This document summarizes key legal and ethical constraints and considerations for retailers. It discusses laws around pricing (including price fixing and discrimination), promotions (deceptive advertising and sales practices), products (liability, warranties and safety), supply chains (territorial restrictions and exclusive dealing) and ethics (in buying, selling and treating employees). Retailers must understand and comply with various federal, state and local regulations to operate legally and ethically.

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.

8. Pricing Constraints
Exhibit 6.4

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.

16. Promotional Constraints
Exhibit 6.5

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

21. Product Constraints
Exhibit 6.6

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.

28. Channel Constraints
Exhibit 6.7

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