The Battle Against Faux Discounts

'Discount' and 'sale' need to mean something real.

Photo credit: Mike Mozart

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You’ve all likely seen — or at least heard about — a faux discount at a major retailer: A sale price that doesn’t seem like a sale price, but simply the normal price re-branded as something cheaper.

Well, you aren’t imagining it. An investigation at 25 major retailers late last year found that “the markdowns advertised by most stores aren’t special prices or savings; instead, nearly all retailers now use fake sales to mislead their customers.” Both Amazon and Walmart have faced lawsuits alleging that their Prime Day and Rollback sales, respectively, are fake.

In all these cases, the retailers simply mark products down from a higher price that no one ever actually pays, so the discount is illusory, as it’s just the base price charged to everyone. That’s not a discount, it’s a deceptively described price.

Not only is faux discounting a direct policy problem by itself, but it’s also a political issue, because across the country the retail and tech lobbies are using the specter of reduced discounting, as well as theoretical damage to loyalty programs, to argue against pricing protections for consumers, particularly for online shopping.

In order to ensure that consumers are protected from predatory pricing practices, it’s imperative that “discount” have some real meaning in law, that sales be anchored to some real world price, and that corporate lobbyists not be able to defeat good bills because people believe the false narrative that it will eliminate their ability to access a discount or use a coupon.

To the direct policy problem, in New York, Gov. Kathy Hochul has proposed in her executive budget a new rule requiring that discounts be real reductions from a real, previous price that someone actually saw and could have paid. “No retail seller shall knowingly advertise a reduction in the price of a product from such seller’s own former price, unless such former price is the actual, bona fide price of the product for which the retail seller offered to the public, openly and in good faith,” it says.

This is promising. And it’s especially important for lawmakers to address faux discounts now, as the growth of online shopping, and the technology that enables it, are rendering the very idea of a discount as quaint, because prices are increasingly unstable, unpredictable, and are even personalized to individual customers, causing widespread price discrimination between shoppers and no base price to which a discount can be applied.

Now to the more political battle. Dominant retailers (and more often their trade associations, or allies in the tech industry) are claiming that efforts to regulate away abusive pricing practices would eliminate discounts and sales prices, as well as loyalty programs. This argument has been trotted out, in particular, to argue against legislation that would rein in surveillance pricing (individualized prices based on online data) and dynamic pricing (prices that fluctuate constantly in real time). (For more on the specifics, you can check out my primer on dystopian pricing tactics.)

See, for example, this story about an effort in Maryland to regulate dynamic pricing on grocery items, where the head of the Maryland Retailers Association argued that “Most consumers do not understand how algorithms are functioning, they may not realize that this tool is being used to generate personalized discounts, optimize our inventory, reduce waste and ultimately lower prices.”

But if prices are constantly changing due to algorithms that attempt to figure out what each consumer is willing to pay or due to black box dynamic pricing techniques that could be based on, well, anything, then the very idea of a discount is meaningless. There can be no discount if there is no set, purchasable price for the product that existed at some point in the not-too-distant past.

Even loyalty programs, which are broadly understood as a way for customers to access lower prices, are increasingly an avenue for extraction, with retailers using them to raise costs through increased fees and restrictions that leave consumers worse off than if they had simply made normal purchases outside of the program. The result, according to a report from the Vanderbilt Policy Accelerator and the UC Berkeley Center for Consumer Law and Economic Justice, “is a wholesale transfer of wealth from consumers to corporations, with companies collecting ever-more data while offering ever-diminishing savings.”

So if stable prices aren’t a reality, then discounts aren’t either, whether offered through a loyalty program or simply displayed on a price tag. Retailers are fear mongering about the loss of discounts — a smart tactic in a world of high prices and widespread concern about inflation! — as a way to enable their move toward a world in which prices are never predictable and savvy shopping is quite literally impossible because individualized prices chase shoppers wherever they go and dynamic pricing means no price is ever available from one day to the next.

And to be abundantly clear, there’s no contradiction between having strong consumer protections against abusive pricing practices and preserving the ability of retailers to provide real, bona fide discounts to consumers. In fact, the former ensures the latter remains possible.

My advice to legislators and advocates would be to ignore the scaremongering and ensure that true discounting and loyalty programs are protected, not simply a convenient fiction to preserve nonstop pricing abuse, while outlawing the pernicious practices that are rendering predictable prices a thing of the past.

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SIMPLY STATED: Here are links to a few stories that caught my eye this week.

• The Washington State legislature approved a bill to ban the use of restrictive deeds by grocery stores and pharmacies, sending it to the governor. (Read background on this issue here.)

• Arizona’s attorney general settled with Reynolds over allegations that it marketed as “recyclable” Hefty trash bags that were actually not.

• Microsoft is reportedly ending the use of nondisclosure agreements in data center development deals in West Michigan.

• State attorney generals are reportedly planning to sue to block a merger between Nexstar and Tegna, which both operate local television channels.

• “Governors and lawmakers in at least nine states this year want to tax social media companies.”

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