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. Copycats, Pirates, and Counterfeits Wei-Tau Lee July 14, 2009

13. 2008 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.) The Numbers

14. 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 Definition

15. 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

16. 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

17. 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

18. 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

19. Softwares: Computer games, OS, applications Cds/DVDs: Musics & movies Pharmaceuticals: Medicine Websites: www.baidu.com, www.youku.com Certifications: CCC Celebrities Others

20. Some 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 Origins and Solutions

21. 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 Conclusion

22. 1. "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/>. Citations

23. 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

24. 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

25. 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

26. 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

27. 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

28. 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

29. 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

30. 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

31. 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

32. 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

33. 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

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

35. 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

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

37. 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

38. 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

39. 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

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

41. Ethical Behavior intheRetailer-Employee Relationship • Misuse of company assets • Job switching • Employee theft LO 6

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