Legal And Ethical Behavior


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Legal And Ethical Behavior

  1. 1. Chapter 6 Legal and Ethical Behavior Retailing, 6 th Edition. Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved.
  2. 2. Learning Objectives <ul><li>Explain how legislation constrains a retailer’s pricing policies. </li></ul><ul><li>Differentiate between legal and illegal promotional activities. </li></ul><ul><li>Explain the retailer’s responsibilities regarding the products sold. </li></ul><ul><li>Discuss the impact of governmental regulation on a retailer’s behavior with other supply chain members. </li></ul>
  3. 3. Learning Objectives <ul><li>Describe how various state and local laws, in addition to federal regulations, must also be considered in developing retail policies. </li></ul><ul><li>Explain how a retailer’s code of ethics will influence its behavior. </li></ul>
  4. 4. Ethical and Legal Constraints Influencing Retailers Exhibit 6.1
  5. 5. Primary U.S. Laws that Affect Retailing Exhibit 6.2
  6. 6. Primary U.S. Laws that Affect Retailing Exhibit 6.2
  7. 7. Examples of Laws Designed to Protect Consumers Exhibit 6.3
  8. 8. Pricing Constraints <ul><li>Horizontal Price Fixing </li></ul><ul><li>Vertical Price Fixing </li></ul><ul><li>Price Discrimination </li></ul><ul><li>Deceptive Pricing </li></ul><ul><li>Predatory Pricing </li></ul>LO 1
  9. 9. Pricing Constraints <ul><li>Horizontal Price Fixing: </li></ul><ul><li>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. </li></ul>LO 1
  10. 10. Pricing Constraints Exhibit 6.4 LO 1
  11. 11. Pricing Constraints <ul><li>Vertical Price Fixing: </li></ul><ul><li>Occurs when a retailer collaborates with the manufacturer or wholesaler to resell an item at an agreed-on price. </li></ul>LO 1
  12. 12. Pricing Constraints <ul><li>Price Discrimination: </li></ul><ul><li>Occurs when two retailers buy an identical amount of “like grade and quality” merchandise from the same supplier but pay different prices. </li></ul>LO 1
  13. 13. Price Discrimination <ul><li>Cost justification defense. </li></ul><ul><li>Changing market defense. </li></ul><ul><li>Meeting competition in good faith defense. </li></ul>LO 1
  14. 14. Pricing Constraints <ul><li>Deceptive Pricing: </li></ul><ul><li>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. </li></ul>LO 1
  15. 15. Pricing Constraints <ul><li>Predatory Pricing: </li></ul><ul><li>Exists when a retail chain charges different prices in different geographic areas to eliminate competition in selected geographic areas. </li></ul>LO 1
  16. 16. Promotion Constraints <ul><li>Deceitful Diversion of Patronage </li></ul><ul><li>Deceptive Advertising </li></ul><ul><li>Deceptive Sales Practices </li></ul>LO 2
  17. 17. Promotion Constraints <ul><li>Palming Off: </li></ul><ul><li>Occurs when a retailer represents that merchandise is made by a firm other than the true manufacturer. </li></ul>LO 2
  18. 18. Promotional Constraints Exhibit 6.5 LO 2
  19. 19. Deceptive Advertising <ul><li>Deceptive Advertising: </li></ul><ul><li>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. </li></ul>LO 2
  20. 20. Deceptive Advertising <ul><li>Bait-and-Switch Advertising: </li></ul><ul><li>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. </li></ul>LO 2
  21. 21. Deceptive Sales Practices <ul><li>Failing to be honest or omitting key facts in either ad of the sales presentation. </li></ul><ul><li>Using deceptive credit contracts. </li></ul>LO 2
  22. 22. Product Constraints <ul><li>Product Safety </li></ul><ul><li>Product Liability </li></ul><ul><li>Warranties </li></ul>LO 3
  23. 23. Product Constraints Exhibit 6.6 LO 3
  24. 24. Product Constraints <ul><li>Product Liability Laws: </li></ul><ul><li>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. </li></ul>LO 3
  25. 25. Product Constraints <ul><li>Expressed Warranties: </li></ul><ul><li>Are either written or verbalized agreements about the performance of a product and can cover all attributes of the merchandise or only one attribute. </li></ul>LO 3
  26. 26. Product Constraints <ul><li>Implied Warranty of Merchantability: </li></ul><ul><li>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. </li></ul>LO 3
  27. 27. Product Constraints <ul><li>Implied Warranty of Fitness: </li></ul><ul><li>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. </li></ul>LO 3
  28. 28. Supply Chain Constraints <ul><li>Territorial Restrictions </li></ul><ul><li>Dual Distribution </li></ul><ul><li>Exclusive Dealing </li></ul><ul><li>Tying Agreements </li></ul>LO 4
  29. 29. Supply Chain Constraints <ul><li>Territorial Restrictions: </li></ul><ul><li>Are attempts by the supplier, usually a manufacturer, to limit the geographic area in which a retailer may resell merchandise. </li></ul>LO 4
  30. 30. Channel Constraints Exhibit 6.7 LO 4
  31. 31. Supply Chain Constraints <ul><li>Dual Distribution: </li></ul><ul><li>Occurs when a manufacturer sells to independent retailers and also through its own retail outlets. </li></ul>LO 4
  32. 32. Dual Distribution <ul><li>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. </li></ul>LO 4
  33. 33. Exclusive Dealing <ul><li>One-Way Exclusive Dealing: </li></ul><ul><li>Occurs when the supplier agrees to give the retailer the exclusive right to merchandise the supplier’s product in a particular trade area. </li></ul>LO 4
  34. 34. Exclusive Dealing <ul><li>Two-Way Exclusive Dealing: </li></ul><ul><li>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. </li></ul>LO 4
  35. 35. Tying Agreements <ul><li>Tying Agreement: </li></ul><ul><li>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. </li></ul>LO 4
  36. 36. Other Federal, State, and Local Laws <ul><li>Zoning Laws </li></ul><ul><li>Taxing Laws </li></ul><ul><li>Franchise Laws </li></ul><ul><li>Blue Laws </li></ul><ul><li>Unfair Trade Laws </li></ul><ul><li>Building Safety Regulations </li></ul>LO 5
  37. 37. State, and Local Regulations Affecting Retailers Exhibit 6.8 LO 5
  38. 38. Ethics in Retailing <ul><li>Ethical Behavior in Buying Merchandise </li></ul><ul><li>Ethical Behavior in Selling Merchandise </li></ul><ul><li>Ethical Behavior in Retailer-Employee Relationship </li></ul>LO 6
  39. 39. Ethics in Retailing <ul><li>Ethics: </li></ul><ul><li>Is a set of rules for human moral behavior. </li></ul>LO 6
  40. 40. Ethics in Retailing <ul><li>Explicit Code of Ethics: </li></ul><ul><li>Consists of a written policy that states what is ethical an unethical behavior. </li></ul>LO 6
  41. 41. Ethics in Retailing <ul><li>Implicit Code of Ethics: </li></ul><ul><li>Is an unwritten but well understood set of rules or standards of moral responsibility. </li></ul>LO 6
  42. 42. Ethical Behavior in Buying Merchandise <ul><li>Product Quality </li></ul><ul><li>Sourcing </li></ul><ul><li>Slotting Fees </li></ul><ul><li>Bribery </li></ul>LO 6
  43. 43. Ethical Behavior in Buying Merchandise <ul><li>Slotting Fees (Slotting Allowances): </li></ul><ul><li>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. </li></ul>LO 6
  44. 44. Ethical Behavior in Buying Merchandise <ul><li>Markdown Money: </li></ul><ul><li>Is what retailers charge to suppliers when merchandise does not sell at what the supplier intended. </li></ul>LO 6
  45. 45. Ethical Behavior in Selling Merchandise <ul><li>Products Sold </li></ul><ul><li>Selling Practices </li></ul>LO 6
  46. 46. Ethical Behavior in Selling Merchandise <ul><li>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. </li></ul>LO 6
  47. 47. Ethical Behavior in the Retailer-Employee Relationship <ul><li>Misuse of Company Assets </li></ul><ul><li>Job Switching </li></ul><ul><li>Employee Theft </li></ul>LO 6
  48. 48. National Retail Federation Principles on Customer Data Privacy Exhibit 6.9 LO 6
  49. 49. Additional Slides
  50. 50. Price Discrimination Justifications Meet Competition in Good faith Changing Market Cost Justifications LO 1
  51. 51. Promotional Constraints Promotion Decisions Deceptive sales practices Deceitful diversion of patronage Deceptive advertising LO 2
  52. 52. Product Constraints Product Liability Product Warranties Product Safety Product Decisions LO 3