PRICE CHECK II
A Follow-up Report on the Accuracy of Checkout Scanner Prices

A Report by the Staff of the Federal Trade Commission
and the U.S. Department of Commerce's National Institute of Standards and Technology

Based on Inspections by Weights and Measures Officials in Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Iowa, Idaho, Indiana, Kansas, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, Missouri, Montana, North Carolina, New Hampshire, New Jersey, Nevada, Ohio, Oklahoma, Pennsylvania, South Carolina, Tennessee, U.S. Virgin Islands, Utah, Vermont, Washington, and West Virginia

December 16, 1998

Contributors to this Report

• Bureau of Consumer Protection and Bureau of Economics, Federal Trade Commission

This Report represents the views of the staff of the Bureau of Consumer Protection and Bureau of Economics. It does not necessarily represent the views of the Federal Trade Commission or any individual Commissioner.

• Technology Services, National Institute of Standards and Technology, U.S. Department of Commerce
• State and local officials from the following jurisdictions participating in this study:

Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Iowa, Idaho, Indiana, Kansas, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, Missouri, Montana, North Carolina, New Hampshire, New Jersey, Nevada, Ohio, Oklahoma, Pennsylvania, South Carolina, Tennessee, U.S. Virgin Islands, Utah, Vermont, Washington, and West Virginia

Table of Contents

Executive Summary

This report is the result of an initiative by federal, state and local officials to monitor pricing accuracy and to ensure that consumers are charged the correct price at checkout. It is a follow-up to a 1996 study of the accuracy of prices in stores with electronic checkout scanners. In both studies, state and local inspectors compared scanned prices with the lower of the posted or advertised price of a sample of randomly selected items in food, department, mass merchandise, drug, hardware, and other stores.

The 1998 study shows higher pricing accuracy compared to the 1996 study, but continues to show that there is considerable room for improvement in some retail chains and a number of individual stores. The 1998 study, conducted by state and local officials in 37 jurisdictions, was five times larger than the 1996 study, conducted by inspectors in seven jurisdictions.

Highlights from the 1998 study

• Some stores have achieved outstanding pricing accuracy. In 43 percent of the inspections, no price errors were found.
• Most stores have acceptable pricing accuracy: 71 percent of the inspections "passed," that is, at least 98 percent of the items checked were correctly priced. This is the level of acceptability adopted by most states and used in this study. In the 1996 study, only 45 percent of the inspections "passed."
• Some stores have pricing accuracy problems: 29 percent of the inspections did not pass, that is, less than 98 percent of the items checked were correctly priced. In these inspections, an average of 91 percent of the items checked were correctly priced.
• Among the types of stores inspected, food stores were the most likely to have acceptable pricing accuracy, while hardware stores were the least likely to have acceptable pricing accuracy.
• Wide variations were found in pricing accuracy from chain to chain and store to store. This was also found in the 1996 study.
• One of every 30 items checked was mispriced. Half of these errors were undercharges and half were overcharges. A total of 107,096 items were checked. In the 1996 study, one of every 21 items checked was mispriced. Slightly more than half of these errors were undercharges and the remainder were overcharges. A total of 17,928 items were checked.
• Each undercharge averaged $5.28, and each overcharge averaged $3.20. In the 1996 study, each undercharge averaged $2.96, and each overcharge averaged $3.02.

1998 Comparison of Pricing Accuracy Rates for "Sale" versus "Non-Sale" Items

The 1998 study examined whether there was a difference in pricing accuracy between sale and non-sale items. The study found that pricing errors occurred slightly more frequently for sale items than non-sale items. The results also showed that overcharges were more prevalent for sale items than non-sale items.

• For sale items, pricing errors were found in one of every 28 items checked. Almost two-thirds of the errors found were overcharges; the remainder were undercharges.
• For non-sale items, pricing errors were found in one of every 32 items checked. Slightly more than one-third of the errors found were overcharges; the remainder were undercharges.

Why do pricing errors occur?

With most stores offering thousands of items for sale, some scanner pricing errors are inevitable. Store employees maintain shelf tags and signs throughout the store, with errors occurring when prices on shelf tags and signs are not updated to match the prices in the store's computer. Errors also can occur when prices in the store's computer are not updated in a timely and correct fashion or when inaccurate prices are included in store advertising.

In this study, inspectors tried to identify the causes of the pricing errors found during the inspections. Inspectors shared their findings with store personnel, asked about the cause of the errors, and included this information in their inspection reports. Inspectors found that pricing errors on sale items resulted from numerous problems, including incorrect shelf and item prices, incorrect sign prices, out-of-date signs, and incorrect prices in the computer. For errors on non-sale items, incorrect shelf and item prices were largely responsible. Although no one cause was found, the findings suggest that, for sale items, all pricing locations must be checked rigorously to ensure the correct price is listed everywhere, and retailers need to pay more attention to shelf and item prices.

What is the impact of pricing errors?

Whatever the cause, scanner pricing errors adversely affect retailers and consumers. A failure to comply with pricing accuracy laws can lead to the imposition on retailers of substantial fines and administrative or judicial orders. Further, retailers lose profits on undercharges and consumers lose money on overcharges. In addition, consumer satisfaction with a retailer can be reduced when consumers detect a problem. Taking the time to bring the error to the store's attention is often inconvenient or not worth the consumer's time, especially when the error is detected after the item has been purchased or the amount at issue is small. Finally, inaccurate posted or advertised prices frustrate consumers' efforts to compare prices.

What can be done to avoid pricing errors?

Because overcharges occurred on both sale and non-sale items, we strongly recommend that consumers carefully compare advertised or posted prices to scanned prices at checkout. Ultimately, however, responsibility for accurate pricing rests with the individual store and its employees. The organizations participating in this study urge retailers to continue to examine and, if necessary, change their pricing practices voluntarily. Federal, state and local officials will discuss ways to coordinate more effectively their efforts to monitor retail pricing accuracy, and they may take enforcement actions if significant problems are found.

Introduction

This study follows up on a 1996 federal/state study coordinated by the staff of the Federal Trade Commission (FTC) to examine the accuracy of prices in retail stores with electronic checkout scanners. The original project was, in part, a response to concerns about the accuracy of electronic checkout scanner prices. Inspectors in seven states found that, overall, about five percent of prices charged at checkout were incorrect, and that scanner errors may be a significant problem in some individual stores and retail chains.

Compared to the 1996 study, the results of the larger 1998 follow-up study show greater pricing accuracy, which may reflect, in part, growing retailer awareness of consumer and government concerns about pricing accuracy. The 1996 report, which was widely publicized and disseminated by government and industry representatives, focused attention on the adverse effects of scanner errors on both retailers and consumers and why retailers need to take additional steps to improve scanner accuracy.⁽¹⁾ It recommended how retailers can reduce scanner errors.

Part Two of this report provides information about scanner technology. The role of the organizations participating in this study is discussed in Part Three of this report. Part Four summarizes the methodology used in the 1996 and 1998 studies. A summary of the 1996 study results and a detailed analysis of the results of the 1998 follow-up study is included in Part Five. Part Six describes the implications for retailers when they do not have good pricing practices in place and discusses what retailers can do to reduce scanner errors. Part Seven describes steps consumers can take to detect and avoid scanner errors.

Scanner Use

Electronic checkout scanners are in retail stores everywhere. Most everyday items bear a Universal Product Code (UPC). This symbol--a series of numbers and vertical bars of varying thicknesses--is shorthand for product information. When a cashier passes the UPC symbol over an electronic scanner, a computer decodes the symbol, sending the price and other product information to the register. At the same time, the price is shown on a display screen, which is not always visible to customers, and a receipt is printed for the consumer.

For retailers, scanner technology has increased checkout productivity, and has improved sales and inventory records, creating greater efficiencies in reordering and shelf space allocation. The use of checkout scanners also has resulted in lower labor costs because stores no longer have to mark prices on individual items, unless required to do so by state or local law. Consumers have benefitted from faster checkout times and detailed receipts that provide both product and price information.

Electronic scanners can help retailers reduce pricing errors at checkout. Without electronic scanners, the cashier must enter prices manually. A study has shown that manual entry of prices by a cashier resulted in 4 to 16 percent errors in the prices charged to consumers.⁽²⁾ Nonetheless, even with electronic scanners some pricing errors are inevitable. Store employees still must maintain shelf tags and signs on thousands of items throughout the store. In addition, stores may change prices on hundreds of items each week. When prices in the store's computer are not timely and correctly updated, or shelf tags and sale signs are not changed to correspond to the new computer prices or to new advertised prices, errors can occur. The 1996 and 1998 federal/state studies examine the accuracy of scanner checkout prices and describe why scanner errors occur.

Organizations Participating in this Study

The role and interests of each of the organizations participating in this study are described below.

Bureau of Consumer Protection, Federal Trade Commission

The Federal Trade Commission is a law enforcement agency charged by Congress to protect the public against unfair or deceptive acts or practices and anti-competitive behavior. The FTC's interest in scanner accuracy stems from its role in protecting consumers from deceptive practices. Through its Bureau of Consumer Protection, the FTC has been involved in retail pricing issues for many years. For example, the FTC's Trade Regulation Rule Concerning Retail Food Store Advertising and Marketing Practices, issued in 1971 and amended in 1989, requires food stores to have sufficient supplies of advertised specials on hand to meet reasonably anticipated demand and to sell the advertised special at or below the advertised price. 16 C.F.R. Part 424.

For both the 1996 study and the 1998 follow-up study, staff of the FTC's Bureaus of Consumer Protection and Economics worked closely with federal and state officials in coordinating inspections and collecting and compiling inspection results.

National Institute of Standards and Technology, U.S. Department of Commerce

The Department of Commerce, which has no regulatory authority regarding retail pricing accuracy, participated in this study by assisting in the coordination of inspections and review and analysis of the inspection data. Through its National Institute of Standards and Technology (NIST), the Department helped develop the sampling techniques used in this study.

NIST works to ensure that the U.S. has the measurement and testing technology needed to support free and equitable trade. The Office of Weights and Measures (OWM) in Technology Services at NIST facilitates trade and protects businesses and consumers by promoting uniformity in weights and measures standards, laws and practices among the states. OWM sponsors the National Conference on Weights and Measures (NCWM), a voluntary standards organization of state weights and measures officials and representatives of industry, consumers and federal agencies. NCWM's goal is to achieve uniformity in laws, regulations and test procedures through local adoption of its standards.

In 1995, NCWM adopted the Examination Procedure for Price Verification (NCWM Procedure).⁽³⁾ The NCWM Procedure sets forth a sampling and inspection procedure that can be used by weights and measures officials to conduct price verification inspections in all kinds of retail stores. Before the NCWM Procedure was adopted, pricing inspection procedures and enforcement practices varied widely from state to state. Currently, 42 states use the NCWM Procedure.⁽⁴⁾

For both the 1996 and 1998 studies, OWM trained the participating jurisdictions in the NCWM Procedure, and worked closely with FTC staff in coordinating inspections and evaluating inspection data. The Information Technology Laboratory at NIST assisted in the review and analysis of the inspection data.

State and Local Agencies

Generally, state and local weights and measures officials have authority to check the accuracy of prices in stores and impose fines for violations of the state weights and measures laws. The state Attorneys General may bring actions based on the state's consumer protection act or business and professions act. In addition, city and county attorneys often bring actions under state and local laws prohibiting price misrepresentations.

In the 1996 study, officials from Attorneys General's offices and weights and measures offices in seven states conducted inspections of scanner pricing accuracy in 294 stores. For the follow-up study, all states were invited to participate. Officials from weights and measures offices and other agencies in 36 states and the U.S. Virgin Islands conducted inspections over a three-month period in mid-1998. The participating jurisdictions were Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Iowa, Idaho, Indiana, Kansas, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, Missouri, Montana, North Carolina, New Hampshire, New Jersey, Nevada, Ohio, Oklahoma, Pennsylvania, South Carolina, Tennessee, U.S. Virgin Islands, Utah, Vermont, Washington, and West Virginia.

Study Methodology

In both the 1996 and 1998 studies, participating jurisdictions conducted price accuracy inspections in retail stores, including food, department, drug, mass merchandise, and hardware stores. Prior to beginning its inspections, each state selected the stores that would be inspected. Although the results of the follow-up study cannot be statistically projected to the U.S. as a whole, the total number of inspections and participating jurisdictions is large and provides a broad view of scanner pricing accuracy.⁽⁵⁾

Inspections in both studies were conducted in accordance with the NCWM price verification procedure. This procedure provides that a pricing error occurs when the price charged for an item at checkout does not agree with the lowest advertised, quoted, posted or marked price. Based on the assumption that some pricing errors are inevitable due to human and other errors, the procedure provides that a store "passes" an inspection if 98 percent or more of the items sampled are priced accurately, rather than requiring 100 percent accuracy. The total error rate--both undercharges and overcharges--is used to determine whether a store should be inspected more often. Higher levels of enforcement, such as state or local fines or penalties, are based only on overcharges.⁽⁶⁾

The NCWM Procedure provides for two sampling procedures for selecting items to be price checked.⁽⁷⁾ In the "randomized" procedure, the store is divided into areas (such as departments or sections), and a portion of the total sample is selected from each area using a procedure designed to produce a representative sampling of the area covered. For example, a total sample of 100 items may be selected by dividing the store into four sections and obtaining 25 items from each section. The "stratified" procedure is used to confine the inspection sample to one or more specific merchandise groups, such as seasonal items, advertised specials or end-of-aisle displays. Within the designated merchandise groups, the "randomized" procedure is used to select items to be checked.

For the 1996 study, inspectors used the stratified procedure, with items selected from several merchandise groups. For the 1998 study, inspectors conducted two separate inspections in each store when possible. One inspection focused on sale items, and the second focused on non-sale items. In some instances, sale and non-sale items were included in a single inspection, referred to as a "combined inspection" in this report.

Study Results

The results of the current study are presented below, followed by a summary of the 1996 study for comparison purposes.

1998 Study: Inspection Results

For the 1998 study, inspectors from 36 states and the U.S. Virgin Islands visited 1,033 stores with checkout scanners and conducted 1,776 inspections.⁽⁸⁾ The results are reported by type of inspection (sale, non-sale and combined sale/non-sale), type of store, and jurisdiction. Retail stores are divided into six categories: food, department, drug, mass merchandise, hardware (home improvement), and other (including a number of specialty stores and convenience stores). Inspectors visited 303 food stores, 138 department stores, 151 drug stores, 205 mass merchandise stores, 94 hardware stores, and 142 other retail stores.

In the following analyses, Tables I and II provide information about the pricing accuracy and pass/fail results of 1,669 inspections, rather than 1,776 inspections. Because 107 inspections did not fully conform to the NCWM Procedure, they cannot be evaluated as "passing" or "failing" under the NCWM Procedure, and, therefore, have been excluded from Tables I and II.⁽⁹⁾ These 107 inspections, however, provide useful information about pricing errors and their causes. Tables III, IV, V, and VI, therefore, include the results of all 1,776 inspections.

Table I

DISTRIBUTION OF INSPECTIONS
BY PRICING ACCURACY

* Due to rounding, the sum of the percentages does not equal 100 percent.
** This table is based on the results of the 1669 inspections. It excludes the results of 107 inspections that did not fully conform to the NCWM Procedure.

Table II

PERCENTAGE OF INSPECTIONS THAT "PASS"
BY TYPE OF STORE*