Business Society Ethics Sustainability and Stakeholder Management Eighth

Chapter 13 Consumer Stakeholders: Information Issues and Responses © 2012 South-Western, a part of

Learning Outcomes 1. Recite the consumer’s Magna Carta and explain 2. 3. 4. 5. 6. 7. its meaning. Chronicle the evolution of the consumer movement, highlighting Ralph Nader’s role. Identify the major abuses of advertising and discuss specific controversial advertising issues. Enumerate and discuss other product information issues that present problems for consumer stakeholders. Describe the role and functions of the FTC. Explain recent consumer-related legislation that has passed. Discuss the strengths and weaknesses of regulation and selfregulation of advertising and proposed consumer financial protection regulations. © 2012 South-Western, a part of Cengage Learning 3

Chapter Outline • The Consumer Movement • Product Information Issues • The Federal Trade Commission (FTC) • Self-Regulation in Advertising • Summary • Key Terms • Discussion Questions © 2012 South-Western, a part of Cengage Learning 4

Customer Relationship Management • The ability of an organization to effectively identify, acquire, foster, and retain loyal profitable customers. Ø Customers remain dissatisfied with how they are treated and are mistrustful of businesses. © 2012 South-Western, a part of Cengage Learning 5

The Consumer’s Magna Carta © 2012 South-Western, a part of Cengage Learning 6

The Consumer Movement Consumer Expectations • “Fair value” for money spent • Product that meets “reasonable” expectations • Full disclosure of product specifications • Truthful advertising • Safe products • Removal of dangerous products © 2012 South-Western, a part of Cengage Learning 7

Consumerism • A social movement seeking to augment the rights and powers of buyers in relation to sellers. Ø What were Ralph Nader’s contributions to the modern consumer movement? © 2012 South-Western, a part of Cengage Learning 8

Lessons From the Consumer Movement 1. Achieve a fair and just marketplace for all consumers. 2. Provide public oversight where: • • Corporations lack the incentives to regulate their own behavior. Issue of health, safety and other special concerns. 3. Provide resources, authority, and support for public watchdogs. 4. Intensify the fight for affordable goods and services, fair financial practices, and a chance at a decent standard of living. 5. Curb wasteful overconsumption that threatens the environment. © 2012 South-Western, a part of Cengage Learning 9

Advertising Issues • What are the arguments for and against advertising? • What are advertising’s benefits? • What are the four major advertising abuses? © 2012 South-Western, a part of Cengage Learning 10

The Need for Information © 2012 South-Western, a part of Cengage Learning 11

Weasel Words • Are inherently vague so companies can claim they were not misleading

Concealed Facts • The practice of not telling the whole truth or deliberately not communicating information the consumer ought to have access to in making an informed choice. ü Hidden Fees ü Product placement (“stealth advertising”) ü Plot placement © 2012 South-Western, a part of Cengage Learning 13

Exaggerated Product Claims Exaggerated Claims • Cannot be substantiated by any kind of evidence. 1. Induce people to buy things that do them no good. 2. Result in loss of advertising efficiency as companies match puffery with puffery. 3. Drive out good advertising. 4. Result in consumer loss of faith in product claims. Puffery • A euphemism for hyperbole or exaggeration that usually refers to the use of general superlatives. © 2012 South-Western, a part of Cengage Learning 14

Psychological Appeals • Designed to persuade on the basis of human emotions and emotional needs rather than reason. • The products can seldom deliver what the ads promise. Ø Marketers appeal to all our senses, even sound, when making psychological appeals. © 2012 South-Western, a part of Cengage Learning 15

Controversial Advertising Issues Ø Comparative advertising Ø Use of sex in advertising Ø Advertising to children Ø Marketing to the poor Ø Advertising of alcoholic beverages Ø Cigarette advertising Ø Health and environmental claims Ø Ad creep © 2012 South-Western, a part of Cengage Learning 16

Controversial Advertising Issues Environmental Claims • Companies have been ramping up their advertising claims about the environmental friendliness of their products. • The green economy was estimated in 2010 to be worth $1. 04 trillion and growing. • An industry of “green watchdogs” has been growing. • Growing “green fatigue” developing among some consumers who are weary of claims. © 2012 South-Western, a part of Cengage Learning 17

Warranties • Initially used by manufacturers to limit the length of time they were responsible for products. • Came to be viewed by consumers as mechanisms to protect the buyer against faulty or defective products. Express Warranty • Promise or affirmation of fact that the seller makes at the time of the sale. Implied Warranty • Unwritten promise that there is nothing wrong with the product and its intended use. © 2012 South-Western, a part of Cengage Learning 18

Warranties (continued) Full Warranty • Covers the entire product. Limited Warranty • Certain parts or types of defects are not covered under the warranty. Extended Warranty • Service plans that lengthen the warranty period and are offered at an additional cost. © 2012 South-Western, a part of Cengage Learning 19

Packaging and Labeling Federal Packaging and Labeling Act of 1967 • Prohibits deceptive labeling on consumer products • Requires disclosure of certain important information on consumer products Ø The FTC and the Food and Drug Administration (FDA) have responsibilities under the Act. © 2012 South-Western, a part of Cengage Learning 20

Other Product Information Legislation Equal Credit Opportunity Act • Prohibits discrimination in extending consumer credit. Truth-in-Lending Act • Requires all suppliers of consumer credit to fully disclose all credit terms. Fair Credit Reporting Act • Ensures that consumer-reporting agencies provide information in a manner that is fair and equitable. Fair Debt Collection Practices Act • Regulates the practices of third-party debtcollection agencies. © 2012 South-Western, a part of Cengage Learning 21

The Federal Trade Commission Ø The government’s major instrument for ensuring that business lives up to its responsibilities in the areas of advertising, warranties, and packaging/labeling. Major Activities of the FTC 1. To maintain free and fair competition in the economy. 2. To protect consumers from unfair or misleading practices. © 2012 South-Western, a part of Cengage Learning 22

The Divisions of the FTC © 2012 South-Western, a part of Cengage Learning 23

Recent Consumer Legislation Ø Credit Card Act of 2009 Ø Consumer Financial Protection Agency

Self-Regulation in Advertising Types of Self-Regulation • Self-discipline • Pure self-regulation • Co-opted self-regulation • Negotiated self-regulation • Mandated self-regulation © 2012 South-Western, a part of Cengage Learning 25

The National Advertising Division’s Program • NAD was created to help sustain high standards of truth and accuracy in national advertising. ü Initiates investigations ü Determines issues ü Collects and evaluates data ü Makes initial decision regarding substantiated claims © 2012 South-Western, a part of Cengage Learning 26

Key Terms • • Accurate information Ad creep Adequate information Age compression Ambient advertising Ambiguous advertising Clear information Comparative advertising • Concealed facts • Consumerism • Consumer Financial Protections Agency (CFPA) • Consumer’s Magna Carta • Co-opted selfregulation • Credit Card Act of 2009 • Customer Relationship Management (CRM) • Exaggerated claims • Express warranty • Extended warranty • Full warranty © 2012 South-Western, a part of Cengage Learning 27

Key Terms (continued) • Implied warranty • Limited warranty • Mandated selfregulation • Negotiated selfregulation • Plot placement • Product information • Product placement • Psychological appeals • Puffery • • • Pure self-regulation Right to be heard Right to be informed Right to choose Right to safety Self-discipline Self-regulation Warranties Weasel words © 2012 South-Western, a part of Cengage Learning 28