April 17, 2023
This edition of Deceptive Marketing Practices Digest looks at three topics:
- the use of scarcity cues, that is, claims that an offering has limited availability
- drip pricing, which involves advertising a low price only to add on fees or mandatory charges so that the actual price is higher
- the Competition Bureau’s recent presidency of the International Consumer Protection and Enforcement Network, an organization of consumer protection authorities, which showed the importance of international cooperation in a digital economy
Consumers shopping online are faced with more choices than ever before, and even more information to navigate and process when making purchasing decisions. Unfortunately, some businesses take advantage of this complexity to confuse consumers, making it harder for them to make informed decisions. Such businesses make online representations, or claims, to mislead consumers into making choices that may not be in their best interests, or even what they intended.
Scarcity cues tell consumers when an offering — be it a price, a product or a service — is in short supply. When these claims are true, they can provide consumers important information so that they don’t miss out on a deal. When untrue, they can mislead consumers into making purchases they might not have otherwise made, or rushing them into purchases without considering competitive offers.
Drip pricing, already discussed in volumes 1 and 5 of Deceptive Marketing Practices Digest, is the practice of advertising an attractive price only to then add additional mandatory charges so that the product is not actually available to purchase at the advertised price. Recent amendments to the Competition Act confirm the deceptive nature of drip pricing, and have increased the penalties for misleading advertising. We remind businesses about the importance of advertising the true price of products and services, and reiterate our determination to end this deceptive marketing practice.
This volume also briefly reviews the Bureau’s recent presidency of the International Consumer Protection and Enforcement Network (ICPEN), an organization of consumer protection authorities first featured in Volume 3 of the Digest. Our presidency began in the first year of the pandemic, making it the first fully virtual ICPEN presidency and challenging us to find innovative ways to continue ICPEN’s important work.
The Competition Bureau, together with law enforcement agencies around the world, is taking a hard look at the increasingly sophisticated techniques businesses use online to manipulate consumer choice in the digital economy. Businesses should know that we will take action when they use these practices to mislead or deceive consumers.
Fake scarcity cues online
The urgency is fake, but the deception is real
You’re shopping online and a product catches your eye. But what’s this? A pop-up informs you there are only two left! Worse yet, 15 people are looking at the very same item right now! Your heart starts to race, you know you need to act fast if you don’t want to miss out on this deal. You rush to enter your credit card details and experience a sense of relief when the purchase is complete.
This scenario plays out daily for consumers in the digital economy, and it is an example of the power and influence of what are called “scarcity cues” online. Scarcity cues are representations, or claims, that suggest low availability of a product or service, effectively signaling to consumers that they must act fast before the offer is gone. Such claims can induce consumers to make an impulsive or relatively uninformed decision to quickly grab a great deal before someone else beats them to it.
Businesses can also add so-called social proof tactics to the mix, using various methods to let consumers know that other consumers like or want the same product. Social proof can be used to suggest there is high demand for a product and/or that the product is highly attractive or desirable. The sense of urgency is compounded when a consumer believes a product is both scarce and in high demand.
Examples of scarcity cues
Businesses use scarcity cues to let consumers know when the supply of a product or an offer is limited in some way. Some common examples of online scarcity cues include:
- claims that only a small amount of stock is left
- claims that certain prices are available for only a limited time so consumers should “hurry” or “act fast”
- claims that a certain percentage of stock has already been purchased (for example, 80% of available reservations are taken)
- countdown timers that tick toward a time where the product or limited time offer will no longer be available
- countdown timers indicating that consumers have a limited time to complete a purchase or another rival consumer will gain access to the item that is in the consumer’s cart
- pop-ups or other claims of how many other people are currently viewing or are interested in the same product
When the information is true, the limited availability of a product, service or price can be valuable information for a consumer. However, false or misleading scarcity cues can make consumers rush into a decision they would not have otherwise made. That’s when the Bureau becomes concerned.
Scarcity cues capitalize on human nature
Basic human nature often drives our decision-making. That means we don’t always make choices that are in our best interests, especially when we do not have complete information, or if we are making decisions under pressure or time constraints. Behavioural economists call some of these tendencies “behavioural biases” or “cognitive biases.”
Businesses have long been aware of these biases and how to leverage them through advertising. In fact, they spend a lot of time and money discovering the most effective way to push consumers’ buttons.
Businesses have long been aware of these biases and how to leverage them through advertising. In fact, they spend a lot of time and money discovering the most effective way to push consumers’ buttons. Unfortunately, businesses can cross the line from persuasion to outright deception when they use false or misleading claims, including fake scarcity cues online, to exploit these biases.
How do these biases apply to our earlier online shopping scenario?
First, if you haven’t done much shopping around, you won’t know if it’s a great deal or not. Second, while you have been told that 15 other people are considering it, you already have it in your virtual basket. If you take a few moments to check out the offerings of competitors, you might lose out. The item in your basket has in a sense increased in value simply because you have it in hand, and others appear to want it. You don’t want to risk losing it, even though there could be other deals out there that are at least comparable, if not better. So you complete the purchase without comparison shopping.
On the web, businesses can take scarcity cues to the next level
Advertisers have used scarcity cues for a long time, but in the online marketplace, scarcity cues and related social proofing are everywhere, and in many different forms. Furthermore, they can be easily automated and coded into websites and shopping platforms through various plug-ins and algorithms.
For example, certain third-party providers offer plug-ins that display remaining inventory to consumers on popular online retailing websites. However, the Bureau has discovered that some of these inventory counters are not actually linked to inventory levels. Instead, they are programmed to generate random or arbitrary numbers, and in no way provide actual or accurate information about the stock of the product. Put simply, fake scarcity cues can easily be automated in the online marketplace.
Scarcity cues and the Competition Act
The wording of the misleading advertising and deceptive marketing practices provisions of the Competition Act ensures that businesses and advertisers have all the freedom they need to be creative and innovative when marketing their products and services. However, in attempting to inform and persuade consumers, advertisers must be truthful and not deceptive.
When it comes to scarcity cues, businesses can certainly warn consumers that a product or service is somehow limited or stock is running low, but they should not do this if the information is not true. They should not mislead consumers with false or misleading claims about the limited availability of a product or service, or a specific price or other deal.
Furthermore, the general impression of any scarcity cue must be carefully scrutinized to ensure that no aspect of the claim is misleading. Consider an example where a hotel or online travel accommodation platform claims that there are only five rooms left at the consumer’s preferred hotel on the consumer’s desired travel dates, and 10 people are interested in those same rooms right now. What they might leave out is that those 10 people are looking to book that hotel for completely different days, perhaps for dates that are weeks or months away from the date the consumer is interested in. In this scenario, even if the claim about the number of rooms is true, the general impression that they are about to be booked up by others is false or misleading.
Why is it important for businesses to be truthful when making scarcity claims online? It is important because claims about the limited availability of a product, service or price have a material impact on consumers’ purchasing decisions. The Bureau considers that a claim is material if it could cause consumers to take actions, such as making purchasing decisions they may not otherwise have made.
Persuasion should not rely on deception
Scarcity cues can affect consumer behaviour. That’s why companies must advertise offers as being time limited, or products being in short supply and/or in high demand only when this is actually the case. When it comes to false or misleading scarcity cues, businesses may find that “playing hard to get” invites Bureau scrutiny and, ultimately, is a losing game.
Update on drip pricing
The ambush of hidden fees
It can be frustrating to decide to buy something because it’s a good price, only to find at the virtual checkout that additional fees were tacked on, and you have to pay more than what was advertised. This practice — offering something for sale at a price that is unattainable because of additional mandatory charges — is called drip pricing. Additional fees are “dripped” onto the originally advertised price during the online purchase process. Consumers use the advertised price when comparing similar offerings and making purchase decisions, and if that price is false, it can lead to misinformed decisions by consumers and unfair outcomes for honest competitors.
Recent amendments to the Competition Act include new provisions that underline Parliament’s determination to target misleading drip pricing practices. These amendments have now passed into law, making it a good time to revisit the subject of drip pricing.
Past Bureau efforts on drip pricing
The Bureau has been taking action against the practice of drip pricing for many years. In fact, Volume 1 of the Deceptive Marketing Practices Digest described drip pricing as a growing problem in the digital economy, and pointed out that a significant body of research shows that hiding or obscuring costs significantly affects consumers’ ability to make well-informed decisions.
2015: Car rental industry
The Bureau first took enforcement action on drip pricing in Canada’s car rental industry starting in 2015. The Bureau concluded that certain market participants were making claims that created the general impression that consumers could rent vehicles and related products at prices that were not in fact attainable because consumers were required to pay additional non-optional fees. These efforts culminated in four consent agreements that were discussed in Volume 5 of the Deceptive Marketing Practices Digest in Changing the status quo for car rental pricing practices: ensuring that the prices you see are the prices you pay. Under the terms of these consent agreements, the businesses were each prohibited from making any representations that create the materially false or misleading impression that consumers can rent vehicles and related products at prices that are not in fact attainable because of additional non-optional fees.
Advertisers have been invited for years to avoid making claims that create the materially false or misleading impression that consumers can purchase products at prices that are not in fact attainable because of additional non-optional fees.
2017: Online sporting and entertainment ticketing
The Bureau also took enforcement action to address drip pricing by online sporting and entertainment ticket companies. In 2017, the Bureau publicly called on sporting and entertainment ticket vendors to review their marketing practices and display the real price of tickets up front. Some companies were offering low prices to attract consumers, only to then add mandatory fees or charges later in the purchasing process, so that the real price of the tickets was much higher. Unexpected fees were often added later in the transaction, when buyers had already picked out their seats.
The Bureau followed with investigations into the pricing practices of Ticketmaster and StubHub, culminating in consent agreements and penalties of $4.5 million and $1.3 million respectively. In the consent agreements, the Bureau concluded that the companies advertised prices for tickets that, in fact, were not attainable because they charged consumers non-optional fees. These included “service fees,” “transactional fees,” “fulfillment fees” and “delivery fees,” in addition to the prices initially advertised. The Bureau further concluded that the way the ticket prices were advertised created the general impression that consumers could purchase tickets for less than what the companies actually charged, because consumers were required to pay the additional non-optional fees that were added later in the purchasing process. The consent agreements contained prohibitions that were similar to those found in the car rental agency cases.
Advertisers have been invited for years to heed the Bureau’s position, articulated in all of these consent agreements, that they should avoid making any representations, or claims, that create the materially false or misleading impression that consumers can purchase products at prices that are not in fact attainable because of additional non-optional fees.
Recent amendments to the Competition Act
Earlier this year, Parliament passed into law a number of amendments to the Act that included two new subsections, 52 (1.3) and 74.01(1.1) that specifically address drip pricing. These new subsections confirm, for the purpose of enforcing sections 52 and 74.01 of the Act, that the making of a claim of a price that is not attainable due to fixed obligatory charges or fees constitutes a false or misleading representation under the Act.
With these new provisions now in effect, the Bureau no longer needs to prove the deceptive nature of drip pricing when pursuing a case under the false or misleading representations provisions of the Act. Not only do the amendments make enforcement of the Act more efficient by not requiring the Bureau to establish that drip pricing is a false or misleading practice in each case, but they also improve transparency for online advertisers.
The amendments exclude charges or fees that represent only an amount imposed by or under an Act of Parliament or the legislature of a province. This tacitly acknowledges that in Canada, consumers are accustomed to paying taxes on many products in addition to the price represented, and are therefore unlikely to be misled if these taxes are not included in price claims.
Fixed and variable fees
The new provisions prohibit the dripping of mandatory fixed additional charges or fees. But what about fees or other charges that are variable, in that the amount varies depending on certain factors? While the new provisions do not address variable fees, it is crucial for businesses to remember that if the general impression conveyed by a price claim is false or misleading in a material respect due to the existence of variable fees, the conduct would still raise issues under the Act.
For example, if the general impression conveyed is that the advertised price is the total cost of a product (exclusive of taxes), when in fact the advertiser will supply the product only if the consumer pays certain additional variable but mandatory fees, then liability may arise under sections 52 or 74.01 of the Act. This could also raise issues under section 74.05 of the Act, which prohibits the sale of products above the advertised price.
Essentially, the obligation to avoid making false or misleading price claims, whether that involves variable fees or any other price-related misrepresentation, remains unchanged. Businesses are therefore encouraged to always carefully examine their pricing claims to ensure that they do not convey a false or misleading impression about the cost of a product, or supply a product at a price higher than the advertised price.
Furthermore, businesses need to be careful to ensure they don’t convey a false or misleading impression about the nature of any fees or charges, for example, by implying that a fee is a government-imposed tax on consumers when in fact the fee is just part of the cost of doing business.
Integrity in the digital marketplace
Prices are almost always a key, or material, factor in consumer decision-making. Ensuring honest and informative price advertising is important to prevent consumer harm, and to promote competition and discourage a race to the bottom among online competitors. Practices like drip pricing erode consumer trust in e-commerce and undermine its competitive potential. The new provisions explicitly recognize the corrosive effects of these practices. The Commissioner welcomes the clarity that the new provisions offer, and will continue to prioritize enforcement actions attacking drip pricing as part of his ongoing efforts to promote and maintain the integrity of the digital marketplace.
Reflections on the Bureau’s recent ICPEN presidency
International cooperation in extraordinary times
There is no question that the COVID-19 pandemic brought unprecedented challenges and profound change, forcing the world to rapidly adapt to evolving circumstances. In this time of uncertainty, the Bureau served as President of the International Consumer Protection and Enforcement Network (ICPEN). While the pandemic has receded and the torch has since been passed to other nations to lead the work of ICPEN, we want to pause and reflect on our experiences during that extraordinary time.
As first discussed in Volume 3 of the Digest, ICPEN is a global network of law enforcement and consumer protection agencies from over 65 countries. Its mandate is to coordinate and cooperate on consumer protection enforcement matters, to share information and intelligence on consumer protection trends and risks, and to share best practices.
The Bureau’s one-year term as ICPEN President began on July 1, 2020, at a time when all of us were just starting to adapt to the realities of remote work. In fact, our presidency was the first fully virtual tenure in ICPEN’s history. Despite this challenge, we explored new ways to come together and used technology in innovative ways. We advanced the issues that matter not only to Canadians, but also to consumers around the world.
Building consumer trust in a changing marketplace
The motto of our presidency was “Building Consumer Trust in a Changing Marketplace.” Indeed, while the market has been shifting online for a number of years, the rate of innovation and change during the pandemic was unprecedented. With consumers facing new borderless challenges and vulnerabilities, the need to keep up, for us as government agencies, was stronger than ever.
Our international partnerships are an important component of our efforts to address emerging problems in a rapidly changing, increasingly digital economy. When borders disappear, enforcement challenges increase. It makes little sense to work alone when a problem, stamped out in one region, pops up in another the next day. Borderless problems demand borderless solutions.
Deceptive Marketing Practices Digest, Volume 3
Our digitally focused program of work addressed:
- misleading and fraudulent marketing activities related to COVID-19, and global best practices regarding remote investigative and consumer protection work
- artificial intelligence as an investigative tool, and how businesses may use it to mislead consumers
- enforcement challenges, data privacy concerns and third-party responsibility associated with digital platforms
- misleading activities exploiting consumer concern about the environment
- online consumer behaviour and the cognitive biases that leave consumers vulnerable to deceptive conduct in the digital economy
Some public accomplishments
Despite the challenges, we continued to achieve many important goals together. Here are just a few of ICPEN’s recent accomplishments during our presidency.
ICPEN internet sweep: Misleading green claims
Consumer preferences have been shifting toward greener, cleaner products and services, even if it means paying a premium. However, when companies make misleading or unsubstantiated claims about the “greenness” of their products, sometimes referred to as “greenwashing,” consumers pay more for no reason, and the environment is likely no better off. Not only that, truly green competitors also lose out on a potential customer and the consumer misses out on the environmentally friendly product they really wanted all along. ICPEN members wanted to know just how pervasive this problem is, and we decided to find out.
In Volume 3, we highlighted ICPEN’s annual internet sweeps, where Network members and their partners around the world conduct coordinated examinations of the internet and other forms of electronic communication to uncover potentially misleading or deceptive online conduct. In 2020, Canada participated in a sweep of domestic and international websites across a range of sectors, including fashion, cosmetics and food, to examine claims about the environmental impact of their products or services. Nearly half of the websites appeared to be using tactics and/or making claims that could be considered misleading. These included:
- claims about environmental attributes that are not properly substantiated by adequate and proper testing, such as claims regarding the biodegradability of a product
- false or misleading third-party endorsements, such as the use of “eco-friendly approved” logos, stamps and labels that are not, in fact, associated with an accredited organization
- other false or misleading claims, such as a claim that a product is eco-friendly when in fact, it contains chemicals known to be damaging to the environment or is made using processes that emit high levels of pollution
Greenwashing is a significant global issue, and ICPEN members are now armed with new insights and information to help detect and deter businesses from exploiting consumers’ concerns about the environment.
Fraud Prevention Month: Sustainable consumption
Misleading green claims were also the theme of 2021 ICPEN Fraud Prevention Month, a series of education campaigns that ICPEN members run for a month every year under a common theme but focusing on an issue relevant to each individual participating agency. ICPEN participants implement various activities aimed at educating consumers and businesses about how to identify and protect themselves from fraudulent or deceptive practices.
During the Canadian presidency, the Fraud Prevention Month Campaign on Misleading Environmental Claims was launched on World Consumer Rights Day, March 15, 2021, coinciding with the Bureau’s own annual Fraud Prevention Month campaign. ICPEN members collaborated to educate consumers worldwide about green advertising and marketing claims with a goal to spread awareness about misleading environmental claims, and to ensure that consumers have the accurate information they need to make informed purchasing decisions.
Joint action regarding App Store and Google Play privacy policies
During the pandemic, consumers relied more than ever on technology for social connection and communication, commerce and entertainment. This technology dependence made consumers even more vulnerable to misleading practices involving their personal information. Data collection and privacy issues have been and continue to be important considerations for today’s consumers who interact daily with multiple apps that access a user’s personal data. It is important that users are not misled about when, why and how their data is collected online.
Accordingly, ICPEN members led a successful joint enforcement action against two of the largest tech companies of our time, Apple and Google. The UK’s Competition and Markets Authority, the Netherlands’ Authority for Consumers and Markets, and the Norwegian Consumer Authority took a leading role in the international effort to improve information available on the use of personal data by apps available in Apple’s App Store and in Google Play.
Strength in numbers
In Volume 3, we said that “when it comes to combatting deceptive online marketing practices, there is strength in numbers.” As President of ICPEN, we experienced the truth of this first hand, with our international partners continuing to fully engage in our cooperative efforts despite the pandemic challenges. The numbers speak volumes. In November 2020, the Bureau hosted a fully virtual ICPEN event that was attended by over 300 participants from over 45 nations. A subsequent virtual event in June 2021 was attended by representatives from over 40 nations. These events saw the international community come together to share experiences, learn from each other and continue the important dialogue central to the Network’s success.
In February 2021, we hosted the first fully virtual Best Practices Workshop Webinar series. Webinar topics over the course of the month included Misleading Environmental Claims, Enforcement on Digital Platforms, Enforcement of Consumer Data Privacy, and Consumer and Business Education. The purpose of the sessions was to provide working-level officers with hands-on, practical training that could be easily incorporated into daily work. Although the ICPEN Best Practices Workshops are typically offered in person, a benefit of these virtual sessions was that more officers from agencies around the world could participate and benefit from the knowledge and experience of other ICPEN members.
There is no question that the continued support, enthusiasm and engagement of our international partners was integral to the success of our presidency.
In a time characterized by a sense of isolation, we developed a new appreciation for connection. Through our involvement in international networks like ICPEN, we can accomplish more for consumers than we ever could individually.
As ICPEN President, we strove to be transparent in communicating to the world about ICPEN’s work and accomplishments. We fostered diversity by encouraging those with a variety of backgrounds, experiences and skills to participate in the network, and we cultivated collaboration with other global organizations to address the issues that matter most and to better serve consumers worldwide.
Looking forward, we know that ICPEN and its membership will continue to build on the accomplishments and lessons learned in this unforeseen and challenging time. Empowered by our connections to others, we have proven that together we can nimbly respond to novel challenges and rapidly evolving marketplace issues impacting consumers around the globe.