OFT to bare its teeth?

November 13, 2009

In response to growing opposition to the collection and use of online browsing habits and increasing annoyance over misleading pricing tactics, the Office of Fair Trading (OFT) has launched two investigations into online advertising and pricing.

1. The first will focus on behavioural advertising and customised pricing, whereby adverts and prices are tailored using information collected about internet use. 
2. The second investigation will focus on the advertising of prices which have the potential to mislead customers. 

Behavioural Advertising

Behavioural, targeted or customised advertising is becoming quite a hot political issue, and it is no surprise that the OFT has launched this investigation.

It is possible to collect a range of internet use information, such as what websites have been visited, the keywords used in search engines, for how long a website has been viewed and approximately where the user is located. Once collected, this information can be used to customise advertising and pricing based on past internet use of browsers.

Yahoo, Microsoft and Google all use behavioural advertising because it tends to result in higher advertising returns.
Privacy campaigners argue that behavioural advertising, which often operates without the knowledge of users, can be used not only to influence the products people buy, but also as a powerful form of digital persuasion that alters attitudes and opinions.

The argument often boils down to transparency. Currently, the “opt out” strategy is commonly used whereby users must actively opt out of the collection of their browsing habits. In contrast, privacy campaigners would like an explicit, informed “opt in” strategy to increase users’ awareness of how their online habits are being monitored and the resulting data collected and used. 

Ultimately when the OFT delivers its findings it is likely to recommend a balance that protects the consumer whilst not crippling the internet through burdensome policies such as encryption of data. Whether this means retaining the “opt out” system or converting to the “opt in” system will, to a large extent, depend on the lobbying of the powerful search engines against the campaign by privacy lobbyists and certain politicians.  

Advertising of Prices

The second study will consider online pricing practices which may mislead customers. Under scrutiny will be:

• “drip pricing” where the initial price increases as a result of optional or compulsory extras which are added, or dripped, into the buying process;
• “baiting sales” where products are advertised at a reduced price to attract visitors, but there are only ever a very limited number of goods for sale at the discounted price;
• “reference prices” where the pre-sale price is inflated so that a subsequent discount appears more attractive;
• “time limited offers” where prices are stated to only be in existence for a limited time; and
• “complex pricing” where it is difficult for the customer to assess the price of an individual item (for example, two for one offers and buy two get one free).

Price comparison websites, which typically employ some of the above practices, have been specifically identified as an area which the OFT will closely scrutinise.

What is the likely outcome?

Possible outcomes of the OFT investigations are:

• giving the market a clean bill of health;
• publishing information to help consumers;
• encouraging voluntary action by businesses;
• encouraging an industry code of practice;
• making recommendations to government or regulatory bodies; and
• enforcement against businesses breaching consumer law.

The results of both investigations will not be published until the summer of 2010. Subsequent regulatory action would then take months, if not years, to come into effect. Therein lies the problem for regulators – by that stage there are likely to be new technologies and market trends which could make the OFT’s measures obsolete.


Related pages:

Online regulation and terms & conditions more

Technology, Media & Digital more

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