Guide to "On Sale" and Comparative Pricing

Everything you sell, whether product or service, has a price, but those prices aren't set in stone. You put competitive prices on some items, distributors may offer special discounts, and old merchandise must be cleared out to make room for new. While you can place whatever price you want on goods, you have to be careful once you place a second price on the label. Whenever you label goods "on sale" or compare your prices with those in other stores, you must:

1. Clearly label your goods.
2. Use wording that's not deceptive or misleading.
3. Be able to back up your pricing claims.

Action Steps
The best contacts and resources to help you get it done

Make sales special

In order for a product to be on sale, you must have previously been selling it -- or at least offering it for sale -- at a higher price.

I recommend: The Federal Trade Commission (FTC) has extremely detailed guides against deceptive pricing that outline what a sale price implies, namely that the product was on sale for a higher price for a "reasonably substantial period of time." Some states offer even more detailed guidelines, such as Georgia's Consumer's Guide to Deceptive Advertising, which states that the regular price must have been charged at least 50% of the time that the product has been offered for sale.

Watch your wording

Did you actually sell products at the regular price, or was the price a turnoff that kept customers from buying? What percentage of your products are actually on sale, and for how much off their regular price.

I recommend: In its guides on deceptive pricing, the FTC notes that you can should avoid phrases such as "formerly sold at $XX.XX" unless a substantial number of sales took place at that price. If not, then the wording is deceptive. If the product didn't sell, stick to more neutral phrases such as "previously $XX.XX" or "was $XX.XX." The Better Business Bureau (BBB) notes that claims of "emergency" or "going out of business" sales must be backed up by truth, and items labeled "imperfect" usually shouldn't have comparative prices.

Keep sale prices on the up and up

A common advertising phrase for sales is "up to XX% off," and the higher the number, the bigger the attraction for customers -- but keep that number at a reasonable level.

I recommend: In a column on good business practices, the Better Business Bureau of New York notes that a claim of "up to 80% off" needs to be backed up with a significant number of items being offered at that discount. The national BBB suggests that at least 10% of sale goods should be at the maximum advertised discount. Anything else would be deceptive.

Have an example handy

It's great to practice comparative pricing and advertise that your prices as lower than the competition, but are they really?

I recommend: In a study of home shopping services, the Better Business Bureau of New York found that the amount of savings claimed by home shopping programs was exaggerated. More seriously, the companies would advertise "comparative prices" on exclusive merchandise that wasn't available through other merchants. If you claim a cheaper price than a competitor, you better have proof of that claim.

Say "free" like you mean it

Customers love to see and hear the word "free" in advertisements and sale notices. Your job as a businessperson is to stick to the meaning of the word.

I recommend: The FTC has an entire guide about the word "free" and similar sale notices. The two most important points: (1) If you have a "buy 1, get 1 free" sale, you can't raise the price of a good to cover the cost of the free item, and (2) if there's a condition on receiving a free item, such as buying three widgets, you need to state that condition clearly in all advertising.

Tips & Tactics
Helpful advice for making the most of this Guide

• If the competitor you've been comparing yourself to changes its prices, you need to either find a new, high-priced competitor so that your claims remain true or change your advertising.
• Be aware that if you use comparative pricing for only a few of your products, customers might assume that the non-labeled products cost the same or possibly even more than a competitor's goods.
• Look at your advertising through an objective eye. If it sounds unbelievable, then find the proof to back up your claims or change the ads.