The Omnibus Directive – How does it impact your business?
June 06, 2022 | Carmen Bozga
The new Omnibus Directive on price reduction announcements becomes applicable in the EU on 28 May 2022. From that date, the prior price used in discounts has to be defined as the lowest sales price used at least during the previous 30 days by the trader. The aim is to increase the transparency of price reductions by preventing traders from artificially inflating the reference price.
For some companies, this means a substantial change in sales promotion strategies. There is no point in raising prices just before a discount campaign – the raise must happen at least 30 days before to have any benefit at all. As a result, other campaign types will become more popular. For example, conditional offers (3-for-2), personalized offers, and general marketing claims (“we are cheaper than competitors!”) may gain popularity.
So, what do you actually need to know about Article 6a, and how does it affect your business? In this blog post, we will go through the key points regarding the Omnibus Directive – let’s go!
Key points of Article 6a
- Any announcement of a price reduction shall indicate the prior price applied by the trader for a determined period of time prior to the application of the price reduction.
- The prior price means the lowest price applied by the trader during a period of time not shorter than 30 days prior to the application of the price reduction.
- The directive gives the Member States some freedom over certain parts of the legislation.
- Member States may provide different rules for goods that are liable to deteriorate or expire rapidly.
- If the product has been on the market for less than 30 days, Member States may also provide a shorter time period than the period specified in paragraph 2.
- Member States may provide that when the price reduction is progressively increased, the prior price is the price without the price reduction before the first price reduction application.
- Penalties for non-compliance: up to 4% of last year’s revenue.
General Limitations. In a nutshell
- Only affects goods, not services or digital content.
- Does not affect price fluctuations that do not involve a price reduction announcement.
- Applies even if no exact discount is given with the price reduction announcement. E.g., “Black Friday offer!”, “Special Offer!”.
- Does not apply to general marketing claims, such as comparing prices to those of competitors, if no price reduction is announced. Also, it does not apply to combined or conditional offers (“buy one, get two” or “30 % off when buying three”).
- Does not apply to intermediaries, such as online marketplaces and price comparison platforms. The rules, however, apply if the intermediary is the actual seller of goods or when it sells on behalf of others.
- Also applies to traders outside the EU who direct their sales to EU customers.
- Does not apply to customer loyalty programs, such as discount cards or vouchers, which entitle the consumer to a price discount on all seller’s products or on identified product ranges during extended continuous periods or allow accumulation of credits (points) for future purchases.
- Does not apply to real personalized price reductions that do not have the nature of ‘announcing’ the price reduction, for example, vouchers received after purchase. The article applies to general discount codes and vouchers, though.
Clauses 1 and 2 – 30-day rule
- The trader announcing the price reduction must identify the lowest price charged for the respective good or goods during at least the last 30 days before applying the price reduction.
- The trader does not need to indicate how long the prior price was used.
- When the trader sells the product through multiple channels (e.g. physical and online stores), the lower prior price in the specific channel shall be used.
- Announcements that create an impression that the reduction applies to all channels but in reality apply to only some of them are not allowed.
- Extending a campaign is allowed, but companies must clearly inform consumers that it is an extension of an old campaign.
- General campaigns like “20% off on all items” are still allowed. However, there are some special rules.
- Prior price does not need to be indicated in the same medium as the announcement. I.e., you do not need to list the prices of every item in the newspaper.
- Prior prices of the products need to be updated if the trader has increased prices or made (general) price reductions in the last 30 days.
- Central entities, such as franchisors, need to ensure that the participating retailers can comply with the rules regarding price reduction announcements when making announcements.
Clause 3 – Perishable goods
- Perishable goods are not strictly defined and need to be assessed case by case. Fresh foods and similar products are likely to be counted as perishable goods. Seasonal durable products, such as clothing, are unlikely to be counted as perishable.
- Member States may decide to exclude perishable goods entirely from the scope of 6a or set different rules than for other products.
Clause 4 – New products
- Member States can decide on a shorter price window for new products. Complete exception from 6a is not possible though. In other words, the States must:
- set a specific price time window or allow traders to determine the window themselves, and
- compel the traders to indicate the prior price.
- Products that have been temporarily out of stock or out of sale are not considered new products. For these products, the seller can announce a price reduction indicating as the ‘prior’ price the lowest price applied in the reference period before the interruption (for example, in the past year) provided that:
- the good has been offered for sale for at least 30 days during that reference period; and
- the ‘prior’ price indicated is the lowest in the whole reference period.
Clause 5 – Progressive price reductions
- So what if the price is gradually reduced, without interruptions, during the same sales campaign? In this case, the ‘prior’ price is the lowest price used for 30 days before applying the first price reduction announcement. During the sales campaign, it remains the ‘prior’ price for all subsequent price reduction announcements.
- For example, the lowest price of the goods for the last 30 days before the sales campaign started was EUR 100. The seller indicates EUR 100 as its ‘prior’ price when it announces the first price reduction (e.g. 10 % off) and can then keep the same ‘prior’ price when announcing the following 20 % and 30 % reductions.
- This clause cannot be applied to successive campaigns. It is only applicable when the price is reduced progressively, without interruptions, and without increasing the indicated ‘prior’ price in the course of the continuous price reduction.
Omnibus Directive and promotion types
So, now that we know the basics of Article 6a, what are the actual impacts on retailers and the promotion types?
The most obvious one is that there is no benefit in raising prices just before a discount campaign – the raise must happen at least 30 days before the campaign launch. This promotion type needs to be retired.
The 30-day-rule also makes it harder to carry out successive discount campaigns (e.g. Black Friday and Christmas), since the price of the last discount campaign may become the prior price of the new campaign. Therefore companies might need to use different products in successive campaigns or to do progressive campaigns instead.
The changes in legislation make some promotion types more vital. Conditional or personalized offers and general marketing claims will become more and more popular since the directive does not affect those kinds of promotion types. The same also goes for multi-buy promotions, basket-level discounts, and long-term promotions.
Requirements of the Article 6a
1. Any announcement of a price reduction shall indicate the prior price applied by the trader for a determined period of time prior to the application of the price reduction.
2. The prior price means the lowest price applied by the trader during a period of time not shorter than 30 days prior to the application of the price reduction.
3. Member States may provide for different rules for goods which are liable to deteriorate or expire rapidly.
4. Where the product has been on the market for less than 30 days, Member States may also provide for a shorter period of time than the period specified in paragraph 2.
5. Member States may provide that, when the price reduction is progressively increased, the prior price is the price without the price reduction before the first application of the price reduction.
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