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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 Fixing 
Vertical Price Fixing 
Price Discrimination 
Deceptive Pricing 
Predatory 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 Patronage 
Deceptive Advertising 
Deceptive 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 Safety 
Product Liability 
Warranties
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 Laws 
Taxing Laws 
Franchise Laws 
Blue Laws 
Unfair Trade Laws 
Building Safety Regulations
State, and Local Regulations Affecting 
Retailers 
Exhibit 6.8
Ethics in Retailing 
Ethical Behavior in Buying Merchandise 
Ethical Behavior in Selling Merchandise 
Ethical 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 Quality 
Sourcing 
Slotting Fees 
Bribery
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 policy 
Some 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 Assets 
Job Switching 
Employee 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 
Changing 
Market 
Competition in 
Good faith 
Cost 
Justifications
Promotional Constraints 
Promotion 
Decisions 
Deceptive sales 
practices 
Deceitful diversion 
of patronage 
Deceptive advertising
Product Constraints 
Product 
Liability 
Product 
Warranties 
Product 
Safety 
Product 
Decisions

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Chapter 6 Legal and Ethical Behavior in Retailing

  • 1. Chapter 6 Legal and Ethical Behavior
  • 2. Ethical and Legal Constraints Influencing Retailers Exhibit 6.1
  • 3. Primary U.S. Laws that Affect Retailing Exhibit 6.2
  • 4. Primary U.S. Laws that Affect Retailing Exhibit 6.2
  • 5. Examples of Laws Designed to Protect Consumers Exhibit 6.3
  • 6. Pricing Constraints Horizontal Price Fixing Vertical Price Fixing Price Discrimination Deceptive Pricing Predatory Pricing LO 1
  • 7. 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.
  • 9. Pricing Constraints Vertical Price Fixing: Occurs when a retailer collaborates with the manufacturer or wholesaler to resell an item at an agreed-on price.
  • 10. 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.
  • 11. Price Discrimination Cost justification defense. Changing market defense. Meeting competition in good faith defense. LO 1
  • 12. 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
  • 13. 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
  • 14. Promotion Constraints Deceitful Diversion of Patronage Deceptive Advertising Deceptive Sales Practices LO 2
  • 15. Promotion Constraints Palming Off: Occurs when a retailer represents that merchandise is made by a firm other than the true manufacturer.
  • 17. 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.
  • 18. 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.
  • 19. Deceptive Sales Practices Failing to be honest or omitting key facts in either ad of the sales presentation. Using deceptive credit contracts.
  • 20. Product Constraints Product Safety Product Liability Warranties
  • 22. 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.
  • 23. 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.
  • 24. 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.
  • 25. 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.
  • 26. Supply Chain Constraints  Territorial Restrictions  Dual Distribution  Exclusive Dealing  Tying Agreements
  • 27. 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.
  • 29. Supply Chain Constraints Dual Distribution: Occurs when a manufacturer sells to independent retailers and also through its own retail outlets.
  • 30. 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.
  • 31. 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.
  • 32. 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.
  • 33. 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.
  • 34. Other Federal, State, and Local Laws Zoning Laws Taxing Laws Franchise Laws Blue Laws Unfair Trade Laws Building Safety Regulations
  • 35. State, and Local Regulations Affecting Retailers Exhibit 6.8
  • 36. Ethics in Retailing Ethical Behavior in Buying Merchandise Ethical Behavior in Selling Merchandise Ethical Behavior in Retailer-Employee Relationship
  • 37. Ethics in Retailing Ethics: Is a set of rules for human moral behavior.
  • 38. Ethics in Retailing Explicit Code of Ethics: Consists of a written policy that states what is ethical an unethical behavior.
  • 39. Ethics in Retailing Implicit Code of Ethics: Is an unwritten but well understood set of rules or standards of moral responsibility.
  • 40. Ethical Behavior in Buying Merchandise Product Quality Sourcing Slotting Fees Bribery
  • 41. 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.
  • 42. 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.
  • 43. 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.
  • 44. 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.
  • 45. 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.
  • 46. 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
  • 47. 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.
  • 48. 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.
  • 49. 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 policy Some retailers accept only limited entertainment or token gifts.
  • 50. Ethical Behavior in Buying Merchandise Markdown Money: Is what retailers charge to suppliers when merchandise does not sell at what the supplier intended.
  • 51. 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.
  • 52.  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.
  • 53. 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.
  • 54. Ethical Behavior in the Retailer-Employee Relationship Misuse of Company Assets Job Switching Employee Theft
  • 55. 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.
  • 56. 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.
  • 57. 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.
  • 58. National Retail Federation Principles on Customer Data Privacy Exhibit 6.9
  • 59. Price Discrimination Justifications Meet Changing Market Competition in Good faith Cost Justifications
  • 60. Promotional Constraints Promotion Decisions Deceptive sales practices Deceitful diversion of patronage Deceptive advertising
  • 61. Product Constraints Product Liability Product Warranties Product Safety Product Decisions