Business Ethics Chapter 6 Primary Stakeholders Customers Copyright

Discussion Questions • Read Preview Business Ethics Insight • What do you think of product liability laws? Do you think they serve a purpose in society? Some argue they benefit lawyers mostly. • What about product liability for products that were designed some time ago? • Consider that some products are complex and not all negative outcomes can be known. • Should the government take steps to reduce/limit product liability suits? Why or why not? © 2019 Taylor & Francis

Marketing: Definition • The activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large • The management process that identifies, anticipates, and satisfies customer requirements profitably © 2019 Taylor & Francis

Marketing: 4 Ps • Product: the product or services offered by the company that meet the requirements of the customers • Price: the process of setting the prices for the products/services © 2019 Taylor & Francis

Marketing: 4 Ps • Promotion: includes the tools used by marketers to make potential customers aware of the company’s products or services and the benefits to the customers of buying these products or services • Place: refers to the geographic areas to sell in and to the channels selected to reach the market © 2019 Taylor & Francis

Marketing: Two Ethical Issues • Does the product meet a legitimate customer need? • Classic example of Nestlé selling infant formula in Third World countries and presenting it as superior to breast milk • Do the products they sell actually perform as claimed? • Does fitness equipment reduce fat as promised? © 2019 Taylor & Francis

Exhibit 6. 1 The American Marketing Association’s Perspective on Marketing Ethics • Honesty—to be forthright in dealings with customers and stakeholders. To this end, we will: • Strive to be truthful in all situations and at all times • Offer products of value that do what we claim in our communications • Stand behind our products if they fail to deliver their claimed benefits • Honor our explicit and implicit commitments and promises © 2019 Taylor & Francis

Exhibit 6. 1 The AMA’s Perspective on Marketing Ethics • Responsibility—to accept the consequences of our marketing decisions and strategies. To this end, we will: • Strive to serve the needs of customers • Avoid using coercion with all stakeholders • Acknowledge the social obligations to stakeholders that come with increased marketing and economic power • Recognize our special commitments to vulnerable market segments such as children, seniors, the economically impoverished, market illiterates and others who may be substantially disadvantaged • Consider environmental stewardship in our decisionmaking © 2019 Taylor & Francis

Exhibit 6. 1 The AMA’s Perspective on Marketing Ethics • Fairness—to balance justly the needs of the buyer with the interests of the seller. To this end, we will: • Represent products in a clear way in selling, advertising and other forms of communication; this includes the avoidance of false, misleading, and deceptive promotion • Reject manipulations and sales tactics that harm customer trust Refuse to engage in price fixing, predatory pricing, price gouging or “bait-and-switch” tactics • Avoid knowing participation in conflicts of interest • Seek to protect the private information of customers, employees and partners © 2019 Taylor & Francis

Ethical Issues in Pricing • Pricing is of concern to ethical marketers • Need to sell at “just price” • According to St. Thomas Aquinas, a seller should not raise prices simply because a buyer has a strong need for a product • Lots of ambiguity regarding what constitutes a fair price • Nevertheless, there are six key ethical issues in pricing © 2019 Taylor & Francis

Ethical Issues in Pricing • Price gouging: occurs when sellers take advantage of situations like national disasters or shortages to raises prices • Predatory pricing: occurs when a company lowers its prices so far below competitors that it drives the competitors out of the market © 2019 Taylor & Francis

Ethical Issues in Pricing: Price Fixing • Horizontal: the effect of creating a monopoly when sellers agree to sell at one price that is often above what an item would normally cost in a competitive market • Vertical: occurs when sellers force the retailers to sell their products to consumers at specific prices © 2019 Taylor & Francis

Ethical Issues in Pricing • Price discrimination: occurs when different groups are charged different prices • Failure to disclose the full price: occurs when listed prices do not include other fees or charges that the consumer will have to pay • Bait-and-switch: a sales tactic where a product is advertised at a low price but the product is sold out or the customer is pressured by sales people to look at higher -priced versions of the product © 2019 Taylor & Francis

Discussion Questions • Give one example of each type of ethical issue in pricing. • Discuss each of these examples. What type of ethical questions do they raise? • What is the concept of “just price”? • How critical are pricing issues for customers as stakeholders? © 2019 Taylor & Francis

Ethical Issues in Promotion • Objective of promotion is to make customer aware of products • Involves array of tools such as advertising, sponsorships, coupons etc. • One key aspect of promotion is advertising • Advertising must be truthful and not deceptive © 2019 Taylor & Francis

Deceptive Advertising • Ambiguity in advertisements • Wording is often constructed in a way that the consumer will make erroneous conclusions about the nature of the product. • Concealing facts • Advertisements that conceal facts often begin with truthful statements regarding the positive attributes of a product. • Exaggeration • Making excessive claims about nature of product © 2019 Taylor & Francis

Exhibit 6. 3 Suspect Advertisements for Weight Loss A claim is too good to be true if it says the product will. . . Example Claims Cause weight loss of two pounds or more a week for a month or more without dieting or exercise Cause substantial weight loss no matter what or how much the consumer eats Cause permanent weight loss (even when the consumer stops using product) “I lost 30 pounds in 30 days even though I ate all my favorite foods. ” “Lose up to 2 pounds daily without diet or exercise. ” “My ‘formula for living’ lets you eat: hamburgers, hot dogs, fries, steak, ice cream, sausage, bacon, eggs and cheeses! And STILL LOSE WEIGHT!” “Eat all the foods you love, and still lose weight (pill does all the work). ” “Thousands of dieters are already using it and losing weight faster than they have before … and keeping the weight off. ” “For 15 years, Mary yo-yo dieted without success. Fed up and desperate, she discovered a new miracle product to lose weight easily and permanently. ” © 2019 Taylor & Francis

Other Ethically Sensitive Issues • Sexual Appeals and Marketing to Children • Sexual appeals: messages, as brand information in advertising contexts, that are associated with sexual information • Example: Heineken and the “Premature Pour” campaign showing a man responding to a seductive woman by nervously pouring his beer © 2019 Taylor & Francis

Advertising to Vulnerable Groups: Children • There are four recurring themes in the literature on children’s advertising: 1. The ability of children to recognize a marketing communication as advertising 2. At what age do children develop the perceptual skills to understand the intent of the advertisement? © 2019 Taylor & Francis

Advertising to Vulnerable Groups: Children • Four recurring themes in the literature on children’s advertising: 3. The extent to which children influence their family’s purchases, called “pester power” 4. Concerns about how advertisements for children work indirectly to influence children as a group © 2019 Taylor & Francis

Discussion Questions • Watch a few cereal or other advertisements directed toward children • Do you think it is unethical for companies to direct such ads toward children? • Should such advertising be banned completely? Why or why not? © 2019 Taylor & Francis

Exhibit 6. 4 Example Standards for Advertisements to Children Issue Harm Recommendation Children should not be shown in unsafe situations or behaving dangerously except for advertisements that promote safety. Children should not be shown using or in close proximity to dangerous substances or equipment without direct adult supervision Children should be discouraged from copying potentially hazardous activities that may be displayed in ads. Children should not be encouraged to feel inferior or unpopular if they do not buy the advertised product Children should not be encouraged to feel that they are lacking in courage, duty or loyalty if they do not buy the advertised product It should be possible for children of the target age group to judge the size, characteristics and performance of advertised products and to distinguish between real-life situations and fantasy For complex or costly products, adult permission should be obtained before purchasing Should not exaggerate what an ordinary child can do using the product being marketed Should not lead children to an unrealistic perception of the product’s value Should not be presented that the price of the product is in the reach of every family Parental Authority Should not undermine the authority and judgment of parents Should not include appeals to children to persuade their parents to buy the advertised product Skills and Age Levels Should not underestimate the degree of skill and age level need to assemble or operate the products as shown Credulity and Unfair Pressure Price Social Values Should not suggest that the use of product will give a child physical or psychological superiority over other children © 2019 Taylor & Francis

Exhibit 6. 5 National Differences in Regulations Concerning Advertisements for Children Country Advertising Austria None during children’s programs. Belgium None 5 minutes before or after programs for children under 12. Denmark No program breaks for ads. Greece Ban on ads for toys between 7 am and 10 pm; total ban on ads for war toys. Italy No interruption of cartoons. Luxembourg None pre and post children’s programs. Norway Cannot specifically target children or be included with children’s programs Sweden Cannot specifically target children or be included with children’s programs © 2019 Taylor & Francis

Product Safety • Many products have some risks associated with their use • Dilemma for manufacturers to make products safe enough without being prohibitively expensive • Need to warn consumers of potential danger © 2019 Taylor & Francis

Product Safety: What Should Warnings Say? • Note the severity of the potential danger • Note the nature of the hazard and communicate the consequences of the hazard • Explain how to avoid the hazard • What is the likelihood that the product can cause harm? • Is there a reasonable likelihood that the product will be used in a way not identified in the labeling and if so, can that use cause harm to the consumer? • How serious is the potential harm? © 2019 Taylor & Francis

Product Liability: Discussion Questions • Read Business Ethics Insights on A Tale of Two Voluntary Recalls in the Practice of Due Care • Discuss the two examples of recalls • Why did both companies announce the recalls although they were not required to do so? • Which form of product liability approach do these companies practice? Why? © 2019 Taylor & Francis

Perspectives on Product Liability • Buyer beware • Contract view • Due care theory

Buyer Beware Perspective • Doctrine that often places the burden on buyers to reasonably

Contract View • The relationship between the manufacturer and a consumer is based on

Contract View: Moral Duties for Seller • Duty not to coerce • Duty to comply with the terms of the contract regarding explicit and implied claims of reliability, product life, maintainability, and safety • Duty not to misrepresent the product in any way • Duty to disclose the nature of the product © 2019 Taylor & Francis

Due Care Theory • Addresses the weaknesses of the buyer beware approach by accepting that seller and buyers do not have equality in knowledge and expertise regarding products • Legal wording emphasizes the actions of a reasonable person © 2019 Taylor & Francis

Strict Liability Theory • If a product injures a user because it was defective, the manufacturer is responsible for compensation of the user • Critics argue that it is not fair to companies • Supporters argue that companies internalize the costs to make safe products © 2019 Taylor & Francis

Exhibit 6. 6 Strict Liability in US Law by Justice Robert J. Traynor Greenman v. Yuba Power Products In Greenman, Traynor cited to his own earlier concurrence in Escola v. Coca-Cola Bottling Co. , 24 Cal. 2 d 453, 462 (1944) (Traynor, J. , concurring) stating: Even if there is no negligence, however, public policy demands that responsibility be fixed wherever it will most effectively reduce the hazards to life and health inherent in defective products that reach the market. It is evident that the manufacturer can anticipate some hazards and guard against the recurrence of others, as the public cannot. Those who suffer injury from defective products are unprepared to meet its consequences. The cost of an injury and the loss of time or health may be an overwhelming misfortune to the person injured, and a needless one, for the risk of injury can be insured by the manufacturer and distributed among the public as a cost of doing business. It is to the public interest to discourage the marketing of products having defects that are a menace to the public. If such products nevertheless find their way into the market it is to the public interest to place the responsibility for whatever injury they may cause upon the manufacturer, who, even if he is not negligent in the manufacture of the product, is responsible for its reaching the market. However intermittently such injuries may occur and however haphazardly they may strike, the risk of their occurrence is a constant risk and a general one. Against such a risk there should be general and constant protection and to afford such protection. © 2019 Taylor & Francis

Privacy • Most companies use the personal information of customers for legitimate reasons that benefit the consumer • However, beyond clearly illegal and unethical use of personal information such as identity theft, there are many grey areas regarding the use of customer information © 2019 Taylor & Francis

Ethical Rationales for Consumer Privacy • Utilitarian theory: speculates that the use of consumer information provides both the consumer and the company benefits. • Social contract theory: supports the idea of an equitable exchange between the consumer and the company. © 2019 Taylor & Francis

Ethical Rationales for Consumer Privacy • As long as companies provide consumers a detailed privacy protection policy statement and control over their information, the use of the information is ethical © 2019 Taylor & Francis

Some Emerging Challenges • Behavioral targeting: monitors customers’ web-browsing behaviors • Radio-frequency-identifiers (RFID): tiny computer chips with miniature antennae embedded in tags that are attached to physical objects • Online privacy for children: addresses issues such as giving parents a choice on what information can be collected © 2019 Taylor & Francis

Exhibit 6. 7 US Federal Trade Commission Privacy Principles Notice/ Awareness Explanation Consumers should be given notice of an entity’s information practices before any personal information is collected from them. Choice/ Consent Access/ Participation Integrity/ Security Identification of the entity collecting the data Identification of the uses to which the data will be put Identification of any potential recipients of the data The nature of the data collected and the means by which it is collected Whether the provision of the requested data is voluntary or required, and the consequences of a refusal to provide the requested information The steps taken by the data collector to ensure the confidentiality, integrity and quality of the data. Choice means giving consumers options as to how any personal information collected from them may be used. Specifically, choice relates to secondary uses of information—i. e. , uses beyond those necessary to complete the contemplated transaction. Opt-in regimes require affirmative steps by the consumer to allow the collection and/or use of information; opt-out regimes require affirmative steps to prevent the collection and/or use of such information. Access refers to an individual’s ability both to access data about him or herself —i. e. , to view the data in an entity's files—and to contest that data’s accuracy and completeness. To assure data integrity, collectors must take reasonable steps, such as using only reputable sources of data and cross-referencing data against multiple sources, providing consumer access to data, and destroying untimely data or converting it to anonymous form. © 2019 Taylor & Francis

Conclusion • Consumer issues present significant ethical challenges to companies • Chapter 6 discussed some of the key aspects of ethical issues associated with consumers as stakeholders: • Ethical issues in terms of marketing 4 Ps • Ethical issues in pricing and advertising • Ethical issues with regards to product safety © 2019 Taylor & Francis