chapter 6 legal and ethical behavior. © 2011 cengage learning. all rights reserved. may not be...
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© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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.
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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.
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Exhibit 6.1 - Ethical and Legal Constraints Influencing Retailers
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Exhibit 6.2 - Primary U.S. Laws thatAffect Retailing
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Exhibit 6.3 - Examples of Laws Designed to Protect Consumers
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Pricing Constraints
Horizontal 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 and
then 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
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Pricing Constraints
Buyers and sellers use a variety of defenses that enable some types of price discrimination to occur. These defenses includeCost justification defenseChanging market conditions defenseMeeting competition in good faith defense
LO 1
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Promotion Constraints
The ability of the retailer to make promotion decision is constrained by the:Federal Trade Commission ActWheeler-Lea Amendment of the FTC Act
LO 2
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Exhibit 6.5 - Promotional Constraints
LO 2
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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
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Copycats, Pirates, and Counterfeits
Wei-Tau LeeJuly 14, 2009
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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.)
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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
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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
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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
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Pimp my Great Wall: Automotives Cheezy names Everything
Imaginable Safety issues
1 Star crash rating
Quality issues NOT only China Geely's 2008 profit
(4:46 min)
Source: www.eng.wcetv.com
Source: www.motorauthority.com
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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 habits
Source: www.logoblink.com
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Others
Softwares: Computer games, OS, applicationsCds/DVDs: Musics & moviesPharmaceuticals: MedicineWebsites: www.baidu.com, www.youku.comCertifications: CCCCelebrities
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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
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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
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Citations1. "CBP, ICE Release Annual Report on Counterfeit Goods Seized". U.S. Customs and Border Protection . July 13, 2009 <http://www.cbp.gov/xp/cgov/newsroom/news_releases/january_2009/01082009.xml>.
2. Rinkunas, Susan. "The hidden cost of counterfeit goods". July 13, 2009 <http://swissidco.isuisse.com/pdf/5-Artikel.pdf>.
3. "Counterfeits account for up to a quarter of unit sales and cause manufacturers to lose up to 28% of profit in Asia". Spire Research and Consulting. July 13, 2009 <http://www.spireresearch.com/pdf/archive/press/PR-Mar07Counterfeit.pdf>.
4. Meredith, Robyn. "The Counterfeit Economy". Forbes. July 13, 2009 <http://www.forbes.com/forbes/2003/0217/078sidebar.html>.
5. Kassem, Suzy . "Kooky Sneaker Knock-Offs". About.com. July 13, 2009 <http://sneakers.about.com/od/wheretobuysneakers/tp/KookySneakerKnockOffs.htm>.
6. Ziegler, Chris. "Exploding cellphone kills Chinese man". July 13, 2009 <http://www.engadget.com/2009/02/02/exploding-cellphone-kills-chinese-man/>.
7. "Geely profit doubles on increasing China stakes". Business Times. July 13, 2009 <http://www.btimes.com.my/Current_News/BTIMES/articles/20090417015303/Article/>.
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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
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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
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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
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Product Constraints
Product safetyRetailers 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
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Product Constraints
Product liability lawsDeal 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
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Product Constraints
WarrantiesExpressed 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
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Product Constraints
WarrantiesImplied 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
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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
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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
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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
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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
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Exhibit 6.8 - State and Local Regulations Affecting Retailers
LO 5
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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
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Ethics in Retailing
Three retail decision areas that involve ethical considerations:Buying merchandiseSelling merchandiseRetailer–employee relationships
LO 6
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Ethical Behavior in Buying Merchandise
Product qualityRetailers 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.
SourcingRetailers can use private investigators to check out
vendors to make sure they are not buying from unsavory characters.
LO 6
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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
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Ethical Behavior in Buying Merchandise
BriberyIt 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
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Ethical Behavior in Selling Merchandise
Products soldSelling practices
LO 6
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Ethical Behavior in the Retailer-Employee Relationship
Misuse of company assetsJob switchingEmployee theft
LO 6
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