1. Stephen B. Castleberry | John F. Tanner Jr. Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. CHAPTER 2 ETHICAL AND LEGAL ISSUES IN SELLING

2. LEARNING OBJECTIVES Why do salespeople need to develop their own codes of ethics? Which ethical responsibilities do salespeople have toward themselves, their firms, and their customers? Do ethics get in the way of being a successful salesperson? What guidelines should salespeople consider when confronting situations involving an ethical issue? Which laws apply to personal selling? 2-2

3. ETHICS Principles governing the behavior of an individual or group Establish appropriate behavior, indicating what is right and wrong Ethical perceptions can vary from: Country to country Industry to industry 2-3

4. EXHIBIT 2.1 - THE EVOLUTION OF PERSONAL SELLING 2-4

5. ETHICAL SELLING Unethical behavior hinders the relationship between buyers and sellers Basic principle - Customer remains free to make a choice Manipulation: Eliminating or reducing a buyer’s choice unfairly Persuasion: The decision still remains the buyer’s, with attempts made to influence it 2-5

6. EXHIBIT 2.2 - FACTORS AFFECTING ETHICAL BEHAVIOR OF SALESPEOPLE 2-6

7. EXHIBIT 2.3 - CONFLICTING OBJECTIVES 2-7

8. ADVERSE EFFECTS OF UNETHICAL CONDUCT Losing self-respect and confidence in self Thinking that the only way to make sales is to be dishonest or unethical Compromising long-term customer relationships in the pursuit of short-term gains 2-8

9. EXHIBIT 2.5 - CHECKLIST FOR MAKING ETHICAL DECISIONS 2-9

10. RELATIONSHIPS WITH CUSTOMERS Deception: Deliberately presenting inaccurate information Telling half-truths Withholding important information Manipulative and unethical Bribes: Payments made to buyers to influence their purchase decisions Kickbacks: Payments made to buyers based on the amount of orders placed 2-10

11. RELATIONSHIPS WITH CUSTOMERS Special treatment Upsets other customers Reduces salesperson's productivity Confidential information Disclosing confidential information, gives reputation of being untrustworthy Backdoor selling: Salespeople ignore the purchasing agent’s policy and contact people directly involved in the purchasing decision 2-11

12. EXHIBIT 2.7 - BUYERS’ VIEW OF UNETHICAL SALES BEHAVIORS 2-12

13. RELATIONSHIPS WITH THE SALESPERSON’S COMPANY Expense accounts - Cover legitimate expenses, such as for travel, accommodation, food etc. Reporting work-time information and activities - Giving inaccurate information or bending the truth is clearly unethical Switching jobs Give ample notice and assist during the transition phase Do not burn bridges Do not take anything that belongs to the company 2-13

14. SEXUAL HARASSMENT Includes Unwelcome sexual advances or physical conduct Requests for sexual favors Jokes or graffiti Posting sexually explicit material on bulletin boards When customers engage in it: Tell them that such behavior is offensive and must be stopped Use the policies of your customer’s firm to resolve problems 2-14

15. RELATIONSHIPS WITH THE SALESPERSON’S COMPANY Trade secrets: Information owned by the company by which the company gains a competitive advantage Protected by law Taking advantage of other salespeople Poaching: Unethical practice of stealing potential customers from other salespeople 2-15

16. RELATIONSHIPS WITH COMPETITORS Making false claims about competitors’ products or sabotaging their efforts is unethical and illegal Salespeople and their companies reputations may be permanently damaged Criticizing a competitor’s products or policies is not advisable Customers may get offended 2-16

17. LEGAL ISSUES Laws affecting salespeople in the U.S Statutory law: Based on legislation passed either by state legislatures or by Congress Uniform Commercial Code: Legal guide to commercial practice in the United States Administrative laws: Established by local, state, or federal regulatory agencies Federal Trade Commission is the most active agency 2-17

18. LEGAL ISSUES Common law: Grows out of court decisions Precedents set by these decisions fill in the gaps where no laws exist 2-18

19. UCC DEFINED TERMS RELATED TO SALESPEOPLE Agent: Person who acts in place of his or her company Sale: Transfer of title to goods by seller to buyer for a consideration known as price Contract to sell: When a salesperson makes an offer and receives an unqualified acceptance Invitation to negotiate: A sales presentation Offer: Takes place when salesperson quotes specific terms 2-19

20. UCC DEFINED TERMS RELATED TO SALESPEOPLE Orders: Written offers from buyers or agents Free on board (FOB) destination: Seller has title until goods are received at destination FOB factory: Buyer assumes responsibility for any loss or damage incurred during transportation Oral agreements are as binding as written agreements Obligations and performance 2-20

21. UCC DEFINED TERMS RELATED TO SALESPEOPLE Warranty: Assurance by the seller that the products will perform as represented Expressed: Oral or written statement by seller Implied: Not actually stated but still an obligation defined by law 2-21

22. MISREPRESENTATION Sales puffery: Unreliable statements that do not state the inherent capabilities of products or services False Claims Act (Lincoln Law): Encourages citizens to press claims against vendors who sell fraudulently to the U.S. government Credulous person standard: Company has to pay damages if a reasonable person could misunderstand its statement 2-22

23. ILLEGAL BUSINESS PRACTICES Unfair or untrue statements to customers about a competitor, its products or its salespeople Business defamation Special relationship in which two companies agree to buy products from each other Reciprocity Buyer is required to purchase one product in order to get another product Tying agreement An agreement between competitors before customers are contacted Conspiracy Competitors working together while the customer is making a purchase decision Collusion 2-23

24. ILLEGAL BUSINESS PRACTICES Minimum price below which distributors or retailers should not resell their products Resale price maintenance Special promotion incentive fund Special incentives to get a reseller’s salespeople to push products Spiff (push money) Unjustified special prices, discounts, or services to some customers Price discrimination Limit the amount of information that a firm can obtain about a consumer Specify how that information can be used or shared Privacy laws Limits the conditions under which anyone on the registry may be telephoned at home or on a cell phone Do-Not-Call Law 2-24

25. INTERNATIONAL ETHICAL AND LEGAL ISSUES Lubrication: Paying small sums of money or gifts: To low-ranking managers or government officials In countries where these payments are not illegal Subordination: Paying larger sums of money: To higher-ranking officials to get them to do something that is illegal or to ignore an illegal act 2-25

26. RESOLVING CULTURAL DIFFERENCES Cultural relativism: View that no culture’s ethics are superior Ethical imperialism: View that ethical standards in one’s home country should be applied to one’s behavior across the world 2-26

27. THE FOREIGN CORRUPT PRACTICES ACT Makes it illegal for U.S. companies to pay bribes to foreign officials An amendment permits small lubrication payments when they are customary in a culture Violations result in fines for company managers, employees, and agents who participate in or authorize such bribes 2-27