Business Ethics: Consumers and Business Ethics PDF

# Business Ethics ## Chapter 7: Consumers and Business Ethics ### Chowdhury Ummeh Kulsum Tasnuva Faculty Member Department of Management University of Chittagong Email: [email protected] ## Consumers as Stakeholders - Treating customers well is a common argument for business success. - T...

# Business Ethics ## Chapter 7: Consumers and Business Ethics ### Chowdhury Ummeh Kulsum Tasnuva Faculty Member Department of Management University of Chittagong Email: [email protected] ## Consumers as Stakeholders - Treating customers well is a common argument for business success. - This is a core tenet of business strategy. Organizations succeed by providing superior value to their customers. - Companies that are successful in the marketplace are those that pay attention to their customers. - If producers' and customers' interests are so aligned, why does the abuse of ethics relating to consumers continue to hit the headlines? - The reputation of marketing and sales professions remains poor. - Firms have been accused of treating their customers in a questionable manner: - Multinational drug companies have been accused of exploiting the sick and poor by maintaining high prices for lifesaving pharmaceuticals and preventing the sale of cheaper generic drugs. - Fast-food and soft-drinks companies have been condemned for targeting children with unhealthy, high sugar, low-nutrition products. - Banks and credit card companies have put their customers, and even their own businesses, at risk of financial ruin by offering easy credit to people already in serious debt. - Mobile phone companies have been condemned for having restrictive contracts and overcharging their customers with expensive call rates. - Technology companies have raised concerns about consumer privacy by tracking people's web use and making it available to advertisers and even governments. - Schools have been criticized for offering pupils a diet of cheap processed food at lunchtimes rather than serving appropriately nutritional meals. ## Consumer rights - Consumers have inalienable entitlements to fair treatment when entering into exchanges with sellers. - The burden for protecting the consumer's interest, should they have wanted to go ahead with purchase, lies with the consumer, not with the party making the sale. - Under the rule of buyer beware, providing producers abided by the law, it was the consumer's responsibility to show due diligence in avoiding questionable products. - If they were subsequently harmed or dissatisfied with a product or service, it was regarded as their own fault. ## Ethical Issues: Marketing and The Consumers - The question of dealing ethically with consumers crosses a wide range of issues and problems. - These issues fall within one of the three main areas of marketing activity: - **Marketing Management** - Product policy - Marketing communication - Pricing - Distribution - **Marketing Strategy** - Targeting vulnerable consumers - Consumer exclusion - **Market Research** - Consumer privacy - Ethical issues in marketing management: - **Product Policy:** - Most ethical issues concerning business-consumer relations refer to the 'marketing mix': - product policies - marketing communication - pricing approaches - distribution practices - Consumers have a right to safe, efficacious, and fit-for-purpose products. - It is in both the buyers' and sellers' interests to have safe products. - The vast majority of exchanges are conducted to the entire satisfaction of both parties. - Everyday products can potentially harm, injure, or even kill people, especially if they are used improperly. - Firms marketing inherently risky products (such as tobacco or unhealthy food), or products that are especially prone to misuse (such as alcohol), might still exercise responsibility in ensuring that consumers properly understand the risks involved in consuming their products. - **Marketing Communications:** - The most discussed aspect of marketing and consumption is advertising. - Advertising is just one aspect of marketing communications. Ethical problems and issues arise in respect to personal selling, sales promotion, direct marketing, public relations, and other means of communicating to consumers. - Critics have been mainly concerned with the use of misleading or deceptive practices that create false beliefs about specific products or companies. - The primary purpose of misleading or deceptive practices is to increase the consumer's propensity to purchase. - The concern at the social level is the aggregate social and cultural impacts of marketing communications: - It promotes materialism, - it reifies consumption. - **Consumer Deception** - When a marketing communication either creates, or takes advantage of, a false belief that substantially interferes with rational consumer decision-making. - **Pricing:** - Issues of pricing often cause problems for consumers. - Producers and consumers' interests may diverge. - Price issues are important to the notion of a fair exchange. - Consumer stakeholders have a right to a fair price. - A fair price is typically thought of as the result of a mutual agreement by the buyer and seller under competitive conditions. - **Types of pricing** practices where ethical problems are likely to arise: - Excessive pricing - Price fixing - Predatory pricing - Deceptive pricing - **Channels of Distribution:** - Issues occur in the relationships between manufacturers and the firms that deliver their products to the market. - These firms include: - wholesalers - logistics firms - retailers. - These relationships are referred to as the product supply chain. - Problems in this area include when retailers demand 'slotting fees' from manufacturers in order to stock their products, or when considering environmental impact of different logistics systems. - **Marketing Strategy** - **Targeting Vulnerable Consumers:** - Marketers select and target specific consumer groups. - Consumers have been categorized by factors: - high profitability, - low competition, - strong potential for growth - This can lead to potential violations of the consumer's right to fair treatment. - **Consumer Vulnerability**- Some target markets are composed of consumers deemed 'vulnerable' by marketers: - children - the elderly - the poor - the sick - Marketers unfairly take advantage of their vulnerability to exploit consumers. - **Consumer Exclusion** - Certain groups of consumers may be discriminated against and excluded from being able to gain access to products that are necessary for them to achieve a reasonable quality of life. - Consumer vulnerability can be seen as a duty of care for the seller. - Sellers must ensure that they are not exploiting vulnerable consumers (those who are susceptible to high prices or misinformation). - For example, young children who lack the cognitive skills to make entirely rational choices. - **Consumer Exclusion:** - Some criticisms of marketing strategy focus not on who is targeted, but on who is not included in the target market. - This exclusion can lead to accidental or deliberate exclusion of certain groups of consumers from accessing particular goods and services that might be deemed necessary for them to maintain a reasonable quality of life. - This exclusion can exacerbate social exclusion and exacerbate other problems. - **Types of Consumer Exclusion:** - **Access exclusion:** - A lack of appropriate distribution outlets and channels may prevent people from accessing essential goods and services, such as postal and health services, utilities, and food. - **Condition exclusion:** - Restrictive conditions on product offerings (such as financial service products) may prevent certain groups from being able to access services. - **Price exclusion:** - The price is too high for consumers to purchase, which can make products inaccessible. - **Marketing exclusion:** - Firms deliberately exclude certain groups from their target marketing and sales activities. - **Self-exclusion:** - People believe they would be refused due to previous negative experiences or because of a belief that the company 'doesn't accept people who live round here.' - **Market Research** - **Consumer Privacy** - It is essential for marketers to examine the rights of consumers in relation to market research. - Market research involves the systematic collection and analysis of enormous amounts of data pertaining to individual consumers. - Consumers may not know that researchers have this data, nor may they wish to share it. - Most consumers are concerned about the type, accuracy, and deployment of information held about them. - Surveys suggest that consumers are unaware of regulations in place to protect them and make only limited use of strategies to avoid infringement of privacy. - **It is the right of a consumer to control what information companies can collect about them and how it is stored, used, and shared.** ## Globalization and Consumers: Ethical Challenges of The Global Marketplace - Convergence in consumer needs across different countries is driving globalization. - Businesses, such as Coca-Cola, McDonald's, Microsoft, Sony, and Toyota, have been able to expand into multiple international markets. - Globalization brings with it new ethical issues: - **Different Standards of Consumer Protection:** - The level of protection offered to consumers varies across the globe. - There are discrepancies in standards provided by governments and companies. - Globalization offers the opportunity for firms to exploit these differences, especially where higher protection is offered in developed countries. - An example is the global tobacco industry. - Firms avoid cost burdens associated with providing higher standards of protection by targeting developing countries. - This is especially true when marketing to developing countries where restrictions on marketing campaigns are less stringent than in developed countries. - Sales of cigarettes in developing countries have escalated with China being the largest market for tobacco sales. - Consumption in China in 2014 was greater than that in the next 29 top cigarette consuming countries combined. - Other major markets now include emerging economies: - Russia - Indonesia - India - Turkey - Vietnam - Consumers in developing countries may have less knowledge of health problems, be more susceptible to inducements to purchase (such as free gifts), and be less likely to be protected through regulations on advertising. - The World Health Organization Framework Convention on Tobacco Control (FCTC) was developed as a response to the situation. - This commits signatory countries to reduce tobacco demand and supply. - A ban on tobacco advertising, promotion, and sponsorship. - As of 2015, 180 countries had signed up to the framework. - **Exporting Consumerism and Cultural Homogenization:** - Companies are expanding into new international markets with brands already successful at home. - They are exporting a whole set of cultural values. - This export is a prominent focus of debate in the erosion of local cultures and the expansion of cultural homogenization. - Global products are taking over high streets, shops, and entertainment. - McDonald's - KFC - Starbucks - Apple iPhone - Diesel jeans - Heineken beer - L'Oréal cosmetics. - Hollywood movies, recording artists (like Beyoncé), and sports stars (like Cristiano Ronaldo or Maria Sharapova) are global brands. - Global marketers argue that they are not forcing consumers to buy their products and that their success simply comes from giving people what they want. - This raises ethical problems. - The Western modes of consumption are increasingly subject to criticism due to their role in fostering socially and environmentally undesirable consequences. - Multinationals are simply reproducing dissatisfaction on an even greater scale by promoting products and brands that are beyond the purchasing possibilities of the majority of consumers in developing countries. - Should emerging economies be 'protected' from potentially making the same mistakes? Do they also have a right to the same 'opportunities' in terms of raising consumption levels? - Are indigenous patterns of consumption in less-developed countries inherently better, fairer, or more sustainable than Western patterns, or are they even more inequitable and destructive. - **The Role of Markets in Addressing Poverty And Development:** - Globalization raises the prospect of firms potentially targeting their products at a much wider, but far poorer, market of low-income consumers in developing countries. - The 'bottom of the pyramid' concept urges multinationals to tap into this market by offering innovative products and services to the world's poorest people. - The provision of microcredit services for poor entrepreneurs and the development of a high nutrition yoghurt product for poor children are successful examples of this concept. - Despite garnering enthusiasm, this concept has met with criticism. - Firms may see profit opportunities as limited and should focus on the poor primarily as producers rather than as consumers. - The only way to reduce poverty is to raise the real income of the poor. ## Consumers and Corporate Citizenship: Consumer Sovereignty and The Politics of Purchasing - Consumer rights protection is expected of firms, but the question remains what constitutes truly ethical marketing. - Consumer sovereignty is a theory that helps us understand consumerism. - Consumer sovereignty is a key concept within neoclassical economics. - Consumers drive the market. - They express their needs and desires as demand, which firms respond to by supplying goods and services. - This gives rise to the idea that the customer is king (consumers are sovereign). - Real markets are rarely characterized by perfect competition. - Consumers may not know enough about competing offerings to find out exactly where they can get the best deals. - There may be very few competitors in some markets. - Some firms may take advantage of monopolistic positions to exploit consumers with high prices. - There are limitations to the power and sovereignty of consumers. - Consumers cannot always exercise informed choice. - Consumer sovereignty is comprised of these three factors: - **Consumer Capability:** The degree of freedom from limitations in rational decisionmaking enjoyed by the consumer. - **Information:** The availability and quality of relevant data pertaining to a purchase decision. - **Choice:** The extent of the opportunity available to freely switch to another supplier. ## Ethical Consumption - Forms of ethical consumption have been around for centuries, but have risen to considerable prominence in the early 1990s. - Ethical consumption covers a range of different activities: - boycotting certain companies - buying nonanimal-tested products - avoiding products made by sweatshop or child labour - choosing fair trade or organic products - reusing or recycling products - At its core, is the desire to make certain consumption choices based on personal moral beliefs and values. - The decision considers others (it is about decisions beyond self-interest). - The main form of ethical consumption is where the consumer's personal moral beliefs and values refer to the specific actions of businesses. - This may include the decision to deliberately boycott Shell over its Arctic exploration, or a decision to deliberately seek out detergents low in bleach because of environmental considerations. - Ethical consumers have been increasingly seen as playing an important role in prompting businesses to address ethics more enthusiastically, either through marketing specifically ethical products, or through developing a more ethical approach to business in general. - For all its benefits, ethical consumption is not an adequate replacement for political action. - Corporations are becoming a preferred channel through which moral choices can be expressed. - If the value of ethical consumption is subject to challenge, the question of sustainability contests the whole practice of consumption itself.