When is a discount not really a discount?

An investigation of pricing behavior in the WordPress industry.

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Today we’re going to dive into a subject that a lot of folks in the WordPress community seem to find awkward or touchy – the question of whether “price markdown” statements on WordPress plugin pricing pages are legitimate, or are a form of deceptive advertising.

I dug into the details, including some live examples, and in this post I’ll explain what the rules are at the federal and state level, and how it can hurt customers and be unfair to competitors if a company promotes a misleading “sale” price for a plugin or other software.

When a product is displayed as being “marked down” from a regular price, the Federal Trade Commission (and several states with even stricter rules) require that the markdown claim be reasonable. For example, I can’t claim that the Instant Understrap course is marked down from $499 to $99, or that the is_admin coffee mug is marked down from $99 to $15, because I’ve never actually offered those products at those higher prices.

In the brick-and-mortar world, retailers have had major legal failures on this front. For example, JCPenney paid a $50 million settlement (without admitting guilt) in 2015 over a claim that they’d falsely marked up the regular price on certain clothing to make a sale price look more attractive to customers. Here’s another example of a different lawsuit against JCPenney:

The latest company to be hit with a deceptive pricing class action: JCPenney, charged with falsely inflating “original” prices to create a misleading impression of big discounts that don’t actually exist.

Kansas resident Ann Cavlovic claimed that she fell for the tactic when she saw a pair of gold earrings while shopping at a JCPenney store in September 2014. Marked with an “original price” of $524.98, Cavlovic paid $171.66 based on a purported 60 percent sale discount and additional 25 percent promotional discount.

But when she got home and opened the packaging, Cavlovic found a pricing insert listing the original price for the earrings at just $225. Had the store’s original price matched the list price, she would only have paid $73.58 after the applicable discounts, she alleged in her suit. Instead, she paid more than twice that amount because JCPenney falsely inflated the “original” price as part of a company-wide strategy.

Similar suits have been aimed at Sears, Kohl’s and Macy’s, and many other stores have settled for millions of dollars:

 The J.C. Penney settlement is not an outlier. There have been other, similar cases that have resulted in large settlements: Tween Brands Inc. and the Ascena Retail Group settled a similar suit for $50.8 million while Burlington Coat Factory settled one for over $25 million.

Even the sum of the smaller settlements are in the multimillions: Ross settled a case for $4.8 million, Ann Taylor settled one for $6.1 million, and Overstock.com was assessed a $6.8 million penalty and given restrictions on its price advertising going forward. The defendants in those cases also likely incurred at least hundreds of thousands of dollars in attorneys’ fees, not to mention problematic media exposure that can arise from such lawsuits.

Clearly this is a major concern for physical retailers. Should it be a worry for WordPress software retailers, too?

Software is more complicated – but not that much different

Looking at the text of the laws in the United States around fictitious or deceptive pricing, it’s clear that there’s more wiggle room for software sales (such as a WordPress plugin) than for a retailer selling earrings or jeans. For example, it’s relatively straightforward for someone to claim and prove that a certain pair of jeans was marked with a certain price on a certain day – and that everyone at the store would have seen the same thing.

When you’re selling plugins via an e-commerce site, though, you have significantly more control over what different customers see. You could offer a sale in Canada but not in the United States, for example. You could randomly select every third visitor to get a discount. You could show the full price only long enough to get one sale at full price each month, and show everybody else the discount. None of these are particularly ethical, but they are theoretically possible, and they confound the ability of the government to regulate online pricing.

That said, some states do have pretty clear and specific rules. For example, let’s look at the Connecticut law, which is one of the most specific and quanitifiable:

Connecticut requires the on-sale good to have been ‘actually offered for sale by the seller for at least four weeks during the last ninety days immediately preceding the date on which the price comparison is stated in the advertisement.'”

Now let’s imagine a WordPress plugin that always displays a markdown on its pricing page – for example, “normally $199, currently $99.” Under the Connecticut law, it seems to be that you would need to offer it for $199 (with no discount) for at least 28 of every 90 days to stay compliant. I think there is still some wiggle room for the plugin developer around the questions of randomization and geolocation – but if you take that Connecticut law seriously, the plugin seller would have to prove they offered the plugin at normal price for 28 days in a 90 day period, which would be quite difficult if they’re not changing the pricing page frequently.

As I write this, I have three tabs open with different plugins, and different parent companies, that have discounts on their pricing pages like the one I described in the previous paragraph. They use slightly different wording, but all show a crossed-out higher price and a lower current price. In all three cases, the Web Archive shows numerous snapshots over the last 90 days, and all the snapshots show the crossed-out high price and current low price. If that is correct and the Web Archive hasn’t coincidentally missed the 28 days when the plugins were at full price, it certainly seems like those companies are funning afoul of the Connecticut law.


How does this harm the community?

For individual users, a deceptive sale probably doesn’t cause a lot of harm – the claim in the JCPenney case, for example, was that the customer wouldn’t have bought the product had they known the markdown was less signifiant than advertised. I don’t personally chase plugin sales, so I can’t say I’ve ever felt influenced by a markdown for WordPress software. However, I certainly think that markdowns and price anchors influence conversion rates. We do legitimate, temporary sales for our products, and unquestionably it causes some customers to “get off the fence” and make the purchase before the sale expires. (That said, our sales actually are real and do expire.) If I am going to buy it anyway and I see a fictitious markdown prior to buying, I don’t think I’m experiencing a ton of harm and wouldn’t bother litigating against the company. But I do think that someone who says they wouldn’t have bought the product absent the markdown could make pretty much exactly the same case against a plugin retailer that has successfully been made against clothing retailers.

That said, customers aren’t the only ones harmed by deceptive pricing. Competitors who comply with the law are harmed, too. When two competitive companies present similar products at similar prices, but Plugin B is “marked down” from double the value, that could create an impression in the customer’s mind that Plugin B is indeed better and more valuable – even if that higher price is a complete fiction. The FTC and the states regulate pricing for this reason: you are legally required to play fair with your customers and with your competitors.

Encouraging fair play in WordPress

Healthy competition is good, but if there is fictitious pricing influencing customer behavior in the WordPress industry, that seems like an unequivocally bad outcome to me. However, I also don’t want to make unfair statements or jump to conclusions, so I’ll end this introductory article on this topic with an experiment. For the next few months, I am going to take screenshots of a wide range of plugin pricing pages every day. We’ll look back on the findings from that experiment once it’s complete, and we’ll be able to compare the different pricing and sale behaviors across different companies in the WordPress space.

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Rob is the CEO of HDC and the Publisher of MasterWP.

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