Chapter 6 Legal and Ethical Behavior

1. Chapter 6 Legal and Ethical Behavior

2. 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.

3. 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.

4. Exhibit 6.1 - Ethical and Legal Constraints Influencing Retailers

5. Exhibit 6.2 - Primary U.S. Laws thatAffect Retailing

6. Exhibit 6.3 - Examples of Laws Designed to Protect Consumers

7. Pricing Constraints LO 1

8. Pricing Constraints • Buyers and sellers use a variety of defenses that enable some types of price discrimination to occur. These defenses include • Cost justification defense • Changing market conditions defense • Meeting competition in good faith defense LO 1

9. Promotion Constraints • The ability of the retailer to make promotion decision is constrained by the: • Federal Trade Commission Act • Wheeler-Lea Amendment of the FTC Act LO 2

10. Exhibit 6.5 - Promotional Constraints LO 2

11. Deceitful Diversion of Patronage • The retailer publishes or verbalizes falsehoods about a competitor in an attempt to divert patrons from that competitor. • Palming off - A retailer represents that merchandise is made by a firm other than the true manufacturer. LO 2

12. Deceptive Advertising • 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. • 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. LO 2

13. Deceptive Advertising • When the FTC challenges any claim contained in advertising or promotional material, several requirements must be met before the commission can find actionable deception. • 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

14. Deceptive Sales Practices • Two illegal practices are: • Failing to be honest or omitting key facts in either an ad or a sales presentation. • Using deceptive credit contracts. LO 2

15. Product Constraints • Product safety • Retailers have little to say about product quality or safety as most retailers do not produce the goods they sell but purchase them from wholesalers or manufacturers. • According to the Consumer Product Safety Act, retailers have always had specific responsibilities to monitor the safety of consumer products. LO 3

16. Product Constraints • Product liabilitylaws • Deal with the seller’s responsibility to market safe products. • 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. LO 3

17. Product Constraints • Warranties • Expressed warranties - Either written or verbalized agreements about the performance of a product and can cover all attributes of the merchandise or only one attribute. • Implied warranty of merchantability - Made by every retailer when the retailer sells goods and implies that the merchandise sold is fit for the ordinary purpose for which such goods are typically used. LO 3

18. Product Constraints • Warranties • Implied warranty of fitness - 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. LO 3

19. Supply-Chain Constraints • Territorial restrictions - Attempts by the supplier, usually a manufacturer, to limit the geographic area in which a retailer may resell its merchandise. • Dual distribution - A manufacturer sells to independent retailers and also through its own retail outlets. LO 4

20. Supply-Chain Constraints • One-way exclusive dealing arrangement - The supplier agrees to give the retailer the exclusive right to merchandise the supplier’s product in a particular trade area. LO 4

21. Supply-Chain Constraints • Two-way exclusive dealing agreement - The supplier offers the retailer the exclusive distribution of a merchandise line/product in a particular trade area 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. LO 4

22. Supply-Chain Constraints • 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 the strong product or service. • Tying is not viewed as a violation per se, but it is generally viewed as illegal if a substantial share of commerce is affected. LO 4

23. Exhibit 6.8 - State and Local Regulations Affecting Retailers LO 5

24. 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 set of rules or standards of moral responsibility. LO 6

25. Ethics in Retailing • Three retail decision areas that involve ethical considerations: • Buying merchandise • Selling merchandise • Retailer–employee relationships LO 6

26. Ethical Behavior in Buying Merchandise • Product quality • Retailers develop laboratory testing programs to verify that the quality of private-label products and manufacturers’ own brands, adhere to stricter ethical and environmental standards that go beyond existing government regulations. • Sourcing • Retailers can use private investigators to check out vendors to make sure they are not buying from unsavory characters. LO 6

27. Ethical Behavior in Buying Merchandise • Slotting fees (slotting allowances) - 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. LO 6

28. Ethical Behavior in Buying Merchandise • Bribery • It occurs when a retail buyer is offered an inducement for purchasing a vendor’s products. • Markdown money - A modern version of bribery where retailers charge to suppliers when merchandise does not sell at what the vendor intended. LO 6

29. Ethical Behavior in Selling Merchandise • Products sold • Selling practices LO 6

30. Ethical Behavior in the Retailer-Employee Relationship • Misuse of company assets • Job switching • Employee theft LO 6

31. Exhibit 6.9 - National Retail Federation Principles on Customer Data Privacy LO 6