Deck 6: Legal and Ethical Behavior

Question 1

How does government regulation influence a retailer's behavior with other supply-chain members
Could a decision by a manufacturer to engage in dual distribution be harmful to the consumer and members of the supply chain Explain your reasoning.

Answer 1

If distribution of same product is conducted parallel through indirect and indirect channel then such distribution is termed as dual distribution. Direct distribution is when manufacturer sells directly to consumer through online or counter sale. Retailers on the other hand buy the same product from manufacturer and sell it over the counter and departmental stores to customers, this is indirect selling.
- Dual distribution generally brings conflict among manufacturer and retailer since it creates competition for the same product sale.
- However manufacturer reasons out that such kind of direct distribution is required for sales promotion and in creating consumer awareness about product usage.
Though dual distribution brings competition among members of the same supply chain, it is still carried over the globe by many big and small companies. Manufacturers have their own reasons for such direct and indirect sale, as mentioned above.

Question 2

How does government regulation influence a retailer's behavior with other supply-chain members
How could two-way exclusive dealing arrangements be harmful to consumers and competition

Answer 2

Two-way exclusive dealing refers to verbal agreement between retailer and manufacturer where retailer does something in return to exclusive rights given to retailer by manufacturer. For example manufacturer may give exclusive right to the retailer who agrees to promote manufacturer's product by not selling other competing products.
- If two-way exclusive dealing rules out other competing products then it will be under unfair trade practice.
- Sine such agreements are verbal, it is difficult to keep a check on two way exclusive dealing.
Consumers are affected by such dealing as they are offered limited products under two-way exclusive dealing. This also affects competition since a situation of monopoly is implemented indirectly.

Question 3

How does government regulation influence a retailer's behavior with other supply-chain members
Discuss the concept of exclusive dealing. Are exclusive dealing arrangements in the retailer's best interest Are they in the consumer's best interest

Answer 3

Exclusive dealing refers to rights given by the manufacturer to retailer to sell his/her product to the consumers. There are two types of exclusive dealing: one way exclusive dealing and two-way exclusive dealing.
- One way exclusive dealing refers to rights given by the manufacturer to retailer to sell and promote his/her product. The retailer does nothing special or favorable in return to manufacturer for such exclusive rights. This case is common when a manufacturer is struggling to establish his/her brand in the market.
- Two way exclusive dealing refers to rights given by the manufacturer to retailer in return of some favor from the retailer. For example, manufacturer may give exclusive right to the retailer who agrees to promote manufacturer's product by not selling other competing products.
Exclusive rights are always beneficial for retailer since they get access to rights of selling the product in the manner they want. However, consumers are affected by such exclusive dealing rights since the retailer eliminates the competing product from the store. The consumers are offered limited options due to such dealing.

Question 4

The Changing Face of Tobacco Retailers
Over the last half-century, Americans have become accustomed to the idea of being able to buy cigarettes at a variety of retail outlets ranging from vending machines in bars to restaurants, airports, supermarkets, convenience stores, gas stations, and discount stores. However, federal legislation may soon change the way tobacco is sold in the United States.
Walmart was one of the first major retailers to address the tobacco issue. In 1990, Sam Walton admitted in a letter to a consultant that he was "still in a quandry [sic] on our direction for this very important issue." The next year, the retailer announced the banning of smoking on all Walmart property, including the stores, as well as the removal of any cigarette vending machines. At the time, Walton was not aware of any vending machines, but as a precaution, he issued the "ban" order. Later, when Walmart expanded into Canada by purchasing 127 Woolco stores, Walton met with the pharmacists from the newly acquired stores. At their request, Walmart dropped the sale of tobacco in its Canadian stores. Members of the chain's executive committee decided to continue with the sale of cigarettes after Mr. Walton's death.
At the same time, various state and local agencies began to enforce age restrictions on the sale of cigarettes and other products such as firearms, spray paint (which was used for painting gang slogans), and even glue. Walmart even introduced a program into its scanners that froze the cash register when the stock-keeping unit (SKU) for one of these products was recorded until the clerk ascertained the age of the purchaser. As a result of the increased enforcement, some retailers, especially supermarkets and drug stores, began to drop tobacco. How would this affect the sale of these legal products, which account for more than $60 billion in sales per year
If such a change were to occur, what retailers would benefit Some experts think that if cigarettes are dropped by the mass sellers, one of the best prepared retailers is John Roscoe's family-owned Cigarettes Cheaper chain. This is a 400-store operation already doing $500 million in sales each year.
Cigarettes Cheaper, which sells only cigarettes in 1,200-square-foot outlets located primarily in strip malls, is second only to Walmart in total cigarette sales; it is a spin-off of Roscoe's Customer Company convenience store chain. The name Customer Company was a reflection of Roscoe's appreciation for his consumers. As a result, he offered the lowest possible prices on everything in the store. His tobacco stores follow the same philosophy by charging 20 percent less than nearby competitors for the average pack or carton of cigarettes.
The chain is able to charge such prices by taking advantage of every manufacturer discount available and realizing that its customers are not apt to buy just a pack or even a carton but will more likely purchase 10-12 cartons at a time. But low prices are not the only attraction. Roscoe's store (and similar operations) has a broader range of brands and packaging than other retailers, a regular diet of promotions, and a welcoming attitude toward smokers that is not always the case elsewhere.
These facts about Roscoe's operation are most impressive:
No member of John Roscoe's family smokes, nor do any of them encourage anyone else to smoke.
The stores put in a great deal of effort into controlling underage customers. All stores have a large sign stating "No Minors Allowed Inside," and a manager could lose his or her job for violating this rule.
Many retail experts think this might be the way all cigarettes are sold in the future. What do you think
Roscoe says his stores are just there to serve the market. Do you agree with his right to do this Do you agree with his decision to do this
Note: This case is based on information supplied by William Davidson and the late Robert Kahn, the two individuals to whom the third edition of this textbook was dedicated.

Question 5

What is the impact of various state and local laws, in addition to other federal regulations, in developing retail policies
Should a retailer be allowed to sell products below cost in attempt to increase store traffic Why

Question 6

You are the general manager and partner for a local Ford dealership with a net worth of $1,800,000. At your regular Friday morning meeting with the sales force, you congratulate your staff on being ahead of its sales quota for the year.
Things could not be better, you think to yourself, as you leave the meeting and return to your office. You are going to exceed your $8.5 million sales goal for the year. Your cost of merchandise sold is expected to average 88 percent of sales, and your fixed operating costs are being held to $30,000 a month. With variable costs averaging 5 percent of sales, you are expecting to produce almost a quarter of a million dollars in profit before taxes this year.
Just when things look so great, your partner calls to ask if you read the article in the morning newspaper about last night's city council meeting. It seems that in order to reduce local property taxes and thus keep voters happy, a council member has suggested that the city increase its sales tax by 1 percent. This tax would cover everything sold in the city, including automobiles.
While you hate to see any type of sales tax increase since it raises the price of your automobiles, this one in particular could present your dealership with a major problem. Just last year, several dealers representing most major domestic and foreign car manufacturers moved to a nearby suburban location, creating a sort of "car mall" where shoppers could easily move from one dealership to another and compare the various offerings. One of those car mall dealers was the city's other Ford dealer. This dealer's customers would not have to pay this additional sales tax since the suburb's government planned to keep local sales taxes at the current level and instead reap the benefits of an increase in retail sales as consumers flocked to suburban merchants to get lower prices.
What should you do Should you absorb the additional tax to keep your prices competitive What would this do to your profits Or should you lobby city hall to persuade the council to see the errors of this tax increase

Question 7

What is the impact of various state and local laws, in addition to other federal regulations, in developing retail policies
In a free-market system such as the one we have in the United States, should cities be allowed to use zoning laws to prevent big-box discounters from entering their markets

Question 8

How does legislation constrain a retailer's pricing policies
A busy corner intersection in Houston has gasoline stations on all four corners. These dealers always seem to have identical prices for their gasoline or, at least, they are within one cent of each other. Is this evidence of horizontal price fixing Why or why not

Question 9

What is the impact of various state and local laws, in addition to other federal regulations, in developing retail policies
Should online retailers be required to collect the sales tax on all their sales for the individual states

Question 10

Having enjoyed the entertainment, as well as the refreshments, at your local drinking establishment during your academic career, you decide to open a bar of your own after graduation. However, based on the material presented in this chapter, you realize that there are quite a few regulations governing these types of retail facilities. Investigate the laws regarding operating a bar and grill. Be sure to consider all local and state regulations about the location of such establishments. Also determine what, if any, laws about security and liability are involved.
In addition, determine the ethical issues involved. For example, do you want to locate near a high school or a rehabilitation center Do you want to hire people who are less than drinking age to work in the food section

Question 11

How does a retailer's code of ethics influence its behavior
Retailers should abide by the philosophy that "as long as it is legal, it is ethical." Agree or disagree and explain your reasoning.

Question 12

As assistant manager for an online flooring retailer, you have been approached by your manager to develop a competition-based pricing policy. Your manager indicates that, since your market is national and pricing of carpets and hardwoods varies by both product and delivery costs, he would like you to develop a pricing strategy based on what online competitors are charging. Your manager believes that your firm could effectively compete on selection and service if only it could establish a pricing policy that would match or beat competitors, thus eliminating their competitive advantage. In other words, he wants you to gather competitive intelligence from your competitors' websites in order to develop a pricing policy that would, in effect, make your flooring cheaper by 2-3 percent or, at worst, the exact same price (when delivery charges are included) as your competitors. You wonder if this is legal and ethical.
Prepare a response to the manager outlining your position on the potential legal and ethical implications of the strategy.

Question 13

How does a retailer's code of ethics influence its behavior
Because of religious or personal beliefs, a convenience owner may not want to stock a particular product-say, cigarettes or beer-that is normally sold by its category of store. Can government force the retailer to carry a full line of merchandise if that retailer is the only store in a community

Question 14

How does legislation constrain a retailer's pricing policies
Does vertical price fixing (resale price maintenance) help or hurt the small independent retailer What about consumers Why

Question 15

How does a retailer's code of ethics influence its behavior
Many retailers face the problem of small amounts of unredeemed money that remain on a gift card. Does this "breakage" belong to the retailer as part of its profit, does it belong in the state's treasury, or should it go into the state's unclaimed money fund to the consumer Explain your reasoning.

Question 16

How does legislation constrain a retailer's pricing policies
Deceptive pricing harms not only the consumer but also competition. Agree or disagree and explain your reasoning.

Question 17

What is the difference between legal and illegal promotional activities for a retailer
If a student goes to a flea market and buys what he knows to be a fake Polo shirt for $18, is this an example of "deceitful diversion of patronage" Is anyone hurt by this transaction Who Explain your reasoning.

Question 18

What is the difference between legal and illegal promotional activities for a retailer
Should all types of "puffery" be removed from ads Explain your reasoning.

Question 19

What is the difference between legal and illegal promotional activities for a retailer
Do you believe that fake merchandise is sold on eBay If so, what can eBay do about it, within reason

Question 20

What is the difference between legal and illegal promotional activities for a retailer
A New York judge recently ruled that a retailer with the first name of John committed trademark infringement when he renamed one of his existing stores "Trader John's" and redesigned it to look like a nearby Trader Joe's. Was the judge right in his ruling Why

Question 21

What responsibilities does a retailer have regarding the products sold
Should a McDonald's franchisee be held liable for selling a Happy Meal to an already overweight child Why

Question 22

What responsibilities does a retailer have regarding the products sold
Should a retailer be held liable for statements made by its sales staff, even if the staff was instructed not to make such statements Explain your reasoning.