Ethical Performance and Relationships in Retailing

Ethical challenges fall into three interconnected categories: Ethics relates to the retailer’s moral principles and values. Social responsibility involves acts benefiting society. Consumerism entails protecting consumer rights. “Good” behavior depends not only on the retailer but also on the expectations of the community in which it does business.

Throughout our book, “Ethics in Retailing” boxes and chapter discussions provide an oppor­tunity to look at ethical issues. Here, we study the broader impact of ethics, social responsibil­ity, and consumerism. Visit our blog for posts on ethical challenges (www.bermanevansretail .com).

1. Ethics

In dealing with their constituencies (customers, the general public, employees, suppliers, competitors, and others), retailers have a moral obligation to act ethically. Furthermore, due to the media attention paid to firms’ behavior and the high expectations people have today, a failure to be ethical may lead to adverse publicity, lawsuits, the loss of customers, and a lack of self-respect among employees.

When a retailer has a sense of ethics, it acts in a trustworthy, fair, honest, and respectful man­ner with each of its constituencies. Executives must articulate to employees and channel partners which kinds of behavior are acceptable and which are not. The best way to avoid unethical acts is for firms to have written ethics codes, to distribute them to employees and channel partners, to monitor behavior, and to punish poor behavior—and for top managers to be highly ethical in their own conduct. See Figure 2-11.

Society often may deem certain behavior to be unethical even if laws do not forbid it. Most observers would agree that practices such as these are unethical (and sometimes illegal, too):

  • Raising prices on scarce products after a natural disaster such as a hurricane.
  • Not having adequate merchandise on hand when a sale is advertised.
  • Charging high prices in low-income areas because consumers there do not have the transpor­tation mobility to shop out of their neighborhoods.
  • Selling alcohol and tobacco products to children.
  • Having a salesperson pose as a market researcher when engaged in telemarketing.

     

  • Defaming competitors.

     

  • Selling refurbished merchandise as new.

     

  • Pressuring employees to push high-profit items, even if these items are not the best products.

     

  • Selling information from a customer database to other parties.

Many trade associations promote ethics codes to member firms. For example, here are some provisions of the Direct Marketing Association’s ethics code:

Article 1: “All offers should be clear, honest, and complete.”

Article 8: “All contacts should disclose the name of the sponsor and each purpose of the con­tact; no one should make offers or solicitations in the guise of one purpose when the intent is a different purpose.”

Article 24: “No sweepstakes promotion should represent that a recipient or entrant has won a prize or that any entry stands a greater chance of winning a prize than any other entry when this is not the case.”

Article 32: “Firms should be sensitive to the issue of consumer privacy.”36

2. Social Responsibility

A retailer exhibiting social responsibility acts in the best interests of society—as well as itself. The challenge is to balance corporate citizenship with a fair level of profits for stockholders, management, and employees. Some forms of social responsibility are virtually cost-free, such as having employees participate in community events or disposing of waste products in a more careful way. Some are more costly, such as making donations to charitable groups or giving away goods and services to a school. Still others mean going above and beyond the letter of the law, such as having free loaner wheelchairs for persons with disabilities besides legally mandated wheelchair accessibility to retail premises.

Most retailers know socially responsible acts do not go unnoticed. Although the acts may not stimulate greater patronage for firms with weak strategies, they can be a customer inducement for those otherwise viewed as “me too” entities. It may also be possible to profit from good deeds. If a retailer donates excess inventory to a charity that cares for the ill, it can take a tax deduction equal to the cost of the goods plus one-half the difference between the cost and the retail price. To do this, a retailer must be a corporation and the charity must use the goods and not sell or trade them.

There are some fine examples of socially responsible retailers. Ronald McDonald House Charities (RMHC) has been McDonald’s Charity of Choice since 1974. During its national fun­draisers, RMHC has collected over $200 million in donations from customers at participating restaurants. Portions of the operating costs of RMHC are funded by McDonald’s owners/opera- tors. McDonald’s founded Ronald McDonald House so families can stay at a low-cost facility instead of a costly hotel when seriously ill children get medical treatment away from home. Ronald McDonald House Charities has served 5.7 million children and their families in its 334 RMHC facilities.37

Target and CVS are among the firms that no longer sell cigarettes. Walmart has specific envi­ronmental goals related to reducing waste sent to landfills, obtaining electricity from renewable energy resources, reducing emissions, and developing a more sustainable food system.38 In 1999, Whole Foods Market was the first supermarket chain to collaborate with the Marine Stewardship Council, the leading certification program for sustainable wild-caught seafood. Whole Foods has also stopped selling especially vulnerable species of fish.

3. Consumerism

Consumerism involves the activities of government, business, and other organizations to pro­tect people from practices infringing on their rights as consumers. These actions recognize that consumers have basic rights that should be safeguarded. As President Kennedy said more than 50 years ago, consumers have the right to safety (protection against unsafe conditions and haz­ardous goods and services); the right to be informed (protection against fraudulent, deceptive, and incomplete information, advertising, and labeling); the right to choose (access to a variety of goods, services, and retailers); and the right to be heard (consumer feedback, both positive and negative, to the firm and to government agencies).

Here are some reasons that retailers and their channel partners need to avoid business prac­tices violating these rights and to do all they can to understand and protect them:

  • Some retail practices are covered by legislation. One major law is the Americans with Dis­abilities Act (ADA), which mandates that persons with disabilities be given appropriate access to retailing facilities. As Title III of the Act states (www.ada.gov/cguide.htm), “Public accom­modations [retail stores] must comply with basic nondiscrimination requirements that prohibit exclusion, segregation, and unequal treatment. They also must comply with specific require­ments related to architectural standards for new and altered buildings; reasonable modifica­tions to policies, practices, and procedures; effective communication with people with hearing, vision, or speech disabilities; and other access requirements. Additionally, public accommoda­tions must remove barriers in existing buildings where it is easy to do so without much dif­ficulty or expense, given the public accommodation’s resources.” The ADA affects entrances, vertical transportation, width of aisles, and store displays. See Figure 2-12.
  • People are more apt to patronize firms perceived as customer-oriented and not to shop with ones seen as “greedy.”
  • Consumers are more knowledgeable, price-conscious, and selective than in the past. Online customer reviews and social media now attract a lot of shopper interest.
  • Large retailers may be viewed as indifferent to consumers. They may not provide enough personal attention for shoppers or may have inadequate control over employees.
  • For some shoppers, the increasing use of self-service causes frustration.
  • Innovative technology is unsettling to many consumers, who must learn new shopping behav­ior (such as how to use electronic video kiosks).
  • Retailers are in direct customer contact, so they are often blamed for and asked to resolve problems caused by manufacturers (such as defective products).

One troublesome issue for consumers involves how retailers handle customer privacy. A consumer-oriented approach, with elements such as these, can reduce negative shopper feelings:

  1. Consumers should be clearly informed about the way that each company handles its custom­ers’ data. This involves transparency (full disclosure).
  2. Consumers should be able to decide what kinds of information they want to receive from the company being asked to opt-in (choose to received information) rather than having to opt-in (by actively informing a firm that no information should be sent).
  3. Consumers should feel confident that their personal are protected and kept secure by the company, and that only limited information is passed on to third parties (such as shippers).
  4. Consumers should able to correct any personal data stored on them that they believe to be incorrect.
  5. Consumer feedback on their personal private information should be promptly and properly addressed by the company.39

To avoid customer relations problems, many retailers have devised programs to protect con­sumer rights without waiting for government or consumer pressure to do so. Here are some examples.

More than 45 years ago, the Giant Food supermarket chain built on the consumer bill of four rights stated by President Kennedy, which it still follows today: (1) the right to safety; (2) the right to be informed; (3) the right to choose; and the (4) right to be heard. It has added a fifth right: the right to redress, which offers shoppers a money-back guarantee policy on products.40

In recent years, wireless phone service retailers have become much more aggressive in competing with one another—especially the big four of AT&T, Verizon, T-Mobile, and Sprint. They run television and other ads all the time. In an attempt to stand out, especially against giants AT&T and Verizon, T-Mobile decided to add a consumerism thrust to its company positioning by devising the industry’s first customer bill of rights. T-Mobile’s consumer bill of rights focuses on such issues as not having to sign a service contract, offering the ability to grade to a new phone at any time, allowing unused data to carry over, allowing free roaming around the world, and more.41

A number of retailers have enacted programs to test merchandise for such attributes as value, quality, misrepresentation of contents, safety, and durability. Sears, Walmart, Macy’s, and Target are just a few of those doing testing. Among the other consumerism activities undertaken by many retailers are setting clear procedures for handling customer complaints, sponsoring consumer education programs, and training personnel to interact properly with customers.

Consumer-oriented activities are not limited to large chains; small firms can also be involved. A local toy store can separate toys by age group. A grocery store can set up displays featuring environmentally safe detergents. A neighborhood restaurant can cook foods in low-fat vegetable oil. A sporting goods store can give a money-back guarantee on exercise equipment, so people can try it at home.

Source: Barry Berman, Joel R Evans, Patrali Chatterjee (2017), Retail Management: A Strategic Approach, Pearson; 13th edition.

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