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  • Ethical issues in marketing

    TEACHER: Hello, Student. Who do you think a business is responsible to?

    STUDENT: Hi, Teacher. Well, I know that many maintain that the primary responsibility of a business is to earn profits for its shareholders. But I am sure there is something hidden in your question, isn’t there?

    TEACHER: Yes there is. First of all, the marketing concept adds that a business should do this (earning profits for its shareholders) by meeting the needs of its customers.

    But nowadays the prevailing view is that the organization's responsibilities extend even further, to include social responsibility -an organization’s acceptance that it is accountable to society for its actions. Thus, a business is responsible not only to shareholders, but also to customers, employees, others in its marketing channel, society and the earth's environment.

    STUDENT: To show you that I am well informed, let me tell you that I know that these groups -other than the shareholders- are called "stakeholders", because they have a stake in the business.

    TEACHER: Very well, Student. You have been reading lately, I see. But the question is....

    Why Be Socially Responsible? Proponents of social responsibility typically argue that this behavior is to the organization's best interests in the long run. Potential customers, so the argument goes, will be in the best position to buy if the organization looks after their welfare as individuals and community members. And in these times of stiff competition, potential customers who have trouble choosing from among competing products may well buy from the company they most respect.

    Responsibility To The Community

    Social responsibility to the community can take two forms: ceasing negative activity, such as pollution, or taking a positive action, such as starting an education program that benefits the community.

    In the add below, the Shell Oil Company stresses its commitment to plans and programs to help protect the ecosystem, as well as to other socially responsible programs; "with leadership comes responsibility", the add says.
    Positive action may also consist of consumer education, partnerships with schools or teachers' organizations, or funding for special projects.

    Here again we can use the example of Shell: the add below publicizes Shell’s contribution to the preservation of "Endangered Historic Places" in the USA.
    STUDENT: Can we define the project described in the ad above as a "Community Relations Project"?

    TEACHER: Certainly, it fits into the definition of "projects undertaken out of social responsibility that not only benefit the community, but also enhance community relations, reinforcing a positive image of the organization.

    We shall also mention...

    Cause-Related Marketing - Some organizations undertake cause-related marketing (CRM), a formal version of marketing on behalf of the community. With CRM, charitable donations are tied directly to the sales of a specific product, or to the use of a specific credit card, or to making purchases at a given supermarket.

    STUDENT: I guess CRM must be popular among marketers because it sets up a win-win situation. The product or service is promoted, and profits and sales are increased.

    TEACHER: True. Also, customers are satisfied, members of the community benefit from the donations made, and community relations are enhanced.

    Global Social Responsibility - Being a responsible member of the community can be more complex for an organization that operates in more than one country. The organization needs to know what the community expects or wants and must find a way to meet those expectations. In spite of the difficulties, the increasing global presence of multinational companies is leading them to make more of their contributions in other countries. Alcoa worked with local officials in southern Brazil to build a sewage plant. IBM donated computer expertise and equipment to the National Parks Foundation of Costa Rica to develop strategies to preserve rain forests.
    Responsibility To The Environment

    With consumers increasingly voicing concern about the environment, marketers have found it necessary, and often profitable, to make environmental consciousness part of their social responsibility efforts.

    STUDENT: Are you talking about "Green marketing"?

    TEACHER: Exactly. Green marketing can benefit the marketing organization in various ways. But basically because it appeals to the values of more and more people. Not only do many consumers feel better buying a product that is supposed to be environmentally friendly, but they also have more respect and are more willing to buy products from companies considered to be respectful of the environment.

    Take a look at this add from Honda, and notice that while the main approach is to stress how Honda’s Low Emission Vehicles respect the environment, it is also emphasized that Honda "has a commitment with clean air since 1975"; i.e., Honda has a long history of being friendly to the environment.Green Marketing And The Quality Approach - Green marketing is a natural extension of the quality approach to marketing. According to Helen 0. Petrauskas, vice president of Environmental and Safety Engineering at Ford Motor Company, customers' demand for "green" products and "green" organizations will eventually surpass the strictest regulatory standards. In other words, marketers who want to satisfy their customers will have to do more than simply meet environmental standards imposed by the government.
    Please take a look at this add from Ford, Student. Would you care to comment?STUDENT: I can see that Ford’s ad confirms that green marketing is a natural extension of the quality approach to marketing, as you said before. The company defines itself as being not just a good company, but as a "great one" because it not only delivers "excellent products and services" but also "strives to make the world a better place".

    TEACHER: Exactly. Ford does not elaborate on what exactly their contribution to improving the world is, but the message is clear.

    STUDENT: Is there any research available on the effect of "green marketing" on prices?

    TEACHER: In general, green marketers have learned that making a product friendly to the environment does not mean they can charge a higher price. According to a study by Syracuse University's School of Public Communications, 93 percent of adults said a product's environmental impact was important to them in making purchase decisions, but two-thirds said environmentally friendly products should not cost more .

    But I can tell you of at least one example when making "concentrated" detergents that require less packaging and less energy to ship has also turned out to be more profitable. One reason for this is that the difficulty of comparing regular with concentrated detergents make it almost impossible to shop by price. Also, consumers tend to run big loads of laundry and pour in generous amounts of detergent; the little measuring scoop included in the package just doesn't look like enough in spite of the manufacturer's recommendations.
    Ethical Issues

    The wide acceptance of social responsibility is based in part on the view that it is in the organization's best interests. What do you think, Student?

    STUDENT: I suspect that in real life there is not always such an ideal situation.

    TEACHER: Right you are. Consider the following responses to an informal poll of a management magazine’s readers : "It's naive to believe anybody can be successful and totally ethical." "Often what we do is not what we would like to do." Many business questions are more a matter of survival than ethics." "Ethics are defined by the situation. Therefore, good judgment is paramount!'

    Marketers and other businesspeople often struggle with the solutions to ethical problems. Ethics are the moral principles and values that govern the way an individual or group conducts its activities. Marketing ethics are the principles, values, and standards of conduct followed by marketers.

    STUDENT: And why isn’t it obvious that marketers should behave ethically? Why are these issues so difficult?

    TEACHER: One reason is that ethical standards vary from one person to another. And sometimes the only available courses of action contain a blend of hurtful and helpful actions. Even when people agree on what is the most ethical course of action, that alternative may seem unduly costly -especially to the owner of a start-up company with little cash or to the employee trying to hold onto a job.

    STUDENT: I see. I also assume that operating in a global marketplace makes ethical issues even more complicated. Marketers must be attuned to the values not only of mainstream society in their home countries, but also of the other cultures in which they hope to market their products.

    TEACHER: There are many difficulties, but yet ethical principles are important for marketers from both a moral and a business standpoint. In the words of Scott Cook, founder of a Menlo Park, California, software company called Intuit, "Being truthful is good business." In the long run, I may add.

    Social Criticisms Of Marketing

    Public perception of businesspeople has always been negative, and the Enron, WorldCom, Arthur Andersen and many other incidents have not improved this perception.

    Marketers reinforce this view whenever they bend the rules, favoring a quick sale over a long-term relationship.

    Society wants marketers to adhere to its values, beliefs, and principles. As these have become more complicated, criticism of business practices has grown more strident. Add issues of legality to the pot, and the result is a rather spicy stew. Care to comment, Student?

    STUDENT: I can imagine that by obeying the law, the marketer can avoid actions that have legal penalties. But not all legal behavior is ethical; it would be impossible to write enough laws to require ethics in all business dealings.

    TEACHER: Right. And at the same time, an action that a marketer considers ethical might violate the law. For example, a marketer might think that customers would benefit from an arrangement with several competitors to avoid price increases, but this arrangement likely would violate antitrust laws.

    Ethics And The Marketing Mix

    Ethical issues arise with regard to all the elements of the marketing mix: the product itself, its price, its channels of distribution, and its marketing communications.

    Ethics And Product Development - Perhaps the largest ethical issue related to products is their quality. A common complaint about product quality is planned obsolescence. Obsolescence refers to products wearing out or becoming obsolete. Planned obsolescence means the producer built the products not to last, at least not as long as buyers would like to use them. From the marketers point of view, if some of these goods were made more durable, they might have to be priced beyond the reach of most buyers.

    Furthermore, today’s rapidly changing technology makes it hard to find a product that can meet the demand for state-of-the-art goods. Can you think of the obvious example, Student?

    STUDENT: Computers, of course, Teacher. They are a notable example of products that are obsolete by changing technology long before they wear out.

    TEACHER: Very good. Further ethical issues arise with regard to packaging. The use of large packages, designed to use more shelf space or to make the consumer believe that the package contains more of the product than that of the competitor, is a common but questionable practice. Odd-shaped bottles or boxes that appear to contain more are common.

    STUDENT: Is misleading packaging unethical or an acceptable way to remain competitive?

    TEACHER: A good question, to which I don’t have an answer!

    Especially in the areas of food and cosmetics, labeling has become a battleground for competing marketers. Terms such as 'Lite," "Low Fat," "Reduced Calories," and "Natural" do not guarantee nutritious ingredients. Even fresh products such as apples may be injected or sprayed with chemicals to make them look more appealing or long-lasting.

    STUDENT: I also notice that many cosmetics claim to have "anti-aging" effects, and common sense tells me that this claims are dubious at best. Is it the responsibility of the marketer to present accurate information on labels or of the customer to confirm marketers' claims?

    TEACHER: You keep making these good questions, Student, to which I do not have good answers! But I can tell you that it is fair to assume that consumers have the right to honest information about products so that they can be responsible buyers. A company that practices quality marketing can present the product attractively without offering misleading information.

    Ethics And Channels Of Distribution - In quality marketing, the relationship between a manufacturer and its resellers is vital. A high standard of ethics is important to this relationship, which at its most successful creates a team, or even a partnership.

    STUDENT: I have a few questions here. Is it ethical for a fast-food franchiser to require that all outlets purchase their food and supplies from the parent company as condition of the franchise agreement? Is it ethical for a big brand-name manufacturer to refuse to supply its products to a store that doesn't want to display them in a certain way?

    TEACHER: Good questions again, Student. You keep making them, and I must keep not answering them! But let me try: in the particular cases you mentioned, ethical or not, these are common practices wherever not prohibited by law.

    Ethics And Communication – The case of false or exaggerated claims about a product is clearly unethical. Other unethical practices (which may be illegal as well) include bribes, kickbacks, and "bait and switch" advertising.

    STUDENT: What is "bait and switch?"

    TEACHER: It consists in advertising that a product is for sale at a low price, then claiming that it is unavailable and offering a higher-priced item when customers seek to buy it.

    STUDENT: Some businesspersons use the term "caveat emptor" to express how they feel the relationship with their customers should be. I know it’s Latin, but what does it mean exactly?

    TEACHER: It means "buyer beware." In other words, buyers were considered responsible for evaluating the quality of merchandise, truthfulness of promises, and so on; if something was wrong, it was up to the buyer to find out before completing a transaction. This concept is not widely accepted now as it was a few decades ago.

    STUDENT: And what about the "B" word?

    TEACHER: If you are referring to bribery, the prevailing standard in most developed economies is that bribery is unethical. Nevertheless, in many industries organizational buyers are tempted with lavish gifts. Of course, buying from whichever supplier produces tickets to the most exciting sports event is hardly likely to serve the buying organization's best interests.

    STUDENT: Yes, but in some parts of the world, bribery is prevalent, even customary.

    TEACHER: Sure. The U.S. Congress has passed the Foreign Corrupt Practices Act. This law makes it illegal for American companies to bribe a foreign government official or agency in order to do business in that country. But while this behavior is now illegal, it may still be expected by foreign governments or businesses.

    STUDENT: And it surely puts American companies in some disadvantage when competing with companies based in Europe or Asia that do not have this type of restrictions.

    TEACHER: Yes, that can be presumed.

    Organizational Codes Of Ethics

    Many organizations, concluding they must take a formal stand requiring ethical behavior by their employees, have established a code of ethics. Such a code is a written statement of the organization's ethical principles and standards of conduct. These codes usually cover confidentiality, conflicts of interest, relationships with other organizations in the marketing channel (such as the propriety of giving gifts to buyers of the company's services), payments to government officials (say, to speed up bureaucratic processes), and other areas.

    Recognizing the importance of ethical codes in marketing, the American Marketing Association (AMA) established its own written code of ethics, that provides guidelines for ethical behavior in the areas of marketers' responsibilities, honesty and fairness, the exchange process (including the marketing mix), and organizational relationships.


    Today the diversity of the population in most countries is greater than ever. Immigrants continue to arrive from all parts of the globe, speaking many different languages and bringing different values.

    People tend to prefer the company of others like themselves, however, and various forms of discrimination persist. Fortunately, many marketers do realize that narrow-mindedness is not only unethical but against their best interests. Marketers and other businesspeople today must recognize the existence and benefits of the populations diversity. Above all, they must appreciate the diversity of the markets they serve and of the work force they participate in.

    Issues of diversity are closely tied to issues of ethics and social responsibility. Ethical considerations and many times also laws require fairness in hiring, promotion, and compensation practices. Organizations with operations overseas must contend with the ethical dilemma of how to extend fairness to countries with different, often lower, standards for environmental protection and treatment of workers.

    Diversity Among Markets

    The United States as well as the global marketplace is full of variety. Language, cultural norms and values, geographical location, age, sex, and levels of income and education are just a few of the ways in which people differ. These differences are among the information that marketers should gather through environmental scanning, described in Module II.

    STUDENT: So, the conclusion is that diversity is a big problem, right?

    TEACHER: I’d rather say its a reality and definitely a challenge, but it also has benefits. Organizations can benefit when their marketing staff and outside marketing experts reflect the diversity of the markets they serve. A diverse work force brings a variety of insights and strengths that can add creativity to decision making and problem solving. In addition, when marketers are diverse, they can best recognize and interpret the needs of more of the population and tailor the features the marketing mix to such variables as where and when people shop, how they perceive price discounts, and where they will see or hear advertisements.

    And this will be all for this Module, Student. See you soon!


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