Chapter 6 Legal and Ethical Behavior in Retailing

Chapter 6

Legal and Ethical Behavior

Ethical and Legal Constraints Influencing Retailers

Exhibit 6.1

Primary U.S. Laws that Affect Retailing

Exhibit 6.2

Primary U.S. Laws that Affect Retailing

Exhibit 6.2

Examples of Laws Designed to Protect Consumers

Exhibit 6.3

Pricing Constraints

Horizontal Price FixingVertical Price FixingPrice DiscriminationDeceptive PricingPredatory Pricing

LO 1

Pricing Constraints

Horizontal Price Fixing:

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

Pricing Constraints

Exhibit 6.4

Pricing Constraints

Vertical Price Fixing:

Occurs when a retailer collaborates with the manufacturer or wholesaler to resell an item at an agreed-on price.

Pricing Constraints

Price Discrimination:

Occurs when two retailers buy an identical amount of “like grade and quality” merchandise from the same supplier but pay different prices.

Price Discrimination

Cost justification defense.

Changing market defense.

Meeting competition in good faith defense.

LO 1

Pricing Constraints

Deceptive Pricing:

Occurs when a misleading price is used to lure customers into the store; usually there are hidden charges or the item advertised may be unavailable.

LO 1

Pricing Constraints

Predatory Pricing:

Exists when a retail chain charges different prices in different geographic areas to eliminate competition in selected geographic areas.

LO 1

Promotion Constraints

Deceitful Diversion of PatronageDeceptive AdvertisingDeceptive Sales Practices

LO 2

Promotion Constraints

Palming Off:

Occurs when a retailer represents that merchandise is made by a firm other than the true manufacturer.

Promotional Constraints

Exhibit 6.5

Deceptive Advertising

Deceptive Advertising:

Occurs when a retailer makes false or misleading advertising claims about the physical makeup of a product, the benefits to be gained by its use, or the appropriate uses for the product.

Deceptive Advertising

Bait-and-Switch Advertising:

Advertising promoting a product at an unrealistically low price to serve as “bait” and then trying to “switch” the customer to a higher-priced product.

Deceptive Sales Practices

Failing to be honest or omitting key facts in either ad of the sales presentation.

Using deceptive credit contracts.

Product Constraints

Product SafetyProduct LiabilityWarranties

Product Constraints

Exhibit 6.6

Product Constraints

Product Liability Laws:

Deal with the seller’s responsibility to market safe products. These laws invoke the “foreseeability” doctrine, which states that a seller of a product must attempt to foresee how a product may be misused and warn the consumer against hazards of misuse.

Product Constraints

Expressed Warranties:

Are either written or verbalized agreements about the performance of a product and can cover all attributes of the merchandise or only one attribute.

Product Constraints

Implied Warranty of Merchantability:

Is made by every retailer when the retailer sells goods and implies that the merchandise sold is fit for the ordinary purpose for which the such goods are typically used.

Product Constraints

Implied Warranty of Fitness:

Is a warranty that implies that the merchandise is fit for a particular purpose and arises when the customer relies on the retailer to assist or make the selection of goods to serve a particular purpose.

Supply Chain Constraints

Territorial Restrictions Dual Distribution Exclusive Dealing Tying Agreements

Supply Chain Constraints

Territorial Restrictions:

Are attempts by the supplier, usually a manufacturer, to limit the geographic area in which a retailer may resell merchandise.

Channel Constraints

Exhibit 6.7

Supply Chain Constraints

Dual Distribution:

Occurs when a manufacturer sells to independent retailers and also through its own retail outlets.

Dual Distribution

Ralph Lauren has a dual distribution strategy where it markets its Polo brand apparel through its own retail stores as well as through traditional department stores.

Exclusive Dealing

One-Way Exclusive Dealing:

Occurs when the supplier agrees to give the retailer the exclusive right to merchandise the supplier’s product in a particular trade area.

Exclusive Dealing

Two-Way Exclusive Dealing:Occurs when the supplier offers the retailer the exclusive distribution of a merchandise line or product in a particular trade if in return the retailer will agree to do something for the manufacturer such as heavily promote the supplier’s products or not handle competing brands.

Tying Agreements

Tying Agreement:

Exists when a seller with a strong product or service requires a buyer (the retailer) to purchase a weak product or service as a condition for buying a strong product or service.

Other Federal, State, and Local Laws

Zoning LawsTaxing LawsFranchise LawsBlue LawsUnfair Trade LawsBuilding Safety Regulations

State, and Local Regulations Affecting Retailers

Exhibit 6.8

Ethics in Retailing

Ethical Behavior in Buying MerchandiseEthical Behavior in Selling MerchandiseEthical Behavior in Retailer-Employee

Relationship

Ethics in Retailing

Ethics:

Is a set of rules for human moral behavior.

Ethics in Retailing

Explicit Code of Ethics:

Consists of a written policy that states what is ethical an unethical behavior.

Ethics in Retailing

Implicit Code of Ethics:

Is an unwritten but well understood set of rules or standards of moral responsibility.

Ethical Behavior in Buying Merchandise

Product QualitySourcingSlotting FeesBribery

Product Quality

Buy at the right time. The right time to buy the merchandise is when it is in season. This is especially true of fruits and vegetables. At the height of the season, goods are cheapest and of the best quality. A good guide for buying other types of merchandise is this, the best time to buy is the period when supply is great and the demand is low.

Buy the right kind. Goods are generally classified as high quality or low goods. The quality depends on the material and quality of the merchandise. High quality goods usually demand high prices. This is not always true, though. Fruits when in season are of the highest quality but sell at the lowest price because there is an abundance of the product in the market, sometimes even more that what can be consumed. The right kind means the right quality that will suit the purpose. The right quality may not be the most expensive but it is the most suited for the right purpose or use.

Buy the right quantity. This means buying only what is needed or in demand. This helps save money and effort in storing. However, there are some goods, like the nonperishable ones that can be bought at the time that they are cheap and stored for a long time. Items like textiles, clothing, and accessories are examples of these.

Buy from the right source. The word “suki” in the Philippines is a popular name in trading. A buyer with a “suki” means that there is trust and confidence already established between buyer and seller. When trust is established, the buyer can buy merchandise by phone or by mail order without benefit of investigating the product. The buyer is confident that the goods are of the right quality.

Sourcing

Merchandise can be bought from several sources. They are the following:Middlemen. These are persons who buy the goods direct from the producers or wholesalers and sell them in retail to the consumers. In this group are distributors of different merchandise who peddle on foot or drive trucks, selling their merchandise to retail stores. Another example is the middlemen who enter into contract with fishermen/ farmers to sell their product to market vendors.

Wholesalers. These are businessmen who buys big quantity or big bulk direct from the manufacturers and who sell the merchandise on wholesale basis. The merchandise is sold in cartons, in packs, by the dozens, by the hundreds, or in sets

Manufacturers and Producers. Producers produce raw products for sale to manufacturers. Examples of these are the farmers. Manufacturers make refined products from raw materials. Examples are the manufacturers of soap, paper, oil, processed food and others.

Ethical Behavior in Buying Merchandise

Slotting Fees (Slotting Allowances):

Are fees paid by a vendor for space or a slot on a retailer’s shelves, as well as having its UPC number given a slot in the retailer’s computer system.

14-49

Commercial Bribery

A vendor or its agent offers to give or pay a retail buyer “something of value” to influence purchasing decisions.

A fine line between the social courtesy of a free lunch and an elaborate free vacation.

Some retailers with a zero tolerance policySome retailers accept only limited

entertainment or token gifts.

Ethical Behavior in Buying Merchandise

Markdown Money:

Is what retailers charge to suppliers when merchandise does not sell at what the supplier intended.

Ethical Behavior in Selling Merchandise

Products Sold

Choosing a product for your retail store to sell may very well be the most difficult decision you will need to make when starting a retail business. The choices are limitless and the task may be overwhelming at first. Not only should there be a demand for your products, but it must be profitable and something you enjoy selling. Before you commit to a product or product line, consider the following factors while deciding what products to sell.

Selling Practices

Putting stellar sales techniques and strategies to use can make an amazing difference in your overall success in the retail game. It’s even better when you can bolster those strategies with salespeople who are knowledgeable, friendly and genuinely enthusiastic. The ultimate goal here is to make people want to come back again and again. When they leave with positive thoughts about the sales staff, they are a lot more like to come back. Repeat sales are crucial to developing a robust business, so do your best to keep the above points in mind. Happy customers develop through unaggressive, friendly sales techniques that gently steer people to buy what you have to sell.

Ethical Behavior in Selling Merchandise

Home Depot’s no commission sales approach does not put the sales person at odds with the customer. However, given Home Depot’s self-service operation, paying a commission would be difficult.

Ethical Behavior in the Retailer-Employee Relationship

Misuse of Company AssetsJob SwitchingEmployee Theft

Misuse of Company Assets

Employees must understand that ethical behavior is demonstrated not only in how they act toward others but also in how they treat property that doesn't belong to them. The key to success is understanding who owns what and what boundaries exist for its use.

Job Switching

Retail jobs can be exciting. However, you may want to leave your current employer due to reasons such as interest in a new career path, desire to move to a different location, desire to grow professionally, lack of opportunities in your current job, differences of opinion with colleagues or management, stress, or ethical grounds. Switching jobs involves making key decisions, so it is necessary that you evaluate your current employment situation before you move.

Employee Theft

Employee Theft from a retail store is a term that is used when an employee steals merchandise, food, cash, or supplies while on the job.

National Retail Federation Principles on Customer Data Privacy

Exhibit 6.9

Price Discrimination

Justifications Meet Competition in Good faith

Changing Market

Cost Justifications

Promotional Constraints

Promotion Decisions

Deceptive sales practices

Deceitful diversion

of patronage

Deceptive advertising

Product Constraints

ProductLiability

ProductWarranties

ProductSafety

ProductDecisions