Business Ethics

Lecturer: Piet Westerhuis

Consumers and Business Ethics

Lecture 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

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

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

Ethical issues and the consumer

Ethical issues, marketing and the consumer

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

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 individual’s consumers’ mind

• Social– Concerned with the aggregate social and cultural impacts,

such as promoting materialism

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 UK’s Advertising Standards Authority says ads should be “legal, decent, honest and truthful”

Ethical issues in marketing management – marketing communications (II)

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

Ethical issues in marketing management – marketing communications (III)

• 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

Ethical issues in marketing management – pricing

• 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

Ethical issues in marketing management – distribution

• 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

Ethical issues in marketing strategy – vulnerable customers

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

Ethical issues in marketing strategy –customer exclusion

Ethical issues in market research

• Main issue is possible threats posed to the consumer’s right to privacy

• Recent areas of concern: – Personal information available online

• Example: Phorm’s advertising targeting service, which British Telecom trialled without consent

– Use of genetic testing results by insurance companies

• Predict likelihood of an individual’s genetic predisposition to certain conditions and illnesses

• ‘genetic discrimination’?

Globalisation and consumers

The ethical challenges of the global marketplace

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

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

Consumers and corporate citizenship

Consumer sovereignty and the politics of purchasing

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

Consumer sovereignty test

Dimension Definition Sample criteria for establishing adequacy

Consumercapability

Freedom from limitationsin rational decision making

Vulnerability factors, e.g. age,education, health

Information Availability and quality ofrelevant data

Quantity, comparability andcomplexity 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)

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

Sustainable consumption

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)

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)

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 China’s ban on free plastic bags– Implementing the polluter pays principle to create financial

incentive for lower consumption

Product recaptureFrom a linear to a circular flow of resources

Extraction Manufacture Distribution DisposalConsumption

(a) Linear flow of resources

Extraction Manufacture

Product recapture

Distribution

Disposal

Consumption

(b) Circular flow of resources

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