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.
• 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)

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.
 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 statements
and claims that express subjective rather than objective
views, such that no reasonable person would take literally.

• A five-year old might believe that man can become

chocolate 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 One Drop Wherever you go

Tide ho. Challenge 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 persuaded
and have a large pull on
today's markets, as is known
by all advertisers, even ones
who do not intend for their
products to be consumed by
children.
 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.)

2) Tying Contract

• 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)
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 selling
vendor 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 not

deliver.

• The customer pays, but the merchant delivers

the 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.

 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.