On September 26, 2023, The Dufresne Group Inc. (TDG) and its affiliated companies, recognized for their prominent retail brands, Dufresne Furniture and Appliances, and select Ashley HomeStores, entered into a consent agreement with the Competition Bureau of Canada. The conclusion of the Competition Bureau’s investigation revealed that TDG and its affiliates engaged in certain marketing practices that raised concerns about fairness and transparency in their dealings with consumers under section 74.01 of the Competition Act.
The investigation found that TDG and its affiliates inflated the regular prices of certain products and subsequently advertised these items at substantial discounts, creating the impression of significant savings for consumers. Additionally, the companies made marketing claims that conveyed a sense of urgency, falsely suggesting that specific product deals would expire after a set period, even when that was not the case. These practices were used across various advertising channels, including their websites and in-store promotions.
Settlement Terms
As part of the consent agreement, TDG and its affiliates agreed to several key provisions:
- Monetary penalty: The companies will pay a penalty of $3.25 million and pay $100,000 for costs incurred by the Competition Bureau during the investigation.
- Corporate compliance program: TDG and its affiliates will establish and maintain a corporate compliance program, the goal of which will be to promote the companies’ compliance of the Competition Act.
- Commitment to compliance: Senior management of TDG and its affiliates will acknowledge their commitment to the compliance program.
Deceptive Marketing Practices
Urgency Cues
The use of “limited time offers” and “countdown clocks” as urgency cues in marketing can potentially mislead consumers into making hasty purchasing decisions. Scarcity cues, such as claims of limited product availability, can pressure consumers into making uninformed choices to secure a perceived bargain. While businesses can certainly warn consumers about the limited nature of an offer, it is essential that this information remains truthful and accurate, avoiding any form of deception.
Under the Competition Act, the provisions governing misleading advertising and deceptive marketing practices aim to strike a balance between allowing businesses creative freedom in their marketing endeavors while requiring truthfulness and transparency. Advertisers must be cautious and scrutinize the general impression of any scarcity cue to ensure that no aspect of the claim is misleading.
Ordinary Selling Price Provisions
The Competition Act’s ordinary selling price provisions exist to ensure that advertised sale prices are not based on inflated regular prices. When businesses reference a higher regular price in their marketing, they are required to validate this regular price through two tests:
- Volume test: A substantial volume of the product was sold at that price or a higher price within a reasonable period of time before or after the making of the representation.
- Time test: The product was offered for sale, in good faith, for a substantial period of time, at that price or a higher price recently before or immediately after the making of the representation.
The general impression test further examines the overall impact of the price representation, and the court considers both the literal meaning of the information and the general impression it makes.
Remedies for Non-Compliance
Non-compliance under subsection 74.02(2) or 74.03(3) Competition Act can lead to various remedies, including orders to cease deceptive conduct, publication of corrective notices, and/or administrative monetary penalties. For corporations, the penalties for a first-time violation can be substantial, including the greater of $10 million and three times the value of the benefit derived from the deceptive conduct, or if that amount cannot be reasonably determined, 3% of the corporation’s annual worldwide gross revenue, with subsequent violations incurring even greater penalties.
Take-Aways
Business that offer reduced price offers should review their current pricing practices to ensure that they comply with the Competition Act and the ordinary selling price provisions, in particular. Putting a compliance program in place can be a beneficial way to monitor pricing mechanisms and potentially reduce the risk of unlawful conduct, safeguard a company’s brand and reputation, detect early signs of potential misconduct, and identify vulnerabilities that may expose the business to risks.
Should you have any questions regarding price promotions and ordinary selling price provisions, please contact any member of Miller Thomson’s Advertising, Marketing and Product Compliance group.
