Omnibus Directive: How Will It Impact Your Discount Strategy?
We are constantly bombarded with advertisements vying for our attention online. Don't get me wrong – while advertising is a legitimate way for businesses to promote their products and services, there are rules and regulations in place to prevent misleading advertising practices that could potentially harm consumers. One new regulation that attempts to protect customers from being lured by suspicious (at best) discount offers is the EU's Omnibus Directive.
But let's start from the basics.
What is the Omnibus Directive?
The Omnibus Directive, also known as the "Enforcement and Modernization Directive," seeks to enhance consumer protection. In the world of business, the Directive has been a significant development (for better or worse), especially for ecommerce companies. It outlines a set of rules created by the European Union (EU) to protect consumers from misleading ads and consumer promotions.
One of the areas that the Omnibus Directive has impacted is discount strategy, as it has set new standards for the presentation and use of discounts and promotions. In this blog post, I will explore how the Omnibus Directive has impacted discount strategies across the board and how Voucherify can help your brand comply with these new, sometimes ambiguous regulations.
What will be the impact of the Omnibus Directive on your discount strategy in 2023 and beyond?
The Omnibus Directive has introduced several new rules that will revolutionize how brands present discounts and promotions to consumers, including:
1. Disclosure of the original price
The Directive requires businesses to disclose the original price of a product before any discount is applied. In practice, it means that the promotional display must now have two things: the lowest price in the last 30 days and the discount percentage compared to the lowest price in the last 30 days. This means businesses cannot manipulate prices to make discounts appear larger than they actually are, which was an especially popular practice before huge sales events like Black Friday or Cyber Monday.
2. Equal treatment of customers
The Directive requires businesses to offer promotions and discounts equally to all consumers. But don't worry – targeting is still very much allowed, the customer must now be informed why the price is different for him than for other clients. In simple terms, retailers are obliged to disclose how their pricing profiling works.
Learn more: The Definitive Guide to Personalizing Promotions
3. Clear terms and conditions
The Directive requires businesses to clearly state the terms and conditions of any promotion or discount, including the duration of the promotion, any exclusions or limitations, and any other relevant information that the consumer needs to know. If you want to learn more about how to effectively design promotions in your store, check out our Coupons & Promotions UX Ebook below.
4. Prohibition of misleading advertising
Lastly, the Directive prohibits businesses from using misleading advertising practices, such as advertising a promotion as "free" when in reality the consumer must pay for something else to qualify for the promotion. In today's world, retailers and ecommerce brands have often used various tricks like increasing the regular price of products to offer "attractive discounts" for Black Friday. It is precisely such misleading tactics that the Directive aims to protect consumers from to the discontent of some.
What are the consequences of neglecting the Omnibus Directive?
The penalties for ignoring the Omnibus Directive can vary depending on the severity of the breach. Some potential penalties for failing to comply with the Directive include:
- Fines: If a company breaks the Directive, they can be fined a maximum of 4% of their yearly revenue in some countries. But, if the company's revenue cannot be determined, the maximum penalty is €2 million. Also, EU Member States can choose to set even higher fines when they enforce the Directive.
- Legal action: In extreme cases, brands may face legal action from certain authorities or clients who feel they have been unfairly treated. This can result in extra costs, including legal fees and damages, without mentioning the negative impact on the brand itself.
- Loss of reputation: Ignoring the Omnibus Directive can damage a business's reputation and lead to a loss of consumer trust and loyalty. This can ultimately impact the business's bottom line as consumers may choose to take their business elsewhere.
- Lower sales: Consumers may be less likely to buy products or services from a business that neglects the rules set by the Directive.
- Bans or restrictions: In severe cases, certain authorities may impose bans or restrictions on various brands and their ability to run a business.
When is the seller not obliged to follow the new discount presentation framework?
According to the Omnibus Directive, the rules do not "restrict in any way, price fluctuations and price decreases that do not involve a price reduction announcement."
In terms of what is not regarded a "price reduction" under the new law, the following scenarios are exceptions to the directive:
1. Regular prices
The Omnibus Directive requires that merchants to disclose the product's lowest price during the previous 30 days only when there is a special offer, that is, when both the previous higher price and the new lower price are shown on the product page. Even though the regular price has recently changed, a store is not required to provide this information when just the usual price is displayed on the website.
2. Loyalty programs
Rewards programs and customized discounts that provide customers with price reductions on a specific range of products for extended periods, such as six months, are not typically subject to the Omnibus Directive. These programs may offer customers the opportunity to earn points towards future purchases or provide them with discounts or coupons without worrying too much about the new law.
3. Personalized discount coupons
The Directive does not cover actual personalized price coupons, such as those given to a consumer based on their previous purchases from a particular retailer or discounts offered for special occasions like birthdays or anniversaries. However, it's important to note that the Directive will apply to personalized price coupons that are actually announced to the general public as opposed to being exclusive to a particular customer.
4. "2 for the price of 1" and "2+1" promotions
It is not necessary to advise customers about the lowest price in the previous 30 days in promotions where the client receives a better deal when they purchase two items or when they purchase two items and get the third one free (BOGO deals). This is because the buyer only sees the item's usual price on the product page, but the lower price is displayed in the shopping cart when a specific requirement is met.
5. Cashback promotions
Cashback rewards are a specific kind of a loyalty program incentive that consumers can use as a cash discount on a future purchase. It is important to note that the new regulations do not apply to "cashback" deals if the cashback provider is a third party rather than a seller of goods.
What are the biggest challenges for retailers to comply with the Omnibus Directive?
The Omnibus Directive presents numerous challenges for online retailers as they strive to comply with its rules and regulations. Some of these roadblocks include:
The Omnibus Directive only recently went into effect, yet there are already several open questions. For businesses, it can be difficult to pinpoint the exact moment when a customer decides to make a purchase. Despite what most merchants believe, it can also happen throughout the listing or checkout process. The initial price being displayed on product carousels, wish lists, and other ecommerce pages without an available action button is also a big concern.
2. Customization of PIM and ERP systems
New rules are a particular challenge for stores with thousands of products. The volume of data to be added and updated is a significant hurdle. The same goes for offline retailers who need to adjust their price tags and labels to properly display discounted prices.
3. Dynamic discount management
That is, if a retailer uses a legacy discounts system, it might be difficult to modify the process swiftly. This is where Voucherify comes to the rescue.
Voucherify – your Omnibus Directive compliance buddy
Voucherify provides marketers with a reliable and easy-to-use promotion platform to create and manage promotion campaigns. By using Voucherify, you can easily establish validation rules which define eligibility conditions for promotions. With just a few clicks, you can quickly set up campaign budgets, time restrictions, and eligibility requirements that align with your company's specific needs.
These rules and limitations can be communicated on the front-end of your website or application using the Voucherify API, which ensures a seamless and transparent experience for your customers, allowing you to customize certain processes, according to the specific needs of your brand.
By providing advanced automatic discounts in our Rule Engine, Voucherify assists online retailers in keeping fully in line with the Omnibus Directive.
If you intend to run a product-based campaign, Voucherify will automatically discount the specific item and offer the discount information via API. The final front-end presentation of the discount is up to you.
Create dynamic discounts that quickly adapt to new market standards