Legal & Ethical Issues in Retailing

ISSUES ABOUT ETHICS IN RETAILING

Issues in retailing are divided into two broad categories viz.

A) Ethical issues:

• This is a set of rules for human moral behavior.

• Explicit code of ethics: Written policy that specifies what is ethical and unethical behavior.

• Implicit: Unwritten but well understood set of rules/ standards of moral responsibilities.

B) Legal issues

• Set of laws that dictate which activities society has deemed to be clearly wrong.

• Activities for which retailers & their employees will be punished through federal or state legal system.

• In view of the competitive nature and dynamic environment within which retail operates, it is important to monitor the legal and ethical constraints affecting the sector.

• Ethical codes vary from country to country. In Middle Eastern Countries bribe is an accepted practice, but is unethical and even illegal in US.

Ethical Behavior in the

Retailer-Employee

Relationship

“Without my clients having the confidence and knowledge of my moral and ethical standards, I

doubt that I would have been able to create a solid client base.”

~Eric Pollack

MD of ESPprosearch

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 in understanding who owns what & what boundaries exist for its use.

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.

• It is one of the most common crimes.

• There are people & groups who make their living from shoplifting, who tend to be more skilled.

Misrepresentation of promotional information.

Consumer Fraud

• The defrauding of a consumer of various products and services which do not perform as advertised, or overcharging or levying hidden charges through deceptive business practices.

• 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.

• Occurs when a retailer represents that merchandise is made by a firm other than the true manufacturer. (Palming Off)

Ethics policy for Motorola

salespeople• Improper use of company funds and assets.

The funds and assets of Motorola may not be used for influential gifts, illegal payments of any kind or political contributions whether legal or illegal.

The funds and assets of Motorola must be properly & accurately recorded on the books & records of Motorola.

• Customer supplier/government relationships

Motorola respects the confidence of its customers, Motorola respects the laws, customs and traditions of each country in which it operates but, in so doing, will not engage in any act or course of conduct that may violate law or business ethics.

Employees of Motorola shall not accept payments gifts, gratuities or favors from customers or suppliers.

• Conflict of interest

A Motorola employee shall not be a supplier or a competitor of Motorola or be employed by a competitor, supplier, or a customer of Motorola.

Shall not have a relationship with any other business enterprise

Relationships with Customers

• Deception

• Bribes, Gifts and Entertainment

• Special Treatment

• Confidential Information

• Backdoor Selling

Legal Consideration- Site Location

Legal issues discussed here, can discourage a retailer from having a

particular location.

1) Environmental issues:

Two environmental issues have received particular attention in recent

years.

Above ground risks – such as asbestos containing materials or lead

pipes used in construction.

Hazardous materials stored in the ground- This consideration is

important for dry cleaner because of the chemicals it uses or for an

auto repair shop because of its disposal of used motor oils and battery

fluids.

Retailer while purchasing have two options to protect themselves

from these hazards:

Buy insurance that protect them from such risks.

To stipulate in lease that lessor will be responsible for removal

of any such material if it is found

2) Zoning , Building Codes & Signs

• Zoning determines how a particular site can be used.

• Some sites are for residential use only, other are zoned for retail uses.

• Building Codes determine type of building, size, sign and type of parking lot used at a particular location.

• Restriction on the use of sign can also impact site selection

Adobe style (Mud bricks) of building in Mexico

Legal & regulatory Issues in HRM

1) Equal Employment Opportunity

• Goal of Equal Employment Opportunity regulation is to protect employees from unfair discrimination in the workplace.

• Companies can’t treat employees different on the basis of their race, color, national origin, location

• Illegal discrimination refers to actions of employees that results in members of a protected class (members that share same characteristics as defined by the law) being treated entirely different than others.

2) Compensation

• Laws relating to compensation define 40 hour work week, pay rate for working overtime, minimum wage and pension plans, same pay to men & women for same work.

• Wal-Mart's Case

• To avoid such discrimination various rules and regulations have been developed to protect employees.

Number or lawsuits were filed against Wal-Mart claiming that they do the same job as hourly employees but are classified as managers so that their employer can avoid paying them overtime wages

3) Employee safety & Health

• Basic premise of these laws is that the employer is obligated to provide each employee with an environment that is free from hazards that are likely to cause death or serious injury.

4) Employee Privacy

• Employees privacy protection is very limited.

• Employer can monitor e-mail & telephone communication, search an employee’s work space and handbag.

• But, employer can’t discriminate among employees when undertaking these activities unless they have strong suspicion that specific employee is acting inappropriately.

Ways of unethical advertisement

• Surrogate advertisement

• Puffery

• Exaggeration

• Unverified claims

• Comparative advertisements

• Use of children in advertising

1) Surrogate advertising

• Is prominently a case where advertising a particular product is banned by law.

In India, though there is a ban on advertising of such products, manufacturers are still able to advertise & remind their brand in many indirect ways, for instance, Manikchand Film Fare Awards, Royal stag Music CDs, Teacher’s Achievement Awards, etc.

2) Puffery advertising

• Puffery as a legal term refers to promotional statementsand claims that express subjective rather than objectiveviews, such that no reasonable person would take literally.

• A five-year old might believe that man can becomechocolate by using AXE, but we know better

3) EXAGGERATION

• Using false claims in the advertisements about the product.

• For example:-Tide detergent – “White ho to Tide ho.”, Vodafone Essar – “Wherever you go our network follows.”

White ho to

Tide ho.

One Drop Challenge

Wherever you go our network follows.

4) Unverified Claims

• It includes advertisements of “energy drinks” which tells us about the number of vitamins and how they help children to grow strong and tall.

• There is no way of verifying these false claims.

• For example:-Horlicks, Maltova, Tiger biscuits.

5) Unhealthy Brand comparisons

• Nowadays advertisers are engaged in unhealthy brand comparison with the help of advertising.

• Such comparisons create problems and confusions for the right choice of the product as far as audience are concerned.

• Example can be cited of Coke Vs Pepsi

6) Children in advertising

Children are easily persuadedand have a large pull ontoday's markets, as is knownby all advertisers, even oneswho do not intend for theirproducts to be consumed bychildren.

AXE ADVERTISEMENT

AXE a product of HUL Vaibhav Bedi had been using AXE Deodorant

for the past seven years, but didn’t able to grab the girls attention.

Axe advertisements suggest that the products help men in instantly attracting women.

It proved to be a major marketing and legal embarrassment for HUL that a 26-year-old man filed a case against the company, for ‘cheating’ and causing him ‘mental suffering’.

Vaibhav Bedi, the petitioner, also surrendered all his used, unused and half-used deodorant sprays, perfume sticks and, and hair gels to the court, & demanded a laboratory test of the products &narcotics test of the brand managers of Axe

Legal and Ethical Issues for

Buying Merchandise• Purchase Terms and Conditions

• Resale Price Maintenance

• Commercial Bribery

• Chargebacks

• Counterfeit Merchandise

• Exclusive Dealing Agreements

• Tying Contract

1) Terms of Conditions of Purchase

The Robinson-Patman Act (Anti-Chain-Store Act)

• Restricts the prices and terms that vendors can offer to retailers

• Forbid vendors from offering different terms and conditions to different retailers for the same merchandise and quantity

• Different prices can be offered if

– The costs of manufacturing, selling, and delivery are different

– The retailers are providing different functions (e.g., distribution, store service, etc.)

• An agreement that requires the retailer to take a product it doesn’t necessarily desire (the tied product) to ensure that it can buy a product it does desire (the tying product)

2) Tying Contract

4) Commercial Bribery

• A vendor or its agent offers to give or pay a retail buyer “something of value” to influence purchasing decisions (free lunch and an elaborate free vacation)

• Some retailers with a zero tolerance policy while some accept only limited entertainment or token gifts.

5) Chargeback

• A practice used by retailers in which they deduct money from the amount they owe a vendor without getting vendor approval.

• Two Reasons:merchandise isn’t sellingvendor mistakes

• Difficult for vendors - Disrupt relationships

7) Counterfeit Merchandise

Goods made and sold without the permission of the owner of a trademark, a copyright, or a patented invention that is legally protected in the country where it is marketed

8) Exclusive Dealing Agreements

• Occur when a manufacturer or wholesaler restricts a retailer into carrying only its products and nothing from competing vendors

– Example: Safeway – Coca-Cola

• Illegal when they restrict competition

Issues in price setting

• 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.

• Vertical Price Fixing

Occurs when a retailer collaborates with the

manufacturer or wholesaler to resell an item at an

agreed-on price.

• Price Discrimination

Occurs when a retailer collaborates with the manufacturer or wholesaler to resell an item at an agreed-on price.

• 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.

• Predatory Pricing

Exists when a retail chain charges different prices

in different geographic areas to eliminate

competition in selected geographic areas.

Issues on the Internet

Common Legal Disagreements on the

Internet

Disagreements on the Internet in an online shopping scenario occur often because of one of the following reasons:

• The customer pays, but the merchant does notdeliver.

• The customer pays, but the merchant deliversthe wrong goods or in less quantity or broken.

• The customer pays, but the money does not arrive at the seller.

• The merchant delivers, but the customer refuses to pay.

• The merchant delivers, but the customer has not ordered anything.

Online Privacy

• According to consumers, online security is a major concern. • Many users are uncertain to use their credit-card numbers

for online transactions in the event that records are kept of what they purchased & from where it was purchased.

• Businesses must provide consumers with the ability to actively choose not to have their information shared with third parties, for online privacy.

Privacy Protection

The Federal Trade Commission (FTC) has established five Core Fair Information Practices regarding online marketing tactics that involve gathering and using consumer information

1. Consumers should be made aware that personal information will be collected.

2. The consumer should have a say in how this information will be used.

3. The consumer should have the ability to verify the information collected to ensure that it is complete and correct.

4. The information collected should be secured.

5. The Web site should be responsible for considering that these practices are followed.