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Mike's often irreverent, thought-provoking analysis of the industry-- with an occasional guest columnist.

A Code of Ethics for Our Industry

For retailers, manufacturers � and the rest of us.

by Mike Hartnett (February 19, 2007)

The toy industry is looking at developing a code of ethics that would be signed by retailers, manufacturers, importers, toy designers, and others. Interesting idea.

Why a code of ethics? Because the legal system is a long, complicated, expensive mess, and often does not cover certain business disagreements. The industry is filled with charges of unethical practices by ... the other guy. The latest, most public example is the Provo/Cricut example. Some retailers claim Provo acted unethically; Provo denies the charge. This is not a new phenomenon; arguments like this have plagued the industry since its inception.

At least part of the problem is people have differing ideas of what is, and isn't, ethical. If the industry as a whole could come together and agree on a code of ethics, maybe there would be fewer arguments.

A code of ethics would not be legally binding, but perhaps a business � retailer or vendor � would not want to do business with a company that refused to sign it. Ok, so what should a code of ethics include? Here are some thoughts, in no particular order.

Retailers.

1. If you sign a manufacturer's minimum advertising policy document, stick to it.

2. Do not take a manufacturer's product and copy it overseas, or anywhere else.

3. If you like a product from a small vendor but you doubt his ability to fill your order in a timely manner, do not encourage a trusted manufacturer to copy the product. Instead, bring the two vendors together and have them develop a licensing deal.

4. If cash flow problems are causing you to delay payment to a vendor, call the vendor, explain your situation, and work out a payment plan. Do not send checks as full payment if you don't have enough to cover them. A manufacturer would rather have a smaller, partial payment than bank fees.

5. Do not copy project sheets, magazine how-to's, designs, and other copyrighted material without receiving permission from the owner of the material. Do not allow your overseas vendors to do it, either.

6. If you will be insisting on entitlements, make them clear to a vendor before agreeing on the

price of a line.

7. Do not place orders at trade shows if you do not have the funds, expecting the manufacturer to hold the order for months.

8. Do not accept gifts from current or potential vendors.

Manufacturers.

1. Fill orders in the order in which you received them.

2. When an independent asks if you are selling, or hoping to sell, to the chains, don't deny it if it's true. But do not violate any confidentiality agreement you might have with a chain.

3. Establish a pricing structure and stick to it.

4. Offer the same "entitlements," such as ad allowances and rebates, to all customers if they meet certain conditions. Most independents probably could not meet the volume requirements, but they deserve the opportunity if they so choose to try.

5. If you are delayed filling a particular order, warn the retailer as soon as possible. If the shipment, or part of the shipment, will be substantially late, call the retailer to see if the order is still wanted.

6. If you're unveiling a prototype at a trade show, make it clear to interested buyers that it is not yet in production. If you later decide not to go into production, call retailers who had placed orders and tell them.

7. If you are considering changing vendors because of price, give your current vendor the opportunity to respond. If you had insisted that your original vendor build a large inventory in order to handle re-orders quickly, and later you do want to change manufacturers, give the original vendor time to draw down the inventory.

8. Do not "shop" other manufacturers' booths at trade shows or encourage your sales force to find your next product or designs from other exhibitors. Do not enter other manufacturers' booths to try to lure designers or other employees away from their current employer.

9. Don't use consumer shows to dump excess inventory at drastically reduced prices. That simply hurts the area retailers.

10. If you have a sales rep force, support them. If a rep has found a new customer for you, don't split hairs about whether an order was physically written in a store. (A rep can't be writing re-orders for a store in Phoenix if he/she is writing new business in Santa Fe.)

11. If cash flow problems will interfere with prompt payments to sales reps, inform them as soon as possible.

12. If you exhibit at a trade show, follow the show rules. For example, do not take buyers off the floor during show hours to show them new products in a hotel suite.

Manufactures and Retailers.

1. Do not artificially raise the suggested retail price of a product so that the retailer can offer phony discounts to consumers.

(Note: Agree with the elements of the code? Disagree? Have any suggestions about what should be changed, deleted, or added? Email your thoughts, off the record, to CLN at mike@clnonline.com. To read previous Business-Wise columns, click on the titles in the right-hand column.)

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