Cooperative Advertising

One of the wholesalers that furnishes you with a very well made and popular line of jeans has offered you a tremendous co-op advertising package. They will pay 50% of all advertising that features their line of clothing during the next quarter. For the purposes of the simulation, that means that each dollar you spend will be matched by a dollar from them, thus doubling the effectiveness of your advertising. Ordinarily you would not pass this up, but their recent promotions have featured handsome young men and voluptuous women in very suggestive poses. The clothes appear too tight and are very revealing.

Feminist groups in other cities have branded the ads as sexist, and several religious councils have objected to the ads appearing in the local media. Your queries to customers, families, and friends have brought a mixture of responses:

“Everyone carries ads like that.”

“Some people in the community will be offended; why take a chance?”

“You can’t afford to turn down this chance at substantially increasing the advertising budget at no additional cost!”

“With the young clientele served by this store, you have a social responsibility not to feature such ads.”
 
 

▪ To whom is the business accountable?
 ▪ Who all has a right to an opinion about a business?
 ▪ What are the consequences of being offensive to special interest groups?
 ▪ Does cost-reduction offset the chance of offending the community?

The Problem Employee

In the past quarter, you have noticed a slight decrease in sales during the hour you are gone for lunch. One of your better part-time employees is left in charge and until recently, you had no reason to suspect the employee’s honesty. Then two incidents raised your suspicions.

While you were out for a movie one evening, you met one of the employee’s teenagers and noticed the clothes worn were from your store. You are aware of all employee purchases and know the clothes worn by the teenager had not been purchased by the employee. Yesterday, when you returned from lunch, you noticed $40 lying by the cash register. Upon asking the employee why the money had not been rung up, the reply was, “I got so busy I didn’t have time.” At this point, you concluded that you could have a very dishonest employee on your hands.

A recent article stated employee theft accounted for more retail store losses than shoplifting! You called a friend who is a police officer, and his advice was, “Dishonest employees don’t reform. You’d better take action now!” This is difficult for you because the employee is a single parent attempting to raise two children. The community welfare agency and the employee’s religious organization are contributing toward the family’s living expenses. The work record, attendance, attitude, and sales record of the employee have been good. What should you do?

 ▪ Is this an issue of legal responsibility? Why, or why not?
 ▪ Is this an issue of social responsibility? Why, or why not?
 ▪ What are the issues that the management should consider in deciding what action to take?

Bait & Switch

One of your closest competitors has recently offered off-quality merchandise at extremely low prices. He has been advertising a large sale on “designer” or “brand name” merchandise. The ads state the price is “below normal cost” or “a buy-out price” and the price appears in the ads to be well below the usual cost of high-quality, brand name goods.

However, when customers get to this competitor’s store and compare the sale merchandise to the regular merchandise, they realize the quality is not the same and usually end up buying the regular line, which has the normal markup. The competitor is smart enough to mix a few (very small size) designer label goods in with the sale merchandise so he can claim there is actual designer and brand name merchandise on sale. He knows that the general public is usually expecting some of this type of behavior on the part of some retailers and feels the benefits are greater than the occasional backlash.

While this is sometimes termed “bait and switch” tactics, many retailers consider it to be a customary business practice and would respond with, “Everyone does it.” The pressure of the competitor’s “special sales” is beginning to hurt business somewhat. 

 ▪ What did you consider/learn about the relationship between a merchant and a consumer?
 ▪ If a business practice is common, does that make the practice ethical?
 ▪ If a business practice is common, does that make the practice acceptable?
 ▪ What is the difference between a “common” business practice and an ethical or acceptable business practice? Should there be a difference?
 
 

Ethical Dilemma
 A local school official has just left your store. He has offered to place your store on the school system’s official approved source for cheerleader, band, and pep club uniforms. He said the current supplier has not been doing a very good job in ordering and delivering clothing for these organizations. The usual procedure is for the individual student to come to the store, order the clothing, and place a small deposit to assure the clothing will be picked up. The store calls in the order to a specialty clothing-manufacturing firm who ships the goods within two working days.

A call to the manufacturing firm confirms its ability to supply a high-quality line at a reasonable price and guarantee two-day shipping “most of the time.” Since the student makes a non-refundable deposit when ordering, you will have your shipping costs covered even if the clothing is not picked up. Although the supplier will not take back these custom-manufactured goods, you feel you can keep the merchandise in stock and sell it to another student within a short period of time. A quick mental calculation determines that you would increase profits by at least $3,000 for the coming year if you become the school’s supplier; in fact, profits could be over $5,000 if a club or two changed their uniform design and all new uniforms had to be ordered!

It seemed like a dream come true until the school official finished the explanation with, “Of course, since I will be arranging all of this and encouraging clubs to buy from you, it’s like I was working for YOU. I would certainly hope you would buy me a nice birthday present. After all, I couldn’t take money from you since I am working for the school system. But I don’t want to give you the wrong idea. The birthday present would be only if you wanted to. There is no pressure involved. I guess other storeowners would want to be ‘friends’ with me if given the same opportunity!” When asked what he would like for his birthday, he replied, “Well, I’ve always wanted to belong to the Windward Country Club.”

▪ Is this a bribe? ...why, or why not?
 ▪ Should businesses engage in “fee-splitting” activities?
 ▪ If someone refers business to you, must you produce an in-kind payment?
 ▪ What is your social responsibility to the community that employs this person?
 
 

Purchasing Policy
 Your regular suppliers are vendors for a large garment manufacturer. Their product lines are well-known, well-advertised, and of known quality. Recently you were approached by a small garment cooperative located near you. This co-op represents many small shops in homes around the area. Called by the trade a “cottage industry,” they produce a look-alike product of very high quality. Moreover, they are willing to pay you a 10% rebate on your first quarter purchases, up to a $1,000 rebate.

Your current line from the large manufacturer provides name recognition, residual benefit from their brand advertising, as well as occasional opportunities to participate in cooperative ad campaigns. The cottage operation provides a better product at a lower price and gives employment to people who have been dislocated by manufacturing shutdowns. You have checked with other (out-of-town) stores that have been purchasing from this new source and they report being very satisfied. However, they also report that it takes a little longer to gain consumer acceptance with non-branded goods.

You may contract to purchase 15%, 30%, or 50% of your inventory from this source. Once the contract is signed, you cannot cancel the contract or change the percentage of goods purchased for the balance of the simulation; this “rule” is not real life but is intended to keep the simulation relatively uncluttered.

▪ What are the considerations when choosing a supplier?
 ▪ How sensitive are customers to minor differences in quality?
 ▪ How important is name recognition?
 ▪ How does one go about registering a business name?
 
 

Community Support
 You have recently been flooded with requests for donations to community causes. Since your store has been in operation for some period of time, most people assume that it is now profitable and feel that it is time for you to become a “good citizen” by supporting worthwhile community needs. You have noticed that some of your competitors are active in these causes and needs.

▪ Does the business have an obligation to support the community or does the community “support” the business?
 ▪ At what point of profitability should the business contribute support?

▪ How much support is enough?.. not enough?... too much?
 ▪ Are there any benefits to the business? If so, what are they?