Op-Ed by C J Oakes
Caveat emptor is a concept which has long guided wise consumers. It is Latin for, “Let the Buyer Beware” and has its history in contract law. Starting in the 1950s, used car lots became associated with the term because of the shady practice of inflating prices to give “wiggle room” when negotiating prices. Just last week, retail giants Macy’s, JCPenney, Sears, and Kohls received notice of lawsuits filed by the City of Los Angeles on behalf of consumers for just that practice.
Let the Buyer Beware: False Reference Pricing Ahead
False reference pricing is a form of price anchoring with deception at its core. The idea is simple: Set a price which is higher than desired for an item then put the item on “sale” for the desired price. Unsuspecting consumers are then duped into buying the item under the false assumption that they are getting a deal.
But a bargain, or deal is not being got. Instead, they are getting the same price they would get elsewhere or at times even paying a higher price. This is a deceptive sales practice which is illegal in most states and localities. It is a form of consumer fraud.
Among the most common places where such illegal practices are found are tent sales in parking lots and on the side of the road.
For instance, in Louisiana, a common practice by many Fireworks stands is to advertise “Buy One, Get Two Free.” In reality, the stand is inflating the price of the original fireworks item such that a consumer is paying for three items–not really a deal. Instead of getting variety, the buyer gets more of the same items under the assumption they are getting more for their money. They are not.
What’s the Harm in False Reference Pricing Schemes?
False refefence pricing schemes hurt letigimate businesses. Returning to the Fireworks example, there are many fireworks retailers with seasonal businesses around the nation.
When deceptive businesses use such practices, it places a strain on those which price fairly. Consumers enter the fairly priced establishment expecting to get the same deal. But they cannot because the legitimate company has priced their merchandise according to their costs.
Consumers rarely compare costs in such instances. If they did, they would find that the costs at the so-called “bargain” locations have inflated prices. What often happens is that on entering a legitimate business and finding there is no “bargain” to be had, they go to the deceptive company and get rooked.
Then, the natural tendency is to paint all such businesses with the same proverbial brush. In later seasons, the consumer is less apt to spend money at either company, the legitimate or the deceptive. So such consumer fraud hurts everyone.
Major Retailers Turning to Unsavory Roadside Sales Tactics for Inspiration?
The deceptive practice of inflating prices in order to dupe consumers into buying more than they otherwise would is not new. After used car dealers began to use the practice, many new car dealers began to do so as well. But with the rise of outlet stores, many of which use such deceptive practices to promote merchandise, major retailers are joining the fray.
Thus, what was once an accepted, even winked at business practice is now getting serious looks from law enforcement.
So it is that class action lawsuits are starting to appear around the nation and some prosecutors are seeking punitive injunctions.
The lawsuits against Macy’s, Sears, JCPenney, and Kohls is surely just the start.
Caveat emptor–let the buyer beware.
If it sounds too good to be true, it likely is too good to be true.