Chapter 6 Legal and Ethical Behavior. Learning Objectives Explain how legislation constrains a retailer’s pricing policies Differentiate between legal.

Chapter 6

Legal and Ethical Behavior

Learning Objectives

• Explain how legislation constrains a retailer’s pricing policies

• Differentiate between legal and illegal promotional activities

• Explain the retailer’s responsibilities regarding the products sold

• Discuss the impact of government regulation on a retailer’s behavior with other supply chain members

Learning Objectives

• Describe how various state and local laws, in addition to federal regulations, must be considered in developing retail policies

• Explain how a retailer’s code of ethics will influence its behavior

Exhibit 6.1- Ethical and Legal Constraints Influencing Retailers

LO 1

Exhibit 6.2- Primary U.S. Laws that Affect Retailing

LO 1

Exhibit 6.3 - Examples of Laws Designed to Protect Consumers

LO 1

Exhibit 6.4- Pricing Constraints

LO 1

Pricing ConstraintsHorizontal price fixing

A group of competing retailers (or other channel members operating at a given level of distribution) establish a fixed price at which to sell certain brands of products

Vertical price fixing

A retailer collaborates with the manufacturer or wholesaler to resell an item at an agreed-on price; also called resale price maintenance or fair trade

Price discrimination

Two retailers buy an identical amount of ‘‘like grade and quality’’ merchandise from the same supplier but pay different prices

Deceptive pricing

A misleading price is used to lure customers into the store andthen hidden charges are added; or the item advertised may be unavailable

Predatory pricing

A retail chain charges different prices in different geographic areas to eliminate competition in selected geographic areas

LO 1

Pricing Constraints

• Justification for some types of price discrimination• Cost justification defense - Accounted for

differences in cost to:• The seller in the manufacture, sale, or delivery arising

from differences in the method or quantities

• Changing market conditions defense• Danger of imminent deterioration of perishable goods

or on the obsolescence of seasonal goods

• Meeting competition in good faith defense

LO 1

Promotion Constraints

• Promotion decisions are constrained by the:• Federal Trade Commission Act• Wheeler-Lea Amendment of the FTC Act

LO 2

Exhibit 6.6 - Promotional Constraints

LO 2

Deceitful Diversion of Patronage

• Publish or verbalize falsehoods about a competitor so as to divert their patrons

• Palming off • A retailer represents that merchandise is made by

a firm other than the true manufacturer

• False or misleading advertising claims about the: • Physical makeup, benefits, or the appropriate uses

for the product

LO 2

Copycats, Pirates, and Counterfeits

The Numbers2008 counterfeit seizures: 272.7 million USD

2007 figure: ~500 billion dollars/year industry

38 % increase since 2007

The Ranking (US Customs):No. 1: China – 81% (221.6 million USD)

No. 2: India – 6%

Numbers in Asia (28% lost profit for mfg.)

Definition•Counterfeit: (adj) Made in imitation so as to be passed off fraudulently or deceptively as genuine; not genuine; forged: counterfeit dollar bills. (n) An imitation intended to be passed off fraudulently or deceptively as genuine; forgery.

Dictionary.com

Converse or Canvers, That is the question: Apparel

Is this a counterfeit? Common brands:

Nike & Adidas Air Qiaodan Prada-Cole The concept: Name

brands for cheap(er).

Source: www.counterfeitchic.com

Apples and Oranges: Electronics Counterfeit iPhones

& Nokia New & Improved! SEG Plaza – World's

largest source of counterfeit phones

It blows (literally)Source: www.xorgane.com

Pimp my Great Wall: Automotives Cheezy names Everything

Imaginable Safety issues

1 Star crash rating

Quality issues NOT only China

Source: www.eng.wcetv.com

Source: www.motorauthority.com

Pizza, Eh?: Food Success of Starbucks in China

Annual sales growth: 30% 400 stores (180 in

mainland) Success of MacDonald's

2012 stores (2008) Not cheap, but well

serviced Changes to food culture

Produce Eating habitsSource: www.logoblink.com

OthersSoftwares: Computer games, OS, applicationsCds/DVDs: Musics & moviesPharmaceuticals: MedicineWebsites: www.baidu.com, www.youku.comCertifications: CCCCelebrities

Origins and SolutionsSome origins of counterfeit

Ex-partners

Former workers

Local competitors

Chinese police: Nothing

Coca-Cola Method: Product & distribution

Budweiser Approach: Packing technology

Technology Approach: ASIC/Microcontrollers

Conclusion

Makes up for lack of creativity, technology, and money

Case A: Fool the customers

Case B: I know it's not real, and it was never intended to be

real

Full of opportunities

Deceptive Advertising

• Requirements to challenge any claim contained in advertising:• The FTC must prove that the challenged claim is

contained in the advertisement• The claim must be deceptive• The deceptive claim must be material

LO 2

Deceptive Advertising• Bait-and-switch advertising

• Advertising or promoting a product at:• An unrealistically low price to serve as “bait” and then trying to

“switch” the customer to a higher-priced product

• Forbidden practices• Refusing to show, demonstrate, or sell the product offered• Disparaging, by word or deed, the advertised product• Failing to have sufficient quantities of the advertised product at

all outlets listed in the advertisement• Refusal to take orders for the advertised merchandise to be

delivered within a reasonable period of time• Design sales plan or compensation such that to discourage

salesman from selling advertised productLO 2

Deceptive Sales Practices

• Illegal practices• Failing to be honest or omitting key facts in either

an ad or a sales presentation• Using deceptive credit contracts

• Credit Card Act (2009)• Protection against arbitrary rate increases• Not penalizing cardholders who pay • Protecting cardholders from misleading terms• Protection of vulnerable consumers from fee-heavy

subprime credit cards

LO 2

Exhibit 6.7- Product Constraints

LO 3

Product Constraints

• Product safety• Consumer Product Safety Act

• Retailers have specific responsibilities to monitor the safety of consumer products

• Consumer Product Safety Improvements Act (2008)

• Applies to all members of the supply chain

LO 3

Product Constraints

• Product liability laws• Deal with the seller’s responsibility to market safe

products• Foreseeability doctrine

• A seller must attempt to foresee how a product may be misused and warn the consumer against the same

LO 3

Product Constraints

• Warranties• Expressed warranties: Written or verbalized

agreements:• About the performance of a product • That can cover all attributes of the merchandise or only

one attribute

• Implied warranty of merchantability • Made by every retailer when the retailer sells goods• Implies that the merchandise sold is fit for the ordinary

purpose for which such goods are typically used

LO 3

Product Constraints• Implied warranty of fitness

• Implies that the merchandise is fit for a particular purpose

• Arises when the customer relies on the retailer to assist or make the selection of goods to serve a particular purpose

LO 3

Supply-Chain Constraints

• Territorial restrictions• Limit the geographic area in which a retailer may

resell its merchandise• Lessen competition between retailers• Violation of Sherman Antitrust Act

• Dual distribution• A manufacturer sells to independent retailers and

also through its own retail outlets• Adversely affects the manufacturer-retailer

relationships

LO 4

Exclusive Dealing

• One-way exclusive dealing arrangement • Retailer has exclusive right to merchandise the

supplier’s product in a particular trade area

• Two-way exclusive dealing agreement• Supplier offers the retailer:

• Exclusive distribution of a merchandise line/product in a particular trade area

• Retailer agrees to return the manufacturer’s favor

LO 4

Supply-Chain Constraints

• Tying agreement• Seller with a strong product or service requires a

buyer (the retailer) to:• Purchase a weak product or service as a condition for

buying the strong product or service.

• Not viewed as a violation• Viewed as illegal if a substantial share of

commerce is affected

LO 4

Other Federal, State, and Local Laws

• Federal laws retailers must be aware of:• Trade agreements regulating import and export• Laws that deal with minimum wages and hiring

practices

• State and municipalities regulations regarding retail activities

LO 5

Exhibit 6.9 - State and Local Regulations Affecting Retailers

LO 5

Ethics in Retailing

• Ethics: Set of rules for human moral behavior• Explicit code of ethics: Written policy that

states what is ethical and unethical behavior• Implicit code of ethics: Unwritten but well

understood standards of moral responsibility

LO 6

Ethics in Retailing

• Retail decision that involve ethical considerations:• Buying merchandise• Selling merchandise• Retailer-employee relationships

LO 6

Ethical Behavior in Buying Merchandise

• Product quality• Testing products to check if they:

• Adhere to stricter ethical and environmental standards that go beyond existing government regulations

• Sourcing• Retailers inspect suppliers to make sure they are

not buying :• Illegal merchandise• From unsavory characters

LO 6

Ethical Behavior in Buying Merchandise

• Sustainability• Requiring suppliers to engage in sustainable

business practices

• Slotting fees (slotting allowances) • Fees paid by a vendor for:

• Space or a slot on a retailer’s shelves• Having its UPC number given a slot in the retailer’s

computer system

LO 6

Ethical Behavior in Buying Merchandise

• Bribery• Offering an inducement to the retailer for

purchasing vendor’s products• Markdown money

• Retailers charge suppliers when merchandise does not sell at what the vendor intended

LO 6

Ethical Behavior in Selling Merchandise

• Products sold• Should a retailer sell any product as long as it is

not illegal?

• Selling practices• Can a salesperson, while not saying anything false,

be allowed to conceal certain facts from a customer?

LO 6

Ethical Behavior in the Retailer-Employee Relationship

• Misuse of company assets• Job switching

• Employees switching jobs should respect previous employers right to retain confidentiality

• Employee theft

LO 6