Online, hardly anyone charges the so-called list price these days, a sales tactic that is drawing legal scrutiny and prompting questions about the integrity of e-commerce.
SAN FRANCISCO — As traditional retailing falters, shutting stores and shedding workers, online merchants are reaping the rewards. People like the convenience of e-commerce, and they love feeling that they are getting a deal.
The perception of a bargain is fostered by online retailers’ use of something variously labeled list price, suggested price, reference price or manufacturer’s suggested retail price. Whatever its name, the implication is that people are paying much more somewhere else.
But with many products online, you could not pay the list price even if you wanted to. That is because hardly anyone is charging it. It is a sales tactic that is drawing legal scrutiny and prompting questions about the integrity of e-commerce. If everyone is getting a deal, is anyone really getting a deal?
Here is one recent example of how retailers use list prices to motivate online buyers: Le Creuset’s iron-handle skillet, 11¾ -inches wide and cherry in color.
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Amazon said late last week that it would knock $60 off the $260 list price to sell the skillet for $200. Sounds like a bargain, the sort of deal that has helped propel Amazon to over $100 billion in annual revenue.
Check around, though. The suggested price for the skillet at Williams-Sonoma.com is $285, but customers can buy it for $200. At AllModern.com, the list price is $250 but its sale price is $200. At CutleryandMore.com, the list price is $285 and the sale price is $200.
An additional 15 or so online retailers — some hosted by Amazon, others on Google Shopping — charge $200. Le Creuset, on its own site, sells the pan for $200.
“Everyone expects a deal on the Web,” said Larry Compeau, a professor at Clarkson University in Potsdam, N.Y., who is an expert on pricing strategies. “Nobody wants to pay retail. Some sellers are now willing to deceive consumers to make the sale.”
The use of list prices online is at the heart of a case in a California Court of Appeal. Overstock.com, a popular online merchant, was found liable in a lower court for using misleading reference prices to exaggerate potential customer savings. It was fined $6.8 million, twice the size of the next-largest penalty for false advertising in California.
In its appeal, Overstock said it followed “standard industry practices” to come up with its reference prices. Internet retailers including Wayfair, Wal-Mart, Rakuten (formerly Buy.com), Crate & Barrel and Williams-Sonoma use list prices to varying degrees. Amazon, the biggest e-commerce player, uses them extensively and prominently.
If some Internet retailers have an expansive definition of list price, the Federal Trade Commission (FTC) does not.
“To the extent that list or suggested retail prices do not in fact correspond to prices at which a substantial number of sales of the article in question are made, the advertisement of a reduction may mislead the consumer,” the Code of Federal Regulations states. The FTC declined to comment.
“If you’re selling $15 pens for $7.50, but just about everybody else is also selling the pens for $7.50, then saying the list price is $15 is a lie,” said David Vladeck, former director of the FTC’s Bureau of Consumer Protection. “And if you’re doing this frequently, it’s a serious problem.”
All of the retailers declined to be interviewed, as did Le Creuset. Amazon pointed to a disclosure on its website in which it says the list price can have many origins: It can be the price on the product itself, it can be the price suggested by the manufacturer or supplier, or it can be Amazon’s guess as to what the list price should be. The retailer also said its list prices “may or may not” represent the prevailing price “in every area on any particular day.”
“The list price has become a meaningless piece of information,” said Compeau, who was an expert witness for the California district attorneys who brought the case against Overstock.
Meaningless, but useful. Even as the importance of a fixed list price has waned in the physical world, it has become more deeply embedded online. Retailers, as Amazon indicated, often are supplied with list prices by the manufacturer or the brand.
“The manufacturer uses list price in an aspirational way; it’s what they wish they could charge,” said Victor Rosenman, chief executive of Feedvisor, a startup that helps e-commerce companies price competitively.
“Then the retailer says to his customer, ‘The manufacturer recommended X, but I’m selling it at Y. It’s a better deal,’ ” Rosenman said. “As to how that price compares to anyone else, it’s your job as a consumer to figure out.”
In an earlier era, list prices were intended to prevent retailers from gouging customers; if $40 was printed on the box, a customer might flee if charged $60. Manufacturers also wanted to signal quality by discouraging deep discounting. They hoped retailers would stick to the printed price. List or reference prices are still used as selling tactics in the physical world, and companies routinely are sued for abusing them. J.C. Penney, for instance, set aside $50 million in November to settle a class-action suit in which it was accused of tricking customers into thinking they were getting big discounts. But online, list prices are even more important.
Two customers sued Amazon in late 2014, saying its list prices violated false advertising laws by bearing no relation to the prevailing market prices. The case was dismissed after Amazon pointed out that its customers gave up their right to sue in favor of binding arbitration.
Last month, a proposed class-action suit was filed against Wayfair in California asserting that the retailer falsely advertised discounts for items that it had never sold at a higher price. “The referenced former retail prices were fabricated,” the plaintiffs claimed. Wayfair declined to comment.