Google's new AI-powered pricing tool “Google Automated Discounts” or “GAD” raises several marketing law issues. Of particular interest is how the tool complies with the rules on price marketing in Section 9a of the Price Information Regulations («Omnibus pricing»). The Norwegian Consumer Authority has now concluded that traders who use GAD are breaking the law and risk financial sanctions.
When a trader uses GAD, they specify which products are to be advertised at a discount and the lowest price at which the products can be advertised and sold. The AI-powered pricing tool will then calculate an “appropriate” or “optimal” discount for the individual Google user based on, among other things, consumer behavior, market trends and competitors' prices. However, the discount (marked with a green “sale price” and a crossed-out “pre-price”) will only be visible and available to consumers who click through to the operator's online store via Google. Consumers who go directly to the online store (not via a Google search) will not, however, be offered the same discounted price.
Example of Google advertising with and without GAD:
According to Section 9a of the Price Information Regulations, information about the pre-price must be provided when the price of a product is marketed as discounted. The pre-price must be “the lowest price that the trader has used for at least 30 days before the marketing started. By lowest price is meant the price that has been used for the product to the general public...”. Prices advertised to customer clubs and in loyalty programs are also covered, while the Consumer Authority has held that that exceptions can be made for “individual prices” such as birthday or wedding discounts.
It is this 30-day limit that has led to online retailers increasing their prices in the period before e.g. Black Friday, so that they can legally use as high a pre-price as possible when the discounts are later advertised.
The use of GAD will only be in accordance with Section 9a of the Price Information Regulations if the GAD prices are considered “individual prices”, rather than applied “to the general public”. If the GAD prices are considered to be applied “to the general public”, the crossed out “pre-price” in the GAD advertisements be incorrect and in violation of the legislation. The trader will then also have to include the GAD prices in its calculation of the correct pre-price in subsequent sales campaigns in the online store or elsewhere.
Several stakeholders (including The Confederation of Norwegian Enterprise) have requested clarifying guidance from the Consumer Authority, which has now concluded that GAD prices have been used for the general public, and that the use of GAD is therefore in violation of Section 9a of the Price Information Regulations. The Consumer Authority also points out that the use of GAD may result in financial penalties such as infringement fees and fines.
Link to the Consumer Authority's statement and guidance on GAD
It is worth noting that the Consumer Authority's conclusion is based on their preliminary understanding of how GAD pricing actually works. Changes in how prices are calculated and presented to Google users may therefore result in the Consumer Authority having to change its assessment.
Finally, it is worth pointing out that GAD will apparently still be able to be used legally for short and limited campaign periods. The Norwegian Consumer Authority's assessment seems to be based on a prolonged and continuous use of GAD, which they believe will be in violation of the regulations.
Please feel free to contact us if you have any questions about the use of GAD or need assistance with other marketing law-related issues.
