, executive director and general counsel. JVC will ask the complaining jeweler to submit documentation on the case and will do its investigation, which includes contacting all parties concerned. Gardner says JVC’s first role is to work with the parties to try to reach an amicable solution through its dispute resolution program. Some retailers don’t realize a particular ad campaign is violating the law. However, if the offending retailer doesn’t agree to make changes to ensure that discount claims (or any advertising claims) are in compliance with the law, JVC can refer the case to local law enforcement agencies or bring a civil action against the retailer. JVC’s Web site, www.jvclegal.org, offers a great deal of information and links to other sites dealing with deceptive pricing laws.

Other avenues of recourse include your local Better Business Bureau. This is particularly true if the offending retailer is a BBB member. Many local BBBs have some kind of dispute-resolution forum, such as mediation. You also can contact your state attorney general’s office, but unless you’re complaining about a large retailer and there appears to be real fraud involved, the chances of the attorney general’s office doing much are slim.

Many national jewelry associations – including Jewelers of America and the American Gem Society – have standards with which their members must comply. If your competitor is a member of such an association, you can bring the ad campaign to its attention. (For more on the law and what you as a retail jeweler can do, see “Fight Deceptive Pricing,” Professional Jeweler, July 1998, p. 106).

– by William H. Donahue Jr.

The System Works: Fighting Deceptive Pricing

Last year, the Jewelry Advertising Review Program, a coalition of local Better Business Bureaus, challenged a national campaign by J.C. Penney for reduced- or sale-price jewelry. The advertising included newspaper, catalog, direct mail and television advertising. Examples of the challenged ad claims included “20%-60% off fine jewelry,” “Reg. $1,000 – Sale $499.99,” “Save 30%-60% on Gold Jewelry only to December 29, 1998.”

JARP filed a claim with the National Advertising Division of the Council of Better Business Bureaus, according to JARP’s director, Ron Graham. NAD is not a court and its decisions have no binding legal precedent the way a court’s decisions do, but the case shows JARP and NAD are an effective way to bring large retailers into compliance with the law. NAD ruled J.C. Penney’s claims were not substantiated, that it had not shown its reference prices were legitimate.

As important as the NAD decision was, J.C. Penney’s response was more significant. It said: “As a supporter of industry self-regulation, we will, as necessary, and as soon as feasible, modify our price comparison advertising on fine jewelry by ensuring that:

  1. The reference prices are those at which the advertised items were, or will be, offered at least 50% of the pertinent period.
  2. ‘Regular’ is not used to describe prices at which items were, or will be, offered less than 50% of the time.
  3. Former prices are described as offering prices at which sales may or may not have been made.”

–W.H.D.

Reference Pricing: The Law

Federal Trade Commission guidelines and the Better Business Bureau Code of Advertising say essentially the reference price of an item must be one at which it was offered to the public on a regular basis for a reasonably substantial time. In addition, the merchandise must be openly and actively offered for sale at the reference price, honestly and in good faith and not for the purpose of establishing a fictitious higher price on which a deceptive comparison might be based.

The BBB Code, section 1(a)(2) recommends advertisers make sure the higher price (reference price):

  1. Does not exceed the advertisers’ usual and customary retail markup for similar merchandise.
  2. Is not an inflated or exaggerated price.
  3. Is one at which the merchandise was openly and actively offered for sale for a reasonably substantial period of time in the recent regular course of business, honestly and in good faith.

As you have seen so often in this column, legal terms such as “substantial” are vague and need to be interpreted. What is a substantial period of time? In a case brought against J.C. Penney under North Carolina’s Unfair or Deceptive Practices statute, a state court said, “During a merchant’s business year, if the merchant offers for sale to the general public an item for over 50% of the time at the regular price and in the preceding year the merchant has made at least 25% of his sales at the regular price, then the merchant’s regular price is a bona fide one and it is not fictitious or inflated.” This decision offers one example of how a court interpreted the word substantial.

– W.H.D.


Copyright © 2001 by Bond Communications