Legal requirements for price reductions
The Christmas and New Year holidays are approaching and retailers are increasingly organizing short-term price reductions. In this way, they aim to attract more customers and increase sales while consumers have the opportunity to buy more goods at attractive prices. Price reductions on goods and services are a common market practice in Bulgaria, which in view of the market development is currently beneficial for both retailers and consumers.
Price reductions in the framework of promotional campaigns are a powerful market tool that, on the one hand, could stimulate consumer demand and satisfaction. On the other hand, such promotional activities are likely to manipulate consumer behaviour through the application of unfair commercial practices which may not only harm consumers’ interests but also infringe on the rules of free competition in the market as a whole.
Therefore, there are a number of legal rules and restrictions on price reductions that retailers must comply with. Failure to do so could result in significant financial penalties for both non-compliance with the price reduction rules and for the application of unfair commercial practices. The rules on price reductions and the penalties for non-compliance are regulated by the Consumer Protection Act (“CPA”) and apply equally to offline and online trade.
In certain circumstances, it is also possible thatsome market practice concerning the conduct of promotional campaigns for price reductions be qualified as an infringement of the Competition Act, the penalties under which may reach up to 10% of the trader’s turnover for the previous year.
Mandatory content for the price reduction notice
The CPA requires that any price reduction notice (regardless of the manner in which it is made) must contain at least the following mandatory information:
- a precise indication of the goods and services/group of goods and services to which the price reduction applies;
- the conditions under which the price reduction is made (if any), and
- the period during which the goods and services will be sold at the reduced prices.
Ways in which price reductions must be presented
It is of utmost importance that the price reduction announcement is made in one of the following ways provided in the CPA:
- by placing the new price next to the prior price, which is crossed out, or
- by the words ‘new price’ and ‘prior price’ and an indication of the new and prior price, or
- by indicating the percentage of the price reduction, with the new price next to the prior price and the prior price crossed out.
Any use of other variations or combinations of price reduction presentation, beyond those listed, means that the legal requirements have not been met. It is also mandatory to use the words “prior” and “new” price rather than other similar words.
Which price is the “prior price”
All of the specified ways of indicating the price reduction must contain information about the “prior price”. The law emphasises on to the “prior price”, as it is of particular importance for the correct determination and communication of the intended price reduction to consumers.
Under the CPA, the “prior price” is the lowest price of the good or service that the trader has applied during a period of not less than 30 days before the date of the price reduction in the same commercial premises, website or application. This is the general legal rule.
For perishable goods or goods with a short shelf life (e.g. foodstuffs), and for goods which have been on the market for less than 30 days, the “prior price” may not apply for a period of less than 7 days before the date of the price reduction.
Period of price reduction
It is a very common unlawful commercial practice to apply price reductions for a period that significantly exceeds the period allowed by law. It should be borne in mind that the CPA provides that a price reduction notice may not be applied for a period longer than one month and shorter than one working day.
The only exception to this restriction is the possibility for the price reduction to cover a period of up to 6 months in the following cases explicitly provided for in the law:
- full or partial clearance sale of the goods in stock upon sale of the commercial premises;
- full or partial clearance sale of the goods in stock on the commercial premises upon partial suspension of the business activity of the trader (only if the price reduction on the said legal ground has not been invoked during the preceding three years);
- carrying out remodeling and construction works on the commercial premises for a period of more than 30 working days;
- transfer of the enterprise or liquidation of the company.
Progressive price reduction
Until recently, the term “progressive price reduction” did not exist in Bulgarian consumer law. It was introduced by the amendments to the Consumer Protection Act, which entered into force on 22 May 2022, transposing Directive (EU) 2019/2161 into Bulgarian law for amendment of Directive 98/6 of the European Parliament and of the Council on the protection of consumers in relation to the indication of the prices of goods.
Therefore, for the moment, the progressive price reduction is still relatively unknown as c commercial practice to retailers and often leads to a misunderstanding of how it should be applied lawfully.
According to the European Commission’s Guidelines, the concept of “progressive reduction” means a specific commercial practice when “the price is gradually reduced, without interruptions, during the same sales campaign”. In the case of progressive reduction, Member States are given the right to provide that the prior price is to be the price at which the goods were sold before the reduction began. Bulgaria has adopted this rule accordingly.
According to the official opinion of the Consumer Protection Commission, a progressive price reduction campaign cannot last more than one month. After the expiry of this maximum period of the progressive discount, the trader is obliged to cease the price reduction campaign and to start offering the product again at the regular price.
The trader is entitled to determine freely the value of the regular price and it is in no way bound by the prior price announced during the progressive reduction, nor by any of the reduced prices applied during the campaign.
The above legal requirements and restrictions are general. As a rule, they apply to all types of goods and services. Anyway, specific legal requirements may apply to particular types of goods. Depending on the specifics of each promotional campaign, it is possible to occura number of other legal aspects that should be considered on a case-by-case basis (e.g. anti-competitive aspects).
The acting legislation also contains a number of requirements and restrictions on the advertising of consumer goods, including the advertising of price reductions, which should also be taken into account in any promotional campaign. We will focus on the legal requirements for advertising campaigns in detail in an another article.
Following the above, we strongly advise retailers prior to launch of price reduction campaigns to consult an attorney with expertise in the commercial, marketing, and consumer aspects of retail business.
Law firm “Dr. Miroslava Hristova” could provide you with full assistance in all matters related to the implementation of promotional campaigns in retail sales. For more information, you may contact us at email@example.com.
The foregoing information is based on the acting legislation by 02.11.2022 and does not constitute legal advice or guidance for any action by any person interested in the subject matter of the article.