Steering Clear of Deceptive Pricing Claims

By Susan MacKay and Paul Gary
June 8, 2010
COLUMN : Legal | Management

Selling windows and doors in today’s economy is hard. The replacement window business has remained comparatively strong, but selling directly to consumers is stil a challenge. Not only is it difficult to sell products in an economy where housing prices have plummeted and homeowners are spending more conservatively, but consumers are more skeptical and always looking for a “deal.”

In the midst of this, we want to remind you of some pricing boundaries that exist legally so you can plan accordingly. Namely, in order to comply, sellers must understand the basics of the requirements of federal and state laws that affect the pricing strategy used to sell windows, doors and related products. This is definitely easier said than done.

The Code of Federal Regulations is a codification of the general and permanent rules published in the Federal Register by the agencies of executive branch of the federal government. These agencies are charged with developing the rules for compliance with broad statutes passed into law. Practically, those agency rules become the law. The Federal Trade Commission is the agency charged with developing and enforcing rules regarding consumer protection with respect to sales.

Of particular importance to companies selling windows and doors directly to consumers is Chapter 16 of the CFR, which includes “Guides Against Deceptive Pricing” as determined by the FTC. Nearly every state also has its own rules regarding deceptive pricing, often found in a “deceptive trade practices act.” Still, the federal government has set the basic framework and has some overarching regulations that must be followed. A state that does not have its own pricing regulations normally has the authority to enforce the federal regulations. For a state that does have its own pricing regulations, the federal rules may trump the state laws if the federal laws are more strict.

The requirements of some FTC regulations are obvious, but others are not. This can lead the unwary company to unknowingly violate the rules on pricing. The unlawful pricing schemes detailed in the CFRs are former price comparisons (16 C.F.R. § 233.1), retail price comparisons and comparable value comparisons (16 C.F.R. § 233.2), advertising retail prices established or suggested by manufacturers (16 C.F.R. § 233.3), bargains based upon the purchase of other merchandise (16 C.F.R. § 233.4), and price comparisons (16 C.F.R. § 233.5).

The basic rule of “former price comparisons” is that if you sell a product at what you claim is a reduction of the price at which you previously sold the product, you need to have actually sold that product at the price you claim it was previously sold “on a regular basis for a reasonably substantial period of time.” Pretty basic, right? If you advertise a product at a reduced price, just make sure that it is actually a price reduced from what you regularly sold the product. In other words, don’t jack up the price for two weeks in order to later sell the product at a reduced price.

For those selling the same exact product as other companies, the regulation concerning retail price comparisons provides that if you are offering a product at a price that is advertised to be lower than offered by your competitors, you need to make sure (and be able to document) that you are in fact selling the product at a price that is less than the competition in your area. If you are advertising a product as selling for a certain amount less than your competitor’s similar, but not identical product, your advertisement needs to make clear that the comparable value comparison is being made against a product that is similar, but not identical, to the product you are selling. Again, pretty straightforward, but it can be a time consuming process to keep up to date with your competitor’s fluctuating prices.

If you are selling product manufactured by another company, you may advertise the sale of a product at below the manufacturer’s suggested retail price, but only if the manufacturer independently offers an MSRP and only to the extent that the product is sold in your area at the MSRP on more than an occasional basis. Okay, now this is getting a bit more confusing, but window and door manufacturers generally don’t generate traditional MSRPs for windows and doors. There are too many variables.

The last specific regulation deals with offering bargains based upon the purchase of other merchandise. For example, “Buy 4 windows, get 1 free!,” “Buy 1 window, get 1 at 50% off,” or “Buy 10 windows and receive free installation!” The keys to offering these deals while staying within the bounds of the law is to not inflate the price of the product that must be bought in order to receive the other product for free, don’t offer a product of lesser quality or quantity than is normally sold at the price advertised, and make sure that all material terms and conditions of the offer are included in the advertisement or sales pitch. In other words, the free item must be free and the item required to be bought to receive the free item must be sold at its regular price.

The final regulation is a catch-all provision, stating that the above regulations do not make up the entirety of pricing practices that can be false, deceptive and misleading. Let’s call this what it is–wiggle room for those enforcing pricing regulations.

These pricing regulations can be complicated in a traditional sales setting, but in situations of door-to-door/in-home replacement window and door sales they become a real challenge. Savvy homeowners expect to haggle over the price of the replacement windows and doors. How do you present a price to a consumer who is shopping bids and who will never to take the first price offered and will try to shave it down to a loss?

You have to consider how you present the price. Should you individualize the consumer and individualize the price? You are not selling a product, such as a book, that is exactly the same regardless of the consumer; you are selling windows and doors to fit into that particular consumer’s home, with features they desire and select. If you are also installing the windows and doors, you might be removing their old windows and doors.

The regulations discussed above may prevent you from saying “the regular price is $199.99” or “we normally would sell the windows for $199.99” or “retail price is $199.99,” unless you actually sell a substantial number of the product at that price. But how can that work when the “product” is rarely sold with exactly the same specifications? Your Series 1500 single hung window is sold in various sizes, and may be ordered with or without grids, low-E, or argon, to name a few options. Installation may be easy or hard. A safer strategy will involve focusing the price pitch on the value for the quality and the work involved, i.e. selling to the specific consumer based on that consumer’s new windows and the work necessary to remove and install the windows on that consumer’s home. Let them make the comparisons; they will anyway.

Give consumers a price for their particular windows. Don’t volunteer a price comparison which necessarily involves different jobs or the price at which you think your competitor is selling windows. Obviously, in this setting we cannot get into the detail of any particular company’s situation. However, we can try to make you think about the issue. Today, there is too much money and too many consumers involved for this to avoid the legal spotlight.

Susan MacKay and Paul Gary are attorneys with the Gary Law Group, a Portland, Ore.-based law firm that specializes in legal services for the window and door industry.  More information is available at www.prgarylaw.com.  Questions about this article and other legal issues may be sent to paul@prgarylaw.com