Thursday, 30 September 2010

Feeling jaded - short note on marketing tricks against consumers

Are you interested, just as I am, in consumer behavior research? If yes, have you noticed that since you started reading all the literature available on this subject, you started paying more attention to your surroundings? Did you also start to see (more or less) clever marketing practices in certain, previously seemingly innocent, situations?

A Dutch chain of luxurious malls organizes this special 3-days-long event every year, during which their clients may buy various products (from food to scooters) with (more or less significant discount. This year, they went overboard advertising this event. They were day and night talking about it on Twitter and Facebook. They organized special contests to encourage consumers to constantly follow them via social media and to be sure that consumers will be prepared and informed about all profitable bargains they could make during this event. Today was the first day of this event. What happened? It seems that marketing worked too well and as the shop representatives are saying 'they didn't expect to have as many clients'. Result: online shop was down, in shops themselves the most popular items were sold out within half an hour.

That's the official story, at least. My jaded mind suggests another solution: gear up consumers for purchase of various products by offering them discounts, incite that intention by constantly reminding them about that opportunity and then stock the stores short and block the online website, so that consumers don't get to buy what they intended. Apologize for it. Potential benefit: consumers want that good now, they made their decision to buy - it's quite likely they will continue with the purchase after the price returns to 'normal'.

This reminds me about certain articles I've read recently on the blog The Siutationist. Adam Benforado wrote a short article 'Breaking Up Is Easy to Do: When Corporations Dump Consumers'. In this article he argues that while corporations constantly refer to the rational consumer who is able to make his own, free choices, at the same time they refuse to provide services or goods to anyone who is actually rational and does not fall for their tricks. He mentions how it became a good marketing practice to actually ban consumers that see through all the marketing tricks and to work on decreasing price transparency instead of increasing it. Tamara Piety commented on that article by giving further examples of unclear/unfair marketing practices as far as rebates are concerned: 'Tamara Piety on Market Manipulation'.

It helps to know I'm not the only jaded one out there.

Tuesday, 28 September 2010

Behavioural Economics, so What: Should Policy-Makers Care? - conference in Brussels on 22 November 2010

Two years ago I attended a first conference organized by European Commission on Behavioural Economics and it was very useful and interesting. On Monday, 22 November 2010, again in Brussels, a second conference will take place: "Behavioural Economics, so What: Should Policy-Makers Care?".

The aim of the conference is to understand how behavioural economics could be used to influence public policy and regulatory design across the Commission, in a way that benefits EU consumers and citizens. During this conference results of the joint MARKT SANCO pilot behavioural study on retail investment services will be presented.

Key questions that are to be answered include:
- What behavioural economics can tell us about consumers that economic models or surveys can't?
- Are there relevant examples where the behavioural approach has significantly improved the effectiveness of policy measures?
- What are the main individual and external factors explaining decision-making in retail investment services?
- Are consumers well-informed and numerate, so to be able to make optimal choices?
- How did the US Government go about regulating some markets in the past, and how behavioural economics is going to change the old approach?

The programme of the conference may be found here. The registration form - here.

Wednesday, 22 September 2010

No EU group action for consumers

EU Justice Commissioner Viviane Reding told the Financial Times Deutschland in an interview that there will be no legislative proposal for a group action for consumers on the short term. This applies for both consumer law and competition law. Reding argues that the risks for businesses are to severe, which would be particularly undesirable taking into consideration the current state of the economy.

Click here for the article in the FTD.

Towards an - EP resolution on completing the internal market for e-commerce

Yesterday, the European Parliament adopted a resolution on the completion of the internal market for e-commerce. It calls upon the European Commission to take legislative and non-legislative means to:
- counteract fragmentation of the on-line internal market;
- complete the Internal Market by e-commerce;
- enhance users' legal protection in cross-border e-commerce; and
- enhance the e-confidence of consumers and businesses.

In a press release, in particular the idea of introducing a European 'trust mark' for online traders and goods is emphasised.

In relation to the current discussion on the further development of European Contract Law, some interesting questions present themselves when considering the approach suggested by the EP, which entails the development of a 'single legal instrument combining the various texts currently in force in order to clarify the rules applicable to e-commerce' (no. 80). How would such an instrument relate to other initiatives that affect B2C contracts on the internet? It would of course be helpful if the level of consumer protection provided by such an instrument corresponded to other (future) instruments governing e-contracts, such as the proposed Directive on Consumer Rights and perhaps an optional instrument on European contract law (which is considered in the Commission's Green paper on policy options for this field, on which this blog reported earlier). And how would all of these measures relate to the political CFR that is currently being drafted? Possibly, the drafters of the Resolution had such matters of coordination in mind when indicating that a 'horizontal approach' would be called for, involving 'effective coordination between Directorates-General' (no. 6).

Furthermore, IP experts will be happy to see that the EP observes that the 'consistent enforcement of copyright laws in the area of e-commerce' should not be undermined by the initiatives taken (no. 68, no. 83).

Finally, the EP promotes the protection of fundamental rights of citizens/consumers on the European digital market, for instance in regard to privacy and non-discrimination (no. 32, no. 46). This seems to be in line with Commissioner Reding's views on the development of the digital market (see an earlier post on this). In this context, the EP refers to a previous report, in which it called for the 'creation of a European charter of citizens' and consumers' rights in the digital environment' and the development of 'a "fifth freedom" permitting the free circulation of content and knowledge' (no. 99).

Thursday, 16 September 2010

Sweep investigation electronic goods

The ECJ today reported success as a result of the sweep investigation on the online sales of electronic goods (cameras, MP3 players, etc). The sweep, an enforcement action led by the EU and carried out by the national enforcement authorities, investigated the compliance of consumer rights by the major websites offering electronic goods online. While only 44% of the websites investigated complied with consumer rights in 2009, this figure has now climbed to 84%. Whether this has made buying electronic goods online "much safer" (as the Commission claims), remains to be seen.

The commission has also published the first results of another sweep, on online sales of tickets for cultural and sporting events.

Click here for more information.

Tuesday, 7 September 2010

Strawberry vs cherry yoghurt aka Lidl v Vierzon in C-159/09 - AG's opinion on comparative and misleading advertising

7 September 2010: ECJ Advocate General's opinion in case C-159/09 Lidl v Vierzon

Advocate General gave today its opinion in the Lidl v Vierzon case (English text is unavailable for now) concerning interpretation of the comparative advertisement provisions of the Directive 84/450 on misleading advertising (as amended by Directive 97/55).

Two parties involved in this case are companies Lidl and Vierzon who have a chain of international supermarkets, respectively Lidl and Leclerc. On 23 Septemeber 2006 Vierzon published in a local French newspaper an advertisement in which it compared register receipts for groceries done in four different supermarkets. In every supermarket 34 products were purchased, within which mostly products meant for daily use: food and cleaning products. The products on all receipts were mostly overlapping. The brands of the products were not mentioned. Out of the total price of the purchases it seemed that Leclerc was the cheapest supermarket. Vierzon published it with the slogan in which it mentioned that Leclerc was the cheapest supermarket. Lidl questioned this sort of advertising as an example of an unfair comparative advertising, misleading the consumers.

The French court asked a very specific question to the ECJ:

"Is Article 3a of Directive 84/450 (...) to be interpreted as meaning that it is unlawful to engage in comparative advertising on the basis of the price of products meeting the same needs or intended for the same purpose, that is to say, products which are sufficiently interchangeable, on the sole ground that, in regard to food products, the extent to which consumers would like to eat those products, or, in any case, the pleasure of consuming them, is completely different according to the conditions and the place of production, the ingredients used and the experience of the producer?"

The Advocate General had no doubts that the answer should be that a comparative advertising of food products on the basis of their price is lawful as far as the laws on misleading and comparative advertising are concerned, even if the compared products differ as to taste, as long as one can be substituted by the other. The national court should consider whether the comparative advertising fulfills other conditions of the Directive, specifically whether it is not a misleading advertisement. (Par. 63)

The Advocate General mentioned that there are eight cumulative requirements in Art. 3a of the Directive for the comparative advertising to be lawful, out of which three were relevant in this case: (Par. 40)
1. The comparative advertisement may not be misleading. (Par. 41)
2. The comparative advertisement compares products or services meeting the same needs or intended for the same purpose. This requirement may not be interpreted too strictly. It is sufficient if the consumer may substitute one good with another. (Par. 42)
3. The comparative advertisement compares objectively one or more material, relevant, verifiable and representative features of those goods and services, which may include price. Comparative advertisement may compare only prices of goods. (Par. 43)

As far as the second requirement is concerned:

The Advocate General stated that it does not matter that the advertisement in a given case compares lists of products and not specific products since the products on the lists are mentioned in a specific order and can be easily substituted by products placed on the same position on other lists - which gives these lists sufficient specifity. (Par. 46) Furthermore, the food products listed on the receipts do not have to bear the same taste. The comparison would lose its point if the only lawful comparative advertisement would be for advertising identical products since the competitors could easily claim unlawfulness of any comparative advertisement by stating that the taste of the food products differs. (Par. 49/53) It is not possible to mention all the factors that would make the food products interchangeable for consumers - that has to be decided on a case by case basis. However, AG mentions that elements such as quality of compared products or assortiment to which they belong could be essential. (Par. 51)

As far as the first requirement is concerned:
Despite the French court not making an inquiry about that sort of comparative advertisement as being misleading, the AG decided to give a few tips for the future. First of all, such a comparative advertisement may not be seen as misleading only because the brand of the products is not mentioned in it. That would be misleading only in cases where a brand of a product could seriously influence the consumer's choice and the comparison would be done between brands that seriously differ as to brand recognition. (Par. 58) The yardstick lies quite high here. (Par. 59) Such advertisement could be misleading if it would not be possible to identify compared products (Par. 61) or if it gives the consumer a misguided belief that all articles in that supermarket would be cheaper than by its competition (Par. 62) The last one could happen only if the advertisement did not compare specific products but just a general price level in the supermarkets. Even the fact that the comparative advertisement was enriched by a slogan stating that the prices in Leclerc are cheaper did not seem relevant for the Advocate General to consider this advertisement misleading. (Par. 62)

Advocate General mentioned in one of the paragraphs of this judgment that comparative advertisement should be allowed in the broadest scope possible, as long as it does not mislead the consumers. On the basis of this judgment I started to have doubts whether that second requirement is really being taken into account. In my opinion the consument would compare the total prices on the receipts and pay attention to the slogan, concluding that he should start doing groceries in Leclerc pronto. I am not so certain whether the consumer would consider that if the brands had not been mentioned on the list that could mean that the list included e.g. two different brands of butter on them (with a 0.50 euro difference; multiply 0.50 euro by 34 products and that could justify price differences between the receipts). To me it seems that such a practice leaves lots of room for misleading the consumers and it should be more strictly controlled.

Monday, 6 September 2010

New measures aiming at enhance financial consumer protection in Europe through prudential regulation

EU negotiators reached agreement on a package of measures to beef up supervision of the bloc's banks, giving new EU watchdogs a mandate to overrule national authorities and ban risky financial products that were widely blamed for the world's worst recession in decades.

Negotiators from the EU's three institutions - the EU Council of Ministers, the European Parliament and the European Commission - reached a political consensus on the package. A European Systemic Risk Board (ESRB) and three new European Supervisory Authorities - a European Banking Authority (EBA), a European Insurance and Occupational Pensions Authority (EIOPA) and a European Securities and Markets Authority (ESMA) - will form part of the new architecture of financial supervision agreed on September 2. The trio of new financial watchdogs will be complemented by a group attached to the European Central Bank that will keep watch for other economic risks, like a property price bubble.

In the European debate, where regulation is aimed at protecting the consumer a distinction can be made between prudential regulation(based upon the idea of information asymmetry and concerned with soundness, solvency, safety and of banks and may apply even if there is not systemic risk) and conduct of business regulation(that focuses on how banks conduct business and self regulation with their customers) which also raise questions related to the legal status and binding character of this codes.

Definitely, this new supervisory architecture is a step forward to protect consumers against toxic financial products. More information is available on