FTC Staff Comment to the Better Business Bureau Concerning its Draft Code of Advertising for Comparative Price Advertising

_. :
SUite 1.37
55 East Monroe Street
ChICago. '"'00'$ 60603
(312) 353-8156
UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
CHICAGO REGIONAL OFFICE
September 19, 1990
COMMISSION AUTHORIZED
Steven J. Cole
Vice President and Senior Counsel
Council of Better Business Bureaus
4200 Wilson Boulevard
Arlington, Virginia 	22203-1804
Dear Mr. Cole:
The staff of the Federal Trade Commission's Chicago Regional Office and the Bureaus
of Consumer Protection and Economics are pleased to have this opportunity to respond to
your letter requesting our comments on the Council of Better Business Bureaus' draft Code
of Advertising for Comparative Price Advertising ("Draft Code" or "Code").1
As the Council recognizes, price advertising is vital to price competition at the retail
level. 	We have reviewed the Draft Code and we believe that it in general provides useful
guidance to advertisers. 	At the same time. it is possible that a few of the Code provisions
could be interpreted rigidly and thereby unnecessarily restrict some forms of truthful price
information, which in turn could reduce the amount of truthful price advertising available to
consumers.2 	We therefore suggest that the Council consider whether revising the guidelines
to balance specificity with the flexibility that retailers need to adopt and advertise their pricing
policies might be warranted. 	The Draft Code is a constructive document with considerable
potential to benefit advertisers and consumers alike, and we will limit our discussion to several
areas where we believe the Code could be improved.
I. 	Interest and Experience of the Staff of the Federal Trade Commission
Comparative price advertising is a field in which the Federal Trade Commission (FTC)
has long been involved. and one that has also been the subject of significant activity at the
1 	These comments are the views of the staff of the Chicago Regional Office and Bureaus
of Consumer Protection and Economics of the Federal Trade Commission. 	They are not
necessarily the views of the Commission or any individual Commissioner.
2 These comments are limited to the consumer protection aspects of the Code.

Steven J. Cole
September 19, 1990
Page -2-
state and locallevel.3 Our interest in comparative price advertising stems both from the FTC's
mandate to protect consumers from unfair or deceptive practices and from our mandate to
maintain and promote vigorous competition.4
The FTC's involvement in deceptive pricing enforcement is almost as old as the agency
itself,5 and has consisted principally of case enforcement. 	In 1958 the FTC adopted its first
Industry Guides on reference pricing.6 On January 8, 1964 the FTC promulgated revised
Guides Against Deceptive Pricing (the "1964 GUides")?
The FTC continues to challenge deceptive price claims.8 Phony sales, or other inflated
claims of "savings" based on misrepresentations of an advertiser's current prices are practices
that can injure consumers, and injury is most likely when the advertised "sale" prices are higher
3 	See. e.g., letter from William C. Macleod, Director, Federal Trade Commission Bureau
of Consumer Protection, to Helena Huang, Consumer Protection Division, Massachusetts'
Attorney General (November 18, 1988) (Comment on proposed revisions to Massachusetts'
Retail Advertising RegUlations); Illinois Price Comparison Rule, 14 III. Admin. Reg. 470 (effective
June 28, 1989).
4 	See 15 U.S.C. § 41 et seq.
5 	See, e.g., Chicago Mill Works Co., 1 FTC. 488 (1919) (order against a manufacturer
of lumber and bUilding materials who advertised falsely that purchasers could realize savings
from 25-50 percent by buying directly from him).
6 	23 Fed. Reg. 7955 (October 15, 1958).
7 	16 C.F.R. Part 233 (1988).
8 	Recent Commission actions concerning price claims have involved misrepresentations
of the true cost, or hidden charges that were not disclosed to consumers until after purchase.
See, e.g., FTC. v. World Travel Vacation Brokers, Inc., No. 87 C 8449 (N.D. III. Sept. 28, 1987)
(temporary restraining order) (Complaint alleged that the company represented that the costs
of its travel certificates would entitle consumers to a round-trip airfare to Hawaii, when, in fact,
the cost of the airfare was added to the actual rates for accommodations); F.T.C. v. Amy Travel
Services, Inc., No. 87 C 6776 (N.D. III. Aug. 3, 1987) (temporary restraining order) (Complaint
alleged that company engaged in unfair and deceptive acts or practices by misrepresenting
and deceptively failing to disclose the true costs of the vacations they sold); and General Rent-
A-Car, Inc., 54 Fed. Reg. 30,106 (July 18, 1989) (consent order) and Alamo Rent-A-Car, Inc.,
54 Fed.·Reg. 25,106 (June 13, 1989) (consent order). 	(The complaints in both General Rent-
A-Car and Alamo Rent-A-Car alleged that the companies failed to disclose to consumers the
existence and amount of airport surcharges and mandatory fuel charges when consumers
inquire about renting vehicles).

Steven J. Cole
September 19, 1990
Page -3-
than the prices offered by competitors or when consumers are misled into purchasing products
with a different level of quality than they would otherwise consider.9
Truthful price information, by contrast, helps consumers make informed 	purchase
decisions. 	In addition, comparative grice advertising plays an important role in promoting
vigorous competition among retailers.1 Studies have demonstrated that price advertising tends
to enhance competition and lower prices. 11
The challenge to policy makers and the Council is to protect consumers from deceptive
price claims without imposing unnecessarily strict or rigid standards that could discourage
truthful price advertising and ultimately reduce competition. 	It is particularly important that all
advertisers, large and small alike, enjoy sufficient latitude to respond qUickly to changing
market conditions and competitive pressures. 	If overly rigid standards or substantiation
requirements prevent sellers from truthfully advertising price changes qUickly and effectively,
consumers will be denied useful information and competition in general will be blunted. 	With
these considerations in mind, we turn to a detailed analysis of the Draft Code provisions.
II. 	Analysis of the Draft Code
The Draft Code appropriately notes that it is not possible to provide standards that will
apply specifically to the advertising of all retail goods and services in the economy.12 	In our
view the attendant flexibility is a major strength of the Draft Code. 	Although departures from
9 	See R. Pitofsky, Beyond Nader: Consumer Protection and the Regulation of Advertising,
90 Harv. L. Rev. 661, 687 (1977).
10 The Supreme Court has observed that the free flow of commercial information "is
indispensable to the proper allocation of resources in a free market system." Virginia Pharmacy
Board v. Virginia Consumers Council, 425 U.S. 748, 765 (1976) (invalidating statute that
prohibited pharmacist from advertising prescription drug prices). 	Accord, Central Hudson Gas
& Electric Corp. v. Public Service Commission, 447 U.S. 557, 561-62 (1980).
11 See, e.g., Cleveland Regional Office and the Bureau of Economics of the Federal Trade
Commission, 	Improving 	Consumer 	Access 	to 	Legal 	Services: 	The 	Case 	for 	Removing
Restrictions on Truthful Advertising, Federal Trade Commission Staff Report (1984); Benham,
The Effect of Advertising on the Price of Eyeglasses, 15 J. of L. and Econ. 337 (1972); Cady,
An Estimate of the Price Effects of Restrictions on Drug Price Advertising, 14 Econ. InqUiry
493 (1976); Kwoka, Advertising and the Price and Quality of Optometric Services, 74 Am. Econ.
Rev. 211 (1984); and Schroeter, Advertising and Competition in Routine Legal Services Markets:
An Emptrical Inve~tigation. 36 J. of Indus. Econ. 49 (1987).
12 Draft Code at 1.

Steven J. Cole
September 19, 1990
Page -4-
the Code may not constitute a sufficient basis to conclude that a claim is deceptive, a
deviation from the standards raises a question whether the claim is deceptive under the
circumstances of the case.
We identify in the analysis that follows certain areas where we believe the Code could be
further improved. 	In order to provide an orderly review, we have divided our comments into
four parts: (a) basic principles; (b) comparative price provisions (i.e., the first four provisions
of the Draft Code); (c) price matching and lowest price claims; and (d) use of the term "sale."
A. 	The Draft Code's Basic Principles
The Council's efforts to provide basic, voluntary guidelines intended to promote truthful and
accurate comparative price advertising will benefit consumers if the efforts reduce the types
of potential injury outlined above without imposing unreasonable burdens. In assessing how
well the 	Draft Code 	meets this 	goal, the 	Council 	may wish to 	consider how the 	FTC
approaches its enforcement responsibilities in this area.
The FTC considers several factors when determining whether an advertisement deceives
consumers in violation of Section 5. These factors are set out in the Commission's 1983 Policy
Statement on Deception, which defines as deceptive any "representation, omission or practice
that 	is 	likely 	to 	mislead the 	consumer 	acting 	reasonably 	in the 	circumstances, 	to 	the
consumer's detriment.,,13 	When applied to comparative pricing claims, we believe that this
framework 	appropriately 	balances 	the 	need 	to 	protect 	consumers 	from 	deceptive
advertisements and the need to provide retailers with the flexibility to advertise accurate price
information. 	We recommend that the Council incorporate the FTC's definition of deception to
provide useful guidance to advertisers when their marketing methods do not fit easily into the
safe harbors envisioned by the Draft Code.
In this regard, we suggest that the Council consider noting explicitly that the objective
of pricing guidelines is to prevent deception. 	Thus, the Council may wish to state that any
available information concerning consumer interpretations of particular claims would be useful
in applying these guidelines. 	We also believe· the Council should consider incorporating a
general statement that the use of qualifying or otherwise informative disclosures concerning
price and sales claims could alleviate deception that might otherwise result from advertisements
that depart from the more specific guidelines of the Code.
13 ~olicy Statement on Deceptive Acts and Practices, attached to Commission decision in
Cliffdale Associates, Inc., 103 F.T.C. 110 (1984).

Steven J. Cole
September 19, 1990
Page -5-
The Draft Code states as a "basic principle" that advertisers should "be prepared to
substantiate any claims or offers made before publication or broadcast ... "14 	This principle is
similar to the FTC's well-established legal requirement that advertisers and ad agencies
possess a reasonable basis for objective advertising claims before they are made. We suggest
that the Code recommend substantiation under standards similar to those articulated by the
FTC in its Policy Statement Regarding Advertising Substantiation 15 to ensure that the Code is
not read to require that advertisers substantiate purely sUbjective claims, such as "you'll love
our prices." 	This policy would require that advertisers possess a reasonable basis for claims
such as "our prices are the lowest in town."
B. 	The Draft Code's Comparative Price Provisions
The Draft Code recognizes that an advertiser may offer a price reduction or savings by
comparing its selling price with: (1) its own. former price; (2) the current price of identical
merchandise offered by others in the market area; 	(3) the current price of comparable
merchandise offered by others in the market area; or (4) a manufacturer's list price.
1. 	Comparisons with Own Former Seiling Price
Section 	1(a) 	of the 	Draft 	Code 	addresses 	the 	deceptive 	practice 	of advertising
substantial reductions from a price that has been increased greatly for a brief period of time
for the sole purpose of enabling the subsequent offer of a large price reduction. 	Pursuant to
this section of the Code, an advertiser may claim savings from its own former selling price only
if the former selling price was a bona fide or genuine price from which the reduction represents
a genuine savings for the consumer.
The Code provides two methods by which a retailer can establish that its former selling
price was a bona fide price. 	First, a former selling price will be considered a bona fide price
if "'reasonably substantial sales' were made at or above the price in the recent regular course
of business" ("reasonably substantial sales" test).16 	Second, if reasonably substantial sales
cannot be documented, a retailer may nonetheless establish that its former selling price was
a bona fide price if the merchandise was offered in "good faith" for a "reasonably substantial
14 Draft Code at 14. (emphasis added). 	Although the Code does not expand on this
statement of general principle, some of the provisions of the Code that follow provide guidance
on the types of substantiation that advertisers should possess.
15 See FTC Policy Statement Regarding Advertising Substantiation (incorporated into case
law by the Commission in Thompson Medical Co., 104 FTC. 684, 821-26 (1984)).
16 Draft Code at 3.

Steven J. Cole
September 19, 1990
Page -6-
period of time" in the recent regular course of business ("good faith" test).17 	In providing a
"good faith" test, the Code appropriately provides retailers the latitude to advertise truthful price
reductions when substantial sales have not occurred at the former price. 18
The Code properly recognizes that the relevant time period for evaluating a savings
claim under the "reasonably substantial sales" test may vary depending upon the product in
question. 	For instance, if the product is seasonal, the "season" may be the appropriate time
period in which to evaluate sales volume. 	By contrast, if the product is a staple, up to a year
could be a proper period of measurement. 19 On the other hand, for a product that is subject
to significant price fluctuations (such as fresh meat or produce), a week might be the most
appropriate period of measurement. 	We interpret these Code provisions to provide a retailer
considerable latitude in selecting an appropriate time period. 	We presume, for example, that
a retailer of a staple item could advertise a reduction from a former price if reasonably
substantial sales had occurred at that price during the last year. 	The Council may wish to
consider stating this presumption explicitly or providing specific examples in order to provide
additional guidance to retailers.
With regard to the "good faith" test, the Council may also wish to consider providing
additional clarification to ensure that Section 1(a)4's discussion of "relevant selling period" is
not interpreted to impose an undue burden on advertisers of staple goods. 	The factors
outlined in the Code that can be relied on to show "good faith" provide practical guidance that
will be useful for advertisers in determining whether their business practices comply with the
Code. The Council may wish to consider providing similar guidance regarding how advertisers
may determine a "reasonably substantial period of time" for staple goods.
Without greater specificity, it may be difficult for retailers to understand when they can
legitimately advertise a price reduction. 	For example, a retailer who receives a shipment of
television sets and establishes a retail price may encounter poor sales at that price because
of changes in demand or because of price cutting by competitors. 	Such a seller might then
wish to adopt lower prices and advertise this decision for the very reason that sales had been
disappointing at the former price.
17 Id.
18 This is similar to the Commission's 1964 Guides. 	See 1964 Guides, supra note 7,
Section 233.1. 	As the Guides state: 	"If the former price is the actual, bona fide price at which
the article was offered to the public on a regular basis for a reasonably substantial period of
time, it provides a legitimate basis for the advertising of a price comparison."
19 See supra note 16.

Steven J. Cole
September 19, 1990
Page -7-
In this case, the television retailer might Interpret the Draft Code to preclude comparative
advertisements for lower prices unless the higher price had been in effect for the majority of
a selling period of up to one year. This degree of caution could deter retailers from advertising
truthful price reductions that would benefit consumers.20 We suggest therefore that the Council
consider providing additional clarification in this area by listing examples of criteria that would
be relevant in determining when shorter times are reasonable. 	We suggest that the Code
expressly allow, among other things, competitors' price reductions, changes in demand, or
other objective factors as justification for advertising a reduction in price when few items have
been sold at the former price and the former price has been in effect for only a relatively short
period of time.
2. 	Comparison With Price of Identical Merchandise Sold by Others
Another common form of comparative price advertising states that a price for an article
is less than that being charged elsewhere for the same item. 	We agree with the Draft Code
that this marketing technique "can enhance competition in the marketplace to the benefit of
consumers." 	Under the Code, the advertised reference price should represent the "prevailing
price, offered in representative principal retail outlets in the market area, and not merely an
isolated 	and 	unrepresentative 	price,tt21 	unless 	the 	retailer 	discloses 	the 	basis 	for 	the
comparison.
We agree that the type of price comparisons addressed by this section should not be
made without sufficient support. 	We would be concerned, for example, if a retailer stated "our
toaster $24, compare elsewhere at $60" if the only competitor charging the higher price was
one upscale full service store and the vast major:ity of retailers charged a lower price than the
advertising retailer. 	The Code is clearly intended to prevent this type of unqualified claim
where the higher comparison price is "isolated and unrepresentative."
We 	suggest, 	however, 	that 	the 	Draft 	Code 	specify 	more 	clearly 	what 	level 	of
substantiation is needed to justify these claims. Section 1 (b)(2) of the Draft Code provides that
representative principal retail outlets are those that individually or collectively represent a
significant share of the market for the offered merchandise. 	The Code suggests that price
20 	Similarly, sellers of white goods, such as sheets and towels, may wish to lower prices
to participate in the periodic ''white sales" that are characteristic of this area of retailing. 	A
relevant selling period of up to one year could curtail the frequency of such beneficial price
reduction.
21 	Draft Code at 5.

Steven J. Cole
September 19, 1990
Page -8-
comparisons be based on a survey of a "representative sample" of principal retail outlets within
the advertiser's market or trade area. 	Factors cited as relevant in determining an appropriate
cross section of outlets include location, size, and pricing methodologies.22
The Council may wish to consider describing more fully the role "pricing methodologies"
is to play in the selection of principal retail outlets for a price survey. 	As currently drafted,
this section of the Code may be open to several interpretations. 	First, an advertiser might
conclude that the sample could include only those outlets that adhere to the same general
pricing policy as the retailer advertising the price comparison. 	Second, the Code might be
read to mean that the sample could include outlets, such as full service department stores, that
follow a common pricing methodology even though the pricing methodology differs from the
advertising retailer's. 	Third, and most plausibly, the Code could mean that the sample must
include outlets that span the range of pricin~ methodologies commonly followed within the
relevant trade area.
Consumers would likely be harmed if the first interpretation were followed. 	We would
not want to see the Code interpreted to require that discounters limit comparisons to prices
that 	are 	charged 	by 	other 	discounters. 	Such 	an .interpretation 	could 	severely 	restrict
comparative price advertising and deny consumers truthful information on alternative prices that
are commonly charged within the trade area.
The likely effects of the second and third interpretations are less clearcut because much
depends on the implied claims that accompany express price comparisons. 	Consider, for
example, the simple express claim, "Our price $40, Compare elsewhere at $60." 	Consumers
might infer from this claim that the retailer was tr~thfully comparing its $40 price with the $60
price charged by a representative sample of full service department stores in the trade area.
If consumers interpret the claim in this way, the advertiser could substantiate the claim by
showing that full service department stores customarily charged $60.
Alternatively, and more plausibly, consumers might infer from this claim that the $60
price reflected the average price charged by the full range of retailers in the trade area. 	If
consumers interpret the claim in this way, the retailer's substantiation burden would require the
more extensive survey commensurate with consumers' expectations.
Given the broad 	range 	of possible SUbstantiation 	burdens, 	one 	of which 	entails
substantial costs to retailers, we suggest that the Council consider incorporating an expanded
discussion of what is meant by the term "pricing methodology." Further, the Council may wish
to 	note 	explicitly 	that the 	appropriate 	substantiation 	standard 	derives 	directly from 	the
messages consumers infer from the advertisements.
22 Id.

Steven J. Cole
September 19, 1990
Page -9-
In this regard, we note that any standard could prove unduly burdensome if applied
rigidly, 	particularly 	in those 	instances where retailers 	run 	frequent advertisements listing
comparison prices for a large number of items. 	For example, it seems unlikely that general
claims such as "compare at $60" accompanying each of many advertised items would lead
consumers to believe that the advertiser had invested substantial resources in a rigorous
survey designed to estimate numerous prevailing market prices with great precision. 	Rather,
it may be that consumers would expect that the seller had made a good faith effort to
determine that the advertised items were commonly for sale at the cited higher price. 	Of
course, even under this circumstance, the advertiser would have to substantiate this general
claim. 	Thus, for example, a claim that a product is sold in department stores for $60 would
require substantiation relating to department store prices generally, and a claim that a product
is sold by a leading department store for $60 would require information about a particular
competitor's price.
We also recommend a flexible application of the Code's provision that large regional and
national chains "be prepared to substantiate that the competition's price is the prevailing price
charged by representative principal retail outlets in each area in which the advertising was
principally disseminated.,a23 We would note that the 1964 Guides recognize the latter problem
in the context of a suggested retail price, providing that "a manufacturer ... who does business
on a large or national scale cannot be required to police or investigate in detail the prevailing
prices of his articles throughout so large a trade area.,,24
3. 	Comparison with Price of Comparable Merchandise
Sold by Others
Another wayan advertiser may engage in comparative price advertising is by comparing
its current selling price with the current price of comparable merchandise offered by others in
the market area. 	Pursuant to Section 1(c) of the Code, a retailer who compares the price of
its merchandise with the current price of merchandise sold by others "must be able to
demonstrate that the merchandise is indeed comparable in virtually all material aspects." If the
comparable merchandise is "superior in any .material aspect," the advertiser must disclose this
fact clearly and conspicuously in the advertisement.25 	For purposes of this provision, a
23 The Code appropriately does allow a national advertiser to reduce its substantiation
burden by identifying in the advertisement the trade areas to which the claim applies. 	We
question, however, whether in such circumstances it is also necessary to require the advertiser
to 	"disclose 	clearly 	and 	conspicuously 	that 	prices 	in 	the 	community 	where 	the 	ad 	is
disseminated may vary from those found in the areas described in the claim." 	Draft Code at
6.
24 1964 Guides, supra note 7, Section 233.3(g).
25 Draft Code at 6.

Steven J. Cole
September 19, 1990
Page -10-
"material aspect" is "one which is likely to influence significantly the consumer's purchasing
decision.'.26 	.
The FTC recognizes that failing to disclose material facts can be deceptive.27 The relevant
question is whether an advertisement that compares the prices of two items would lead a
reasonable 	consumer to believe that the items were comparable in virtually all material
respects. 	Such 	a 	conclusion 	might 	be 	expected 	if the 	items 	compared 	were 	simple
commodities that perform very simple functions. 	The Code may work well in these situations,
since it might not be difficult for advertisers to note the presence of any significant differences
between the products being compared.
An advertisement might also suggest that the retailer's product is identical or very similar
in all material respects to the item compared if the higher priced item were not specifically
identified. 	For exampJe, it could well be dec~ptive to advertise a very basic food processor
selling for $50 with the statement "Compare at $250" if the unidentified comparison were with
a top of the line brand.28
In other situations, however, reasonable consumers may not interpret comparative price
claims to mean that the two products are functionally identical or very similar in all material
respects. 	For example, consumers would be unlikely to expect that there were no material
differences between two competing brands of automobiles (even when fitted with equivalent
options) simply because an advertisement compared the prices of the two cars. 	Yet, the Code
would allow this kind of advertisement only if all material differences were disclosed.
In such situations, we believe consumers would expect to engage in additional shopping
and research to compare individual features that. were of particular concern to them. 	Unlike
a catalog or a detailed buying guide, price advertising by its very nature does not attempt to
provide consumers with all of the information needed to make a purchase decision. 	The
function of such advertising in many instances merely will be to signal the availability of
bargains, under the reasonable expectation that consumers will inquire further for details.
26 Id.
27 Policy Statement on Deceptive Acts and Practices, supra note 13.
28 The potential for abuse can also exist where consumers interpret an ad to mean that
the advertiser's product is approximately equal in quality, though not necessarily identical, to
the compared item. 	Such an interpretation would be particularly reasonable when advertisers
cite comparison prices for unstandardized items such as furniture and clothing. 	If a furniture
retailer were to advertise that its $200 lounge chair should be compared with competitors'
lounge chairs selling for $400, consumers reasonably could conclude that the quality of the
chairs was indeed comparable.

Steven J. Cole
September 19, 1990
Page -11-
Requiring 	retailers 	to 	discover 	and 	disclose 	all 	such 	differences 	in 	comparative 	price
advertisements could 	impede the 	dissemination of important price 	information for many
consumer products.29
Thus we would recommend that disclosure of material differences should be required
only in those instances in which the advertisement states or implies that the products are
functionally identical or very similar in all material respects. The preceding discussion suggests
that some comparative price advertisements are unlikely to contain this claim.
4. 	Ust Price
The final direct price comparison that the Draft Code addresses involves manufacturers'
suggested retail prices. 	The Code would prohibit use of these prices for comparisons in
advertising unless the ~list price~ is an actual former price of the advertiser or is the price ~at
which the product is currently offered for sale by representative principal retail outlets.'o3O
The standards for substantiating list price references would be the same that the Code
specifies for comparisons with former prices or prices of identical goods sold by competitors.
Our earlier comments concerning the effects of these standards are also relevant here. 	In
particular, 	an 	overly 	strict 	application 	of 	the 	Section 	1 (b) 	substantiation 	standard 	for
comparisons with prices of identical goods sold by competitors could unduly burden retailers
who advertise list price comparisons for a large number of items.
We agree that retailers must have a reasonable basis for all objective comparative price
claims. 	However, as noted earlier, the 1964 Guides explicitly acknowledge that large regional
and national sellers can not be expected to monitor in detail prevailing prices over a large
trade area. 	The Guides state that such sellers will not be considered to have engaged in a
29 In International Harvester Co., the Commission addressed a similar issue of disclosure
burden:
Since the seller will have no way of knowing in advance which
disclosure is important to any particular consumer, he will have
to make complete disclosures to all. 	A television ad would be
completely buried under such disclaimers, and even a full-page
newspaper ad would hardly be sufficient for the purpose . . . The
resulting costs and burden on advertising communication would
very possibly represent net harm for consumers.
See International Harvester Co., 104 FTC. at 1059-60.
30 Draft Code at 7.

Steven J. Cole
September 19, 1990
Page -12-
deceptive practice if the seller advertises a list price Min good faith . . . which does not
appreciably exceed the highest price at which substantial sales are made in his trade area.,,31
Language of this kind should prove sufficient to discourage deceptive claims of savings from
a list price that is substantially above actual prices charged in the trade area.
We would urge, however, that any guidelines concerning list price comparisons be
applied cautiously. 	There are many situations where suggested list prices that are not
prevailing prices can serve useful competitive purposes without deceiving consumers. 	For
instance, in some cases suggested list prices established independently by a manufacturer
could provide a benchmark for consumers, allowing different retailers to compete by advertising
different discounts from the same suggested list price. 	Such advertising would be particularly
useful for products that come in many different configurations or models and are offered for
sale by a variety of sellers.
For example, use of a common denominator such as a manufacturer's suggested list
price could be of significant assistance to consumers in shopping for such products as window
blinds. 	Because price depends critically on the size of the window to be covered and the
specific style of blind chosen, consumers could not compare competitors' prices meaningfully
unless retailers happened to advertise the same size and style of blind. The common practice
of advertising percentage discounts from the manufacturer's list price solves this problem;
consumers can determine easily which retailer offers the largest percentage discount and hence
has the most competitive prices on a given manufacturer's line of blinds, even though few if
any of the retailers actually charge the list price.32
The example of automobile sales is also illustrative. 	We believe that most consumers
understand that the manufacturer's sticker price is rarely the actual selling price.33 	Because
the sticker price for a specific model of car is Identical for all dealers, it can serve as a valuable
basis for consumers to compare discounts.
31 	1964 Guides, supra note 7, Section 233.3(g). See also 1964 Guides at Section 233.3(h)
(illustrating when a manufacturer's conduct would not constitute a deceptive practice).
32 This example assumes that retailers are using a uniform manufacturer's list price as the
basis for their price savings claims. 	We note this illustration is in no way intended to indicate
the actual presence or absence of deception in the sales of this type of product.
33 The Automobile Information Disclosure Act, 15 U.S.C. § 	1232 (1958), contains no
requirement that the automobile's suggested price bear any relationship to its final negotiated
price. 	The Act requires that the window sticker provide, among other things, ''the retail price
of [the] automobile suggested by the manufacturer." 	Id. at 1232(1)(1).

Steven J. Cole
September 19, 1990
Page -13-
C. 	Price Matching and Lowest Price Claims
Section 10) of the Code expresses concern about the use of price matching and lowest
price claims. The Code treats these terms differently. The Code states that some claims imply
that the consumer will not find lower prices for the advertised Items anywhere else and states
that these lowest price claims are difficult, or impossible, to substantiate. The Code also notes,
however, that similar terms can carry the different message that the advertiser does not
necessarily have the lowest prices, but will lower prices of advertised goods if consumers find
them offered elsewhere at a lower price.
As we read the Draft Code, it is intended to encourage advertisers to make these
distinctions more explicit than is currently common. 	If a lowest price claim Is being made, the
Draft Code provides that the advertiser should be prepared to substantiate that its prices are
in fact the lowest in the trade area. 	If, on the other hand, a retailer is offering only a price-
matching policy, the Code would provide that all material terms of the pledge be set out in a
clear and conspicuous manner in any print ad.34 We believe that these provi$ions of the Draft
Code may benefit consumers by clarifying the actual content of lowest price or price matching
claims.35
The Council may wish to reconsider, however, the Code's posture toward lowest price
claims in advertisements that cover a large number of Items or competitors. 	In this regard, the
Code notes that:
Despite an advertiser's best efforts to ascertain competitive prices,
the 	rapidity 	with 	which 	prices 	fluctuate 	and 	the 	difficulty 	of
determining prices of all sellers at all times preclude an absolute
knowledge of the truth of generalized lowest price claims. 	Thus,
34 Draft Code at 10.
35 We believe that an advertisement which indicates that substantial conditions, terms, and
limitations apply to the price-matching policy, generally would be sufficient to prevent the
deceptive practices addressed in this section of the Code. 	Of course, it would be another
story if the conditions, terms, and limitations were so extensive as to bring into question the
good faith of the overall claim of price matching. 	Under certain circumstances, requiring the
disclosure of all material terms and conditions in a clear and conspicuous manner may place
an unreasonable burden on truthful price advertising. 	See International Harvester, supra note
31, for a discussion of the burdens placed upon advertisers. by requiring such detailed
disclosures.

Steven J. Cole
September 19, 1990
Page -14-
if the claim purports to cover a large number of competitors or a
large number of items it is not likely that any monitoring program
could be fashioned to 	assure the accuracy of the claim. 36
Application of the substantiation standard adopted by this section of the Code would in
effect ban use of general claims such as "Our prices are the best" or "lowest prices" unless the
ad applied only to a relatively small number of items or competitors. 	Retailers could not use
these terms 	even 	if they 	had 	in 	good faith 	undertaken 	their "best efforts to 	ascertain
competitive prices."
We question whether consumers would interpret such advertisements to mean that the
retailer could prove that at any moment none of its competitors charged a lower price for any
of the possibly thousands of items that the advertiser carries. 	For example, in the context of
retail food price advertising, consumers might interpret a "best prices" claim to mean that the
advertiser is likely to charge the lowest total price for a given market basket of grocery items,
even though there may be individual items in the selection that could be purchased for less
elsewhere. 	Alternatively, a reasonable consumer might interpret a "best prices" advertisement
by, for example, a large appliance discounter, to mean that the advertiser had surveyed the
prices 	of 	a 	representative 	sample 	of 	products 	and 	competitors, 	and 	that 	the 	results
substantiated that the advertiser's prices were generally the "best" or "lowest." 	We therefore
suggest that the Council consider adopting a somewhat more flexible standard for general
lowest price claims.37
D. 	Use of the Term "Sale"
Section 1(g) of the Draft Code contains provisions on advertising a "sale." 	The Code
attempts to address general claims that typically cover many items. 	Pursuant to the Code,
advertisements for "sales" should be made only when there is "a significant reduction from the
advertisers' bona fide former price in effect before the advertisement and the sale opportunity
is for a limited time." 	Reductions in price need not be "significant" so long as the "actual
percentage or dollar amount of the reduction is clearly and conspicuously disclosed.u38 	The
provisions of Code Section 1(a) would apply in determining a former price.
36 Draft Code at 12.
37 See supra note 16.
38 Draft Code at 8.

Steven J. Cole
September 19, 1990
Page -15-
An advertiser's obligations at the end of the advertised sale period are addressed in
Section g(3). 	According to the Code, ''the day after the 'sale' ends, the advertiser shall
increase the price of the items reduced in price . . .M39 	The failure to increase prices at the
end of the sale period does not necessarily indicate, however, that the original sale offer was
deceptive. 	Although it would be deceptive for a retailer to advertise a limited time sale if the
retailer had no intent to end the sale as stated, overly rigid application of the Code provision
could make timely responses to competitive changes in the market difficult. 	For example, a
retailer might find that the reduced price increased sales volume even more substantially than
anticipated, 	and 	conclude that the 	sale price should 	become the 	regular selling 	price.
Similarly, a retailer could be forced by competitors' price reductions to keep the sale price in
force beyond the original sale period. 	In either event, we believe that consumers benefit if the
retailer is able to offer products on a regular basis at the lower price, as long as these prices
are no longer advertised as special reductions.
III. 	Conclusion
We believe that the Draft Code is a commendable effort to provide a workable set of
principles for price advertisers. 	As long as it is treated as general guidance rather than bright-
line standards, it can serve both competition and consumers well. 	We have attempted in
these comments to identify certain provisions that could be explained more fully or otherwise
modified to afford advertisers greater flexibility in communicating accurate price information.
We hope that you find these comments helpful, and we would be happy to assist you in any
further efforts you may undertake to encourage advertisers to provide consumers with truthful
and nondeceptive price information.
We appreciate this opportunity to comment.
Z~~C. Steven Baker
Director
CHICAGO REGIONAL OFFICE
39 Id. at 8-9. 	A similar provision pertains to advertisers using "intrOductory" and Nprice
prediction" sales. 	Id. at 9. 	Moreover, "if the sale exceeds thirty days the advertiser should
be prepared to substantiate that the offering is indeed a valid reduction and has not become
the regular price." 	Id. at 8.