Retailing Management 8e © The McGraw-Hill Companies, All rights reserved.
13 - 1
CHAPTER 2
CHAPTER 1
CHAPTER 13
Buying
Merchandise
CHAPTER 13
McGraw-Hill/I rwin
Copyright ©2012 by The McGraw-Hill Companies, I nc. All rights reserved.
13 - 2
CHAPTER 2
CHAPTER 1
CHAPTER 13
Merchandise Management
Managing the Merchandise Planning Process
Buying Merchandise
Retail Pricing
Retail Communication Mix
13 - 3
CHAPTER 2
CHAPTER 1
CHAPTER 13
Questions
• What branding options are available to retailers?
• How do retailers buy national brands?
• What issues do retailers consider when buying and sourcing
private label merchandise internationally?
• How do retailers prepare for and conduct negotiations with
their vendors?
• Why are retailers building strategic relationships with their
vendors?
• What legal and ethical issues are involved in buying
merchandise?
13 - 4
CHAPTER 2
CHAPTER 1
CHAPTER 13
• National (Manufacturer)
Brands
• Designed, produced, and
marketed by a vendor
and sold by many
retailers
• Private-Label (Store) Brands
• Developed by a retailer
and only sold in the
retailer’s outlets
Brand Alternatives
13 - 5
CHAPTER 2
CHAPTER 1
CHAPTER 13
Retailers’ branding approach
• Similar to national brands, retailers use their name to
create a private label for merchandise
• The Gap, Victoria’s Secret use a family brand approach
• All of private label merchandise is associated with their
name
• Macy’s uses a portfolio approach
• A portfolio of private label brands with different
merchandise types (Charter Club, First Impressions,
Greendog, INC, The Cellar, Tools of the Trade)
13 - 6
CHAPTER 2
CHAPTER 1
CHAPTER 13
Categories of Private Brands
• Comparable to, even superior to, manufacturer’s
brand quality, with modest price savings
Premium
• Imitate the manufacturer’s brand in appearance and
packaging, perceived as lower quality, offered
at a lower price
Copycat
• Developed by a national brand vendor and sold exclusively
by the retailer
Exclusive Brands
• Target a price-sensitive segment by offering a no-frills
product at a discount price
Generic Brands
13 - 7
CHAPTER 2
CHAPTER 1
CHAPTER 13
Exclusive Brands
13 - 8
CHAPTER 2
CHAPTER 1
CHAPTER 13
National Brands or Private Labels?
13 - 9
CHAPTER 2
CHAPTER 1
CHAPTER 13
• Advantages
• Help retailers build their
image and traffic flow
• Reduces selling and
promotional expenses
• More desired by customers
• Customers patronize
retailers selling the
branded merchandise
• Push some of the financial
risk onto the vendor
• Disadvantages
• Lower margins
• Vulnerable to competitive
pressures
• Limit retailer’s flexibility
National (Manufacturer) Labels
The McGraw-Hill Companies, Inc./Lars Niki, photographer
13 - 10
CHAPTER 2
CHAPTER 1
CHAPTER 13
• Advantages
• Unique merchandise not
available at competitive
outlets
• Exclusivity boosts store
loyalty
• Difficult for customers
to compare price with
competitors
• Higher margins
• Disadvantages
• Require significant
investments in design, global
manufacturing sourcing
• Need to develop expertise in
developing and promoting
brand
• Unable to sell excess
merchandise
• Typically less desirable for
customers
Private Labels
13 - 11
CHAPTER 2
CHAPTER 1
CHAPTER 13
Buying National Brand Merchandise
• Buying decision for fashion apparel/accessories:
• 5-6 times a year
• Many months before delivery
• Withhold open-to-buy (OTB) for new items with
fashion change
• Buying decision for staple merchandise:
• Less frequent
• Continuous replenishment
13 - 12
CHAPTER 2
CHAPTER 1
CHAPTER 13
Meeting National Brand Vendors
• Wholesale Market Centers
• National Markets (new York), Regional Markets
(Dollars, Atlanta, Miami), London, Milan, Paris, Tokyo
• Trade Shows
• Frankfurt Book Fair, Las Vegas Consumer Electronics
Show, Atlanta Super Show for Sporting Goods
• Internet Exchanges
• Worldwide Retail Exchange
• Meeting Vendors at Your Company
13 - 13
CHAPTER 2
CHAPTER 1
CHAPTER 13
National Brand Buying Process
• Meet with vendors
• Discuss performance of vendor’s merchandise during the
previous season
• Review the vendor’s offering for the coming season
• May place orders for the coming season
• Sometimes they do not buy at market, but review
merchandise, return to their offices to discuss with the
buying team before negotiating with vendors
13 - 14
CHAPTER 2
CHAPTER 1
CHAPTER 13
Developing and Sourcing
Private Label Merchandise
• In-House: Large retailers (e.g., JCPenney, Macy’s, The
Gap, American Eagle Outfitters) have divisions
specialized in
• identifying trends, designing, specifying products
• Selecting manufacturers
• Monitoring and managing manufacturing conditions and
product quality
13 - 15
CHAPTER 2
CHAPTER 1
CHAPTER 13
Developing and Sourcing
Private Label Merchandise
• Acquisition: Limited Brands acquired MAST Industries
• MAST
• one of the world’s biggest contract manufacturers,
importers, distributors of apparel
• Have manufacturing operations and join ventures in 12
countries
• Also provides private label merchandise for Abercrombie &
Fitch, Lane Bryant, New York & Company, Chico’s
• Outsource: ex. Li & Fung – partnered with many
specialty retailers
13 - 16
CHAPTER 2
CHAPTER 1
CHAPTER 13
Sourcing Merchandise
After decisions are made on what and how much private
label merchandise will be acquired,
• Designers develop specifications
• Sourcing departments find a manufacturer, negotiate a
contract, and monitor the production process, or
• Use Reverse Auctions to get quality private label
merchandise at low prices
13 - 17
CHAPTER 2
CHAPTER 1
CHAPTER 13
Why reverse?
One buyer (the retailer), multiple sellers
Sellers bid for buyer’s business
Price falls
No strategic relationships with vendors
Reverse Auctions
13 - 18
CHAPTER 2
CHAPTER 1
CHAPTER 13
Global Sourcing
• Costs Associated with Global Sourcing Decisions
Remote production
facilities in developing
economies with low
labor costs
Foreign currency fluctuations, tariffs,
longer lead times, increased
transportation costs
Obsolete costs and inventory
carrying costs from larger inventories
• Managerial Issues
• Quality control, time-to-market, social political factors
• Difficult for collaborative supply chain management (CPFR) based on short and
consistent lead times
• Human rights and child labor
13 - 19
CHAPTER 2
CHAPTER 1
CHAPTER 13
• Two-way
communication
designed to reach an
agreement when two
parties have both
shared and conflicting
interests.
Negotiating with Vendors
Royalty-Free/CORBIS
13 - 20
CHAPTER 2
CHAPTER 1
CHAPTER 13
Negotiation Issues
• Price and gross margin
• Margin Guarantees
• Slotting Allowances
• Additional markup opportunities
• Purchase terms
• Terms of purchase
• Exclusivity
• Advertising allowances
• Transportation
Negotiating with Vendors Continued
13 - 21
CHAPTER 2
CHAPTER 1
CHAPTER 13
Price and Gross Margin Issues
• Markdown money
• Funds from a vendor to a retailer to cover decreased
gross margin from markdowns
13 - 22
CHAPTER 2
CHAPTER 1
CHAPTER 13
Price and Gross Margin Issues
• Slotting Allowances
• A charge imposed by a retailer to stock a new item (in
supermarkets)
• For Retailers
• To ensure efficient uses of their valuable space
• To determine which new products merit inclusion in their
assortment
• Manufacturers view them as extortion
13 - 23
CHAPTER 2
CHAPTER 1
CHAPTER 13
Tips for Effective Negotiations
• Have at least many negotiators as the vendor
• Choose a good place to negotiate
• Be Aware of real deadlines
• Separate people from problem
• Insist on objective Information
• Invent options for mutual gain
• Let the other party do the talking
• Know how far to go
• Don’t burn bridges
• Don’t assume
13 - 24
CHAPTER 2
CHAPTER 1
CHAPTER 13
• Retailer and vendor
committed to maintaining
relationships over the
long-term and investing in
mutually beneficial
opportunities
Strategic Relationships
13 - 25
CHAPTER 2
CHAPTER 1
CHAPTER 13
Types of Relationship
13 - 26
CHAPTER 2
CHAPTER 1
CHAPTER 13
Strategic Relationships
Win-Win Relationships -- Concerned about expanding
the pie, not how to divide the pie
vs. Retailer Vendor
13 - 27
CHAPTER 2
CHAPTER 1
CHAPTER 13
• Mutual Trust
• Open Communication
• Common Goals
• Credible Commitments
Building Blocks
for Strategic Partnerships
•Stockbyte/Punchstock Images
13 - 28
CHAPTER 2
CHAPTER 1
CHAPTER 13
• Discrete
• One Purchase at a Time
• Short-Term
• Focuses on Price
• Win-Lose Negotiations
• Governed by Contracts
• Partnering
• Anticipate Future
• Long-Term
• Considers all Elements
• Win-Win Collaboration
• Governed by Trust
Building Partnering Relationship
Awareness
Exploration
Expansion
Commitment
13 - 29
CHAPTER 2
CHAPTER 1
CHAPTER 13
• Purchase Terms and
Conditions
• Resale Price
Maintenance
• Commercial Bribery
• Chargebacks
• Buybacks
• Counterfeit Merchandise
• Gray Markets and
Diverted Merchandise
• Exclusive Dealing
Agreements
• Tying Contract
Legal, Ethical, and Social Responsibility
Issues for Buying Merchandise
13 - 30
CHAPTER 2
CHAPTER 1
CHAPTER 13
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.)
13 - 31
CHAPTER 2
CHAPTER 1
CHAPTER 13
Commercial Bribery
• A vendor or its agent offers to give or pay a retail buyer
“something of value” to influence purchasing decisions.
• A fine line between the social courtesy of a free lunch
and an elaborate free vacation.
• Some retailers with a zero tolerance policy
• Some retailers accept only limited entertainment or
token gifts.
13 - 32
CHAPTER 2
CHAPTER 1
CHAPTER 13
Chargebacks
• 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
13 - 33
CHAPTER 2
CHAPTER 1
CHAPTER 13
Buybacks
• Stocklifts, Lift-outs
• Used to get products into retail stores.
• Two scenarios:
• Retailer allows a vendor to create space for its goods
by “buying back” a competitors inventory and
removing it from a retailer’s system.
• Retailer forces a vendor to buyback slow-moving
merchandise.
13 - 34
CHAPTER 2
CHAPTER 1
CHAPTER 13
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
• Major problem is counterfeiting intellectual property
13 - 35
CHAPTER 2
CHAPTER 1
CHAPTER 13
Gray-Market, Diverted,
and Black-Market Merchandise
• Gray-Market Merchandise (parallel imports) possesses a
valid U.S. registered trademark and is made by a foreign
manufacturer but is imported into the United States
without permission of the U.S. trademark owner.
• Not Counterfeit
• Is legal
13 - 36
CHAPTER 2
CHAPTER 1
CHAPTER 13
Gray-Market, Diverted,
and Black-Market Merchandise
• Diverted Merchandise is similar to gray-market
merchandise except there need not be distribution
across international boundaries.
• A black market occurs when consumer goods are scarce,
such as water or gasoline after a natural disaster; heavily
taxed, such as cigarettes or alcohol; or illegal, such as
drugs or arms.
13 - 37
CHAPTER 2
CHAPTER 1
CHAPTER 13
• Require retail and
wholesale customers
to sign a contract
stipulating that they
will not engage in gray
marketing.
• Produce different
versions of products
for different markets.
How do Vendors Avoid
the Gray-Market Problem?
Steve Cole/Getty Images
13 - 38
CHAPTER 2
CHAPTER 1
CHAPTER 13
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
13 - 39
CHAPTER 2
CHAPTER 1
CHAPTER 13
Tying Contracts
• 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)
• Illegal when they lessen competition
• Ok to protect goodwill and quality reputation of vendor
– legal for a vendor to require a buyer to buy all items in
its product line
13 - 40
CHAPTER 2
CHAPTER 1
CHAPTER 13
• Suppliers and retailers
have the right to deal or
refuse to deal with
anyone they choose.
• Except when it lessens
competition.
Refusals to Deal
Kent Knudson/PhotoLink/Getty Images
13 - 41
CHAPTER 2
CHAPTER 1
CHAPTER 13
Corporate Social Responsibility
• Corporate social responsibility describes the voluntary
actions taken by a company to address the ethical,
social, and environmental impacts of its business
operations.
• Fair trade is a socially responsible movement that
ensures that producers receive fair prices for their
products.
doc_196594761.ppt
13 - 1
CHAPTER 2
CHAPTER 1
CHAPTER 13
Buying
Merchandise
CHAPTER 13
McGraw-Hill/I rwin
Copyright ©2012 by The McGraw-Hill Companies, I nc. All rights reserved.
13 - 2
CHAPTER 2
CHAPTER 1
CHAPTER 13
Merchandise Management
Managing the Merchandise Planning Process
Buying Merchandise
Retail Pricing
Retail Communication Mix
13 - 3
CHAPTER 2
CHAPTER 1
CHAPTER 13
Questions
• What branding options are available to retailers?
• How do retailers buy national brands?
• What issues do retailers consider when buying and sourcing
private label merchandise internationally?
• How do retailers prepare for and conduct negotiations with
their vendors?
• Why are retailers building strategic relationships with their
vendors?
• What legal and ethical issues are involved in buying
merchandise?
13 - 4
CHAPTER 2
CHAPTER 1
CHAPTER 13
• National (Manufacturer)
Brands
• Designed, produced, and
marketed by a vendor
and sold by many
retailers
• Private-Label (Store) Brands
• Developed by a retailer
and only sold in the
retailer’s outlets
Brand Alternatives
13 - 5
CHAPTER 2
CHAPTER 1
CHAPTER 13
Retailers’ branding approach
• Similar to national brands, retailers use their name to
create a private label for merchandise
• The Gap, Victoria’s Secret use a family brand approach
• All of private label merchandise is associated with their
name
• Macy’s uses a portfolio approach
• A portfolio of private label brands with different
merchandise types (Charter Club, First Impressions,
Greendog, INC, The Cellar, Tools of the Trade)
13 - 6
CHAPTER 2
CHAPTER 1
CHAPTER 13
Categories of Private Brands
• Comparable to, even superior to, manufacturer’s
brand quality, with modest price savings
Premium
• Imitate the manufacturer’s brand in appearance and
packaging, perceived as lower quality, offered
at a lower price
Copycat
• Developed by a national brand vendor and sold exclusively
by the retailer
Exclusive Brands
• Target a price-sensitive segment by offering a no-frills
product at a discount price
Generic Brands
13 - 7
CHAPTER 2
CHAPTER 1
CHAPTER 13
Exclusive Brands
13 - 8
CHAPTER 2
CHAPTER 1
CHAPTER 13
National Brands or Private Labels?
13 - 9
CHAPTER 2
CHAPTER 1
CHAPTER 13
• Advantages
• Help retailers build their
image and traffic flow
• Reduces selling and
promotional expenses
• More desired by customers
• Customers patronize
retailers selling the
branded merchandise
• Push some of the financial
risk onto the vendor
• Disadvantages
• Lower margins
• Vulnerable to competitive
pressures
• Limit retailer’s flexibility
National (Manufacturer) Labels
The McGraw-Hill Companies, Inc./Lars Niki, photographer
13 - 10
CHAPTER 2
CHAPTER 1
CHAPTER 13
• Advantages
• Unique merchandise not
available at competitive
outlets
• Exclusivity boosts store
loyalty
• Difficult for customers
to compare price with
competitors
• Higher margins
• Disadvantages
• Require significant
investments in design, global
manufacturing sourcing
• Need to develop expertise in
developing and promoting
brand
• Unable to sell excess
merchandise
• Typically less desirable for
customers
Private Labels
13 - 11
CHAPTER 2
CHAPTER 1
CHAPTER 13
Buying National Brand Merchandise
• Buying decision for fashion apparel/accessories:
• 5-6 times a year
• Many months before delivery
• Withhold open-to-buy (OTB) for new items with
fashion change
• Buying decision for staple merchandise:
• Less frequent
• Continuous replenishment
13 - 12
CHAPTER 2
CHAPTER 1
CHAPTER 13
Meeting National Brand Vendors
• Wholesale Market Centers
• National Markets (new York), Regional Markets
(Dollars, Atlanta, Miami), London, Milan, Paris, Tokyo
• Trade Shows
• Frankfurt Book Fair, Las Vegas Consumer Electronics
Show, Atlanta Super Show for Sporting Goods
• Internet Exchanges
• Worldwide Retail Exchange
• Meeting Vendors at Your Company
13 - 13
CHAPTER 2
CHAPTER 1
CHAPTER 13
National Brand Buying Process
• Meet with vendors
• Discuss performance of vendor’s merchandise during the
previous season
• Review the vendor’s offering for the coming season
• May place orders for the coming season
• Sometimes they do not buy at market, but review
merchandise, return to their offices to discuss with the
buying team before negotiating with vendors
13 - 14
CHAPTER 2
CHAPTER 1
CHAPTER 13
Developing and Sourcing
Private Label Merchandise
• In-House: Large retailers (e.g., JCPenney, Macy’s, The
Gap, American Eagle Outfitters) have divisions
specialized in
• identifying trends, designing, specifying products
• Selecting manufacturers
• Monitoring and managing manufacturing conditions and
product quality
13 - 15
CHAPTER 2
CHAPTER 1
CHAPTER 13
Developing and Sourcing
Private Label Merchandise
• Acquisition: Limited Brands acquired MAST Industries
• MAST
• one of the world’s biggest contract manufacturers,
importers, distributors of apparel
• Have manufacturing operations and join ventures in 12
countries
• Also provides private label merchandise for Abercrombie &
Fitch, Lane Bryant, New York & Company, Chico’s
• Outsource: ex. Li & Fung – partnered with many
specialty retailers
13 - 16
CHAPTER 2
CHAPTER 1
CHAPTER 13
Sourcing Merchandise
After decisions are made on what and how much private
label merchandise will be acquired,
• Designers develop specifications
• Sourcing departments find a manufacturer, negotiate a
contract, and monitor the production process, or
• Use Reverse Auctions to get quality private label
merchandise at low prices
13 - 17
CHAPTER 2
CHAPTER 1
CHAPTER 13
Why reverse?
One buyer (the retailer), multiple sellers
Sellers bid for buyer’s business
Price falls
No strategic relationships with vendors
Reverse Auctions
13 - 18
CHAPTER 2
CHAPTER 1
CHAPTER 13
Global Sourcing
• Costs Associated with Global Sourcing Decisions
Remote production
facilities in developing
economies with low
labor costs
Foreign currency fluctuations, tariffs,
longer lead times, increased
transportation costs
Obsolete costs and inventory
carrying costs from larger inventories
• Managerial Issues
• Quality control, time-to-market, social political factors
• Difficult for collaborative supply chain management (CPFR) based on short and
consistent lead times
• Human rights and child labor
13 - 19
CHAPTER 2
CHAPTER 1
CHAPTER 13
• Two-way
communication
designed to reach an
agreement when two
parties have both
shared and conflicting
interests.
Negotiating with Vendors
Royalty-Free/CORBIS
13 - 20
CHAPTER 2
CHAPTER 1
CHAPTER 13
Negotiation Issues
• Price and gross margin
• Margin Guarantees
• Slotting Allowances
• Additional markup opportunities
• Purchase terms
• Terms of purchase
• Exclusivity
• Advertising allowances
• Transportation
Negotiating with Vendors Continued
13 - 21
CHAPTER 2
CHAPTER 1
CHAPTER 13
Price and Gross Margin Issues
• Markdown money
• Funds from a vendor to a retailer to cover decreased
gross margin from markdowns
13 - 22
CHAPTER 2
CHAPTER 1
CHAPTER 13
Price and Gross Margin Issues
• Slotting Allowances
• A charge imposed by a retailer to stock a new item (in
supermarkets)
• For Retailers
• To ensure efficient uses of their valuable space
• To determine which new products merit inclusion in their
assortment
• Manufacturers view them as extortion
13 - 23
CHAPTER 2
CHAPTER 1
CHAPTER 13
Tips for Effective Negotiations
• Have at least many negotiators as the vendor
• Choose a good place to negotiate
• Be Aware of real deadlines
• Separate people from problem
• Insist on objective Information
• Invent options for mutual gain
• Let the other party do the talking
• Know how far to go
• Don’t burn bridges
• Don’t assume
13 - 24
CHAPTER 2
CHAPTER 1
CHAPTER 13
• Retailer and vendor
committed to maintaining
relationships over the
long-term and investing in
mutually beneficial
opportunities
Strategic Relationships
13 - 25
CHAPTER 2
CHAPTER 1
CHAPTER 13
Types of Relationship
13 - 26
CHAPTER 2
CHAPTER 1
CHAPTER 13
Strategic Relationships
Win-Win Relationships -- Concerned about expanding
the pie, not how to divide the pie
vs. Retailer Vendor
13 - 27
CHAPTER 2
CHAPTER 1
CHAPTER 13
• Mutual Trust
• Open Communication
• Common Goals
• Credible Commitments
Building Blocks
for Strategic Partnerships
•Stockbyte/Punchstock Images
13 - 28
CHAPTER 2
CHAPTER 1
CHAPTER 13
• Discrete
• One Purchase at a Time
• Short-Term
• Focuses on Price
• Win-Lose Negotiations
• Governed by Contracts
• Partnering
• Anticipate Future
• Long-Term
• Considers all Elements
• Win-Win Collaboration
• Governed by Trust
Building Partnering Relationship
Awareness
Exploration
Expansion
Commitment
13 - 29
CHAPTER 2
CHAPTER 1
CHAPTER 13
• Purchase Terms and
Conditions
• Resale Price
Maintenance
• Commercial Bribery
• Chargebacks
• Buybacks
• Counterfeit Merchandise
• Gray Markets and
Diverted Merchandise
• Exclusive Dealing
Agreements
• Tying Contract
Legal, Ethical, and Social Responsibility
Issues for Buying Merchandise
13 - 30
CHAPTER 2
CHAPTER 1
CHAPTER 13
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.)
13 - 31
CHAPTER 2
CHAPTER 1
CHAPTER 13
Commercial Bribery
• A vendor or its agent offers to give or pay a retail buyer
“something of value” to influence purchasing decisions.
• A fine line between the social courtesy of a free lunch
and an elaborate free vacation.
• Some retailers with a zero tolerance policy
• Some retailers accept only limited entertainment or
token gifts.
13 - 32
CHAPTER 2
CHAPTER 1
CHAPTER 13
Chargebacks
• 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
13 - 33
CHAPTER 2
CHAPTER 1
CHAPTER 13
Buybacks
• Stocklifts, Lift-outs
• Used to get products into retail stores.
• Two scenarios:
• Retailer allows a vendor to create space for its goods
by “buying back” a competitors inventory and
removing it from a retailer’s system.
• Retailer forces a vendor to buyback slow-moving
merchandise.
13 - 34
CHAPTER 2
CHAPTER 1
CHAPTER 13
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
• Major problem is counterfeiting intellectual property
13 - 35
CHAPTER 2
CHAPTER 1
CHAPTER 13
Gray-Market, Diverted,
and Black-Market Merchandise
• Gray-Market Merchandise (parallel imports) possesses a
valid U.S. registered trademark and is made by a foreign
manufacturer but is imported into the United States
without permission of the U.S. trademark owner.
• Not Counterfeit
• Is legal
13 - 36
CHAPTER 2
CHAPTER 1
CHAPTER 13
Gray-Market, Diverted,
and Black-Market Merchandise
• Diverted Merchandise is similar to gray-market
merchandise except there need not be distribution
across international boundaries.
• A black market occurs when consumer goods are scarce,
such as water or gasoline after a natural disaster; heavily
taxed, such as cigarettes or alcohol; or illegal, such as
drugs or arms.
13 - 37
CHAPTER 2
CHAPTER 1
CHAPTER 13
• Require retail and
wholesale customers
to sign a contract
stipulating that they
will not engage in gray
marketing.
• Produce different
versions of products
for different markets.
How do Vendors Avoid
the Gray-Market Problem?
Steve Cole/Getty Images
13 - 38
CHAPTER 2
CHAPTER 1
CHAPTER 13
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
13 - 39
CHAPTER 2
CHAPTER 1
CHAPTER 13
Tying Contracts
• 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)
• Illegal when they lessen competition
• Ok to protect goodwill and quality reputation of vendor
– legal for a vendor to require a buyer to buy all items in
its product line
13 - 40
CHAPTER 2
CHAPTER 1
CHAPTER 13
• Suppliers and retailers
have the right to deal or
refuse to deal with
anyone they choose.
• Except when it lessens
competition.
Refusals to Deal
Kent Knudson/PhotoLink/Getty Images
13 - 41
CHAPTER 2
CHAPTER 1
CHAPTER 13
Corporate Social Responsibility
• Corporate social responsibility describes the voluntary
actions taken by a company to address the ethical,
social, and environmental impacts of its business
operations.
• Fair trade is a socially responsible movement that
ensures that producers receive fair prices for their
products.
doc_196594761.ppt