Business Ethics

1
Business Ethics

• Lecturer Piet Westerhuis

2
Consumers and Business Ethics

• Lecture 3

3
Overview

• Discuss the specific stake that consumers have in
  corporate activity
• Outline the ethical issues and problems faced in
  business-consumer relations
• Examine issues in context of globalization
• Arguments for more responsible marketing
  practices
• Develop notion of corporate citizenship in
  relation to consumers
• Examine the challenges posed by sustainable
  consumption

4
Consumers as stakeholders (I)

• Commonplace argument that businesses are best
  served by treating their customers well
• So why continued ethical abuses of consumers and
  poor reputation of marketing and sales
  professions?
• Examples of organizations accused of treating
  customers in a questionable manner
• Multinational drug companies
• Fast food and soft drink companies
• Banks and credit card companies
• Mobile phone companies
• Technology companies
• Schools

5
Consumers as stakeholders (II)

• Consumer rights can be seen as
• inalienable entitlements to fair treatment when
  entering into exchanges with sellers. They rest
  upon the assumption that consumer dignity should
  be respected, and that sellers have a duty to
  treat consumers as ends in themselves, and not
  only as means to the end of the seller.
• Debate over what constitutes fair treatment
• In the past, consumer rights based on caveat
  emptor
• But Caveat emptor eroded by changing expectations
  consumer laws

6
Ethical issues and the consumer
7
Ethical issues, marketing and the consumer
8
Ethical issues in marketing management product
policy

• At the most basic level, consumers have a right
  to products and services which are safe,
  efficacious, and fit for the purpose for which
  they are intended
• Manufacturers ought to exercise due care in
  establishing that all reasonable steps are taken
  to ensure that their products are free from
  defects and safe to use
• Consumers right to a safe product is not an
  unlimited right
• Safety also a function of the consumer and their
  actions and precautions

9
Ethical issues in marketing management
marketing communications (I)

• Criticisms of advertising broken down into two
  levels
• Individual
• Concerned with misleading or deceptive practices
  that seek to create false beliefs about specific
  products or companies in the individuals
  consumers mind
• Social
• Concerned with the aggregate social and cultural
  impacts, such as promoting materialism

10
Ethical issues in marketing management
marketing communications (II)

• Misleading and deceptive practices
• Marketing communications aimed to
• Inform consumers about goods and services
• Persuade consumers to purchase
• Deception occurs when a marketing communication
  either creates, or takes advantage of, a false
  belief that substantially interferes with the
  ability of people to make rational consumer
  choices
• The UKs Advertising Standards Authority says ads
  should be legal, decent, honest and truthful

11
Ethical issues in marketing management
marketing communications (III)

• Social and cultural impact on society
• Objections that marketing communications
• Are intrusive and unavoidable
• Create artificial wants
• Reinforce consumerism and materialism
• Create insecurity and perpetual dissatisfaction
• Perpetuate social stereotypes
• Such criticisms have been common for at least the
  last 30 years

12
Ethical issues in marketing management pricing

• Pricing issues are central to the notion of a
  fair exchange between the two parties, and the
  right to a fair price - key rights of consumers
  as stakeholders
• 4 types of pricing practices where ethical
  problems may arise
• Excessive pricing
• Price fixing
• Predatory pricing
• Deceptive pricing

13
Ethical issues in marketing management
distribution

• Concerned with relations between manufacturers
  and firms, and firms and market
• Primary concern is product supply chain
• Example retailers demanding slotting fees from
  manufacturers in order to stock their products

14
Ethical issues in marketing strategy vulnerable
customers

• Criticisms when there is a perceived violation of
  the consumers right to be treated fairly (duty of
  care)
• Targeting vulnerable consumers
• Consumers may be vulnerable because
• Lack sufficient education or information
• Easily confused or manipulated due to old age and
  senility
• Are in exceptional physical or emotional need
• Lack the necessary income
• Too young
• Perceived harmfulness of the product
• Examples cigarettes and alcohol
• Here, the focus shifts from rights/duties to
  consequences

15
Ethical issues in marketing strategy customer
exclusion

• Takes variety of forms
• Access exclusion
• Condition exclusion
• Price exclusion
• Marketing exclusion
• Self-exclusion

16
Ethical issues in market research

• Main issue is possible threats posed to the
  consumers right to privacy
• Recent areas of concern
• Personal information available online
• Example Phorms advertising targeting service,
  which British Telecom trialled without consent
• Use of genetic testing results by insurance
  companies
• Predict likelihood of an individuals genetic
  predisposition to certain conditions and
  illnesses
• genetic discrimination?

17
Globalisation and consumers

• The ethical challenges of the global marketplace

18
Issues around marketing in a global marketplace

• Globalization has brought a new set of problems
  and issues relevant to consumer stakeholders
• Different standards of consumer protection
• Consumer protection varies widely in terms of
  government regulation and company standards
• Example of tobacco
• Exporting consumerism and cultural homogenization
• Global brands huge success has led to increasing
  concerns over standardization and uniformity
• Considerable debate around role of advertising in
  promoting consumerism in emerging and
  transitional economies

19
The role of markets in addressing poverty and
development

• Globalization also raises prospect of firms
  targeting products to low income consumers
• Bottom of the pyramid concept
• Examples of successful initiatives
• Microcredit institutions (e.g. Brazil)
• High nutrition yoghurt company (Bangladesh)
• One Laptop Per Child
• Criticism
• Bottom of the pyramid is a mirage profit
  opportunities limited
• Social purpose and CSR probably more important
  than profit motive in developing inclusive markets

20
Consumers and corporate citizenship

• Consumer sovereignty and the politics of
  purchasing

21
Consumer sovereignty

• Concept suggests that under perfect competition,
  consumers drive market
• Two ethical limitations based on fairness
• Consumer sovereignty customer is king
• Consumer sovereignty has three elements (Smith,
  1995)
• Consumer capability
• Information
• Choice
• How is consumer sovereignty to be assessed?
  Consumer sovereignty test

22
Consumer sovereignty test
Dimension Definition Sample criteria for establishing adequacy
Consumer capability Freedom from limitations in rational decision making Vulnerability factors, e.g. age, education, health
Information Availability and quality of relevant data Quantity, comparability and complexity of information degree of bias or deception
Choice Opportunity for switching Number of competitors and level of competition switching costs
Source Derived from Smith (1995)
23
Ethical consumption

• Ethical consumption is the conscious and
  deliberate decision to make certain consumption
  choices due to personal moral beliefs and values
• Recent 51-market survey on consumer attitudes
• 70 of global consumers said their purchase
  decision could be influenced by a product
  supporting a worthy cause
• But socially-desirable answers may not correspond
  to behaviour
• Consumer activism on increase positive
• Downside of ethical consumption
• Motives of corporations will be primarily
  economic rather than moral
• Consumers may decide they no longer want to or
  can afford to pay extra for these ethical
  accessories
• If purchases are votes then rich get more power
  than poor

24
Sustainable consumption
25
What is sustainable consumption?

• Sustainable consumption is the use of goods and
  services that respond to basic needs and bring a
  better quality of life, while minimising the use
  of natural resources, toxic materials and
  emissions of waste and pollutants over the
  life-cycle, so as not to jeopardise the needs of
  future generations (European Environment Agency
  definition)

26
The challenge of sustainable consumption
Ethic Imposes limits to Promotes
Protestant ethic Consumption Investment in productive capacity
Consumerism ethic Saving Instant gratification and consumption
Environmental ethic Consumption Alternative meanings of growth and investment in the environment
Source derived from Buchholz (1998)
27
Steps towards sustainable consumption

• Producing environmentally responsible products
• e.g. Eco-labels are important
• Product recapture
• See Figure, next slide
• Service replacements for products
• Selling (e.g.) mobility rather than cars, or
  leasing photocopiers
• Product sharing
• Examples car-sharing, washing-machine-pooling
• Reducing demand
• Example of Chinas ban on free plastic bags
• Implementing the polluter pays principle to
  create financial incentive for lower consumption

28
Product recaptureFrom a linear to a circular
flow of resources
(a) Linear flow of resources
Extraction
(b) Circular flow of resources
Manufacture
Product recapture
Distribution
Consumption
Disposal
29
Summary

• The specific stake held by consumers and outlined
  some of the main rights of consumers
• Rights to safe products
• Honest and truthful communications
• Fair prices
• Fair treatment
• Privacy
• Rise of ethical consumption
• The challenges of sustainability
• In the consumer society that we currently live
  in, it appears that consumers might be expected
  to shoulder increased responsibilities as well as
  being afforded certain rights