PRACTICE OF MARKETING

LECTURE 19: MARKETING ETHICS

SOCIAL RESPONSIBiliTY & MARKETING ETHICS

A marketing system should sense, serve and satisfy consumer needs and
improve the quality of consumers' lives. In working to meet consumer needs,
marketers may take some actions that are not to everyone's liking or benefit.

Marketing managers should be aware of the main criticism of marketing.

Marketing's impact on individual consumer welfare has been criticised for its
high prices, deceptive practices, high-pressure selling, shoddy or unsafe
products, planned obsolescence and poor service to disadvantaged consumers.
Marketing's impact on society has been criticised for creating false wants and
too much materialism, too few social goods, cultural pollution and too much
political power. Critics have also stated criticisms against marketing's impact on
other businesses for harming competitors and reducing competition through
acquisitions, practices that create barriers to entry and unfair competitive
marketing practices.

Concerns about the marketing system have led to citizen-action movements

such as consumerism and environmentalism. Many companies originally
opposed these social movements and laws, but most of them now recognise a
need for positive consumer information, education and protection. Some
companies have followed a policy of enlightened marketing based on the
principles of consumer orientation, innovation, value creation, social mission
and social orientation. Also, companies are increasingly responding to the need
to provide company policies and guidelines to help their managers deal with
questions of marketing ethics.

SOCIAL CRITICISMS OF MARKETING MARKETING'S IMPACT ON

INDIVIDUAL CONSUMERS
1. HIGH PRICES. Many critics state that the marketing system causes prices
to be higher than they need to be. Some factors to which these critics point
are as follows:
a. High costs of distribution. Greedy middlemen mark-up prices beyond the
value of their services. There are too many middlemen and they duplicate
services.

1. The work performed by the intermediaries is necessary and takes away

the

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 responsibility from the retailer or the manufacturer.
2. The rising mark-up is really the result of improved services.
3. Operating costs are what is driving up prices.
4. In reality, retailer profit margins are low because of intense
competition.

b. Excessive mark-ups. Critics charge that some companies mark-up goods

excessively. Marketers respond by saying that:

repeat business. Most consumer abuses are unintentional.

hould be
reported to the authorities.
-up.

c. High advertising and promotion costs. Marketing is accused of driving up

promotion and advertising costs. Marketers respond by saying that:
Consumers want more than the merely functional qualities of products,
they want psychological benefits.

brand.
ion may be necessary for a firm to match
competitors' efforts.

produced ahead of demand in a mass-production economy.

2. DECEPTIVE PRACTICES. Marketers are sometimes accused of deceptive

practices that lead consumers to believe that they will get more value than they
actually do.
includes practices such as falsely advertising "factory",
"wholesale" and "sale" prices or a large price reduction from a deceptive
high list price.
includes practices such as overstating the product's
features or performance, luring the customer to the store for a bargain that is
out of stock or running rigged contests.
includes exaggerating package contents through subtle
design, not filling the package to the top, using misleading labelling or
describing size in misleading terms.

3. HIGH-PRESSURE SELLING. People are free to not respond to selling

tactics. Laws require door-to-door salespeople to announce that they are selling
a product. Moreover, some countries have "cooling off" periods (e.g. 3 days)

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that allow buyers to return products or back out of a purchase for large ticket
items.

4. SHODDY OR UNSAFE PRODUCTS. Shoddy or unsafe products is

another criticism against marketers. Dangerous products are most often illegal.

a. Manufacturer indifference.
b. Increased production complexity.
c. Poorly trained labour.
d. Poor quality control.

5. PLANNED OBSOLESCENCE. Planned obsolescence is a strategy of

causing products to become obsolete before they actually need replacement and
is a criticism levelled by consumers. Fashion is often cited as an example.
Marketers respond that:

new look.
-called planned obsolescence is actually the normal interaction
of competitive and technological forces in a free society.

outdated products to today's value-minded customers.

6. POOR SERVICE TO DISADVANTAGED CONSUMERS. In

contemporary society poor service to disadvantaged consumers in low-income
areas is another criticism against marketing. Clearly better marketing systems
must be built. Government agencies may take action against merchants who
advertise false values, sell old merchandise as new or charge too much for
credit. Overall, marketing systems do not service these customers well.
Improvements are needed.

c. MARKETING'S IMPACT ON SOCIETY AS A WHOLE

1. False Wants and Too Much Materialism. This criticism overstates the
power er marketing to create needs.

2. Too Few Social Goods. A better balance between costs and benefits is
needed for some products and more socially desirable products are being
demanded by consumers.

3. Cultural Pollution. Advertisements may be ignored by those not in the target

audience. However intrusive direct marketing may be guilty of this criticism -

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even invasion of privacy in some cases.

4. Too Much Political Power. Enterprise has a right to participate in the

political and social process to protect and forward its interests. Good codes of
ethics remain the most effective check on power.

c. MARKETING'S IMPACT ON OTHER BUSINESSES

Critics charge that a company's marketing practices can harm other companies
and reduce competition. Three problems are involved.
tions of competitors.

dangerous to the overall well being of the economy.

Again, much of this criticism attacks straw man positions. Poor busine$s
decisions in mergers, acquisitions and entering new markets are not due to
marketing efforts. Moreover, most blatantly exploitative ventures require better
laws.

UNDERSTANDING SOCIAL RESPONSIBILITY IN MARKETING

a. SOCIAL RESPONSIBILITY - philosophies, policies, procedures and

actions that have the enhancement of society's welfare as a primary objective. It
holds that organisations are part of a larger society and that they are accountable
to society for their actions.

Three social responsibility concepts exist:

1. Profit responsibility holds that companies have a duty to maximise profits

for their owners or stockholders.

2. Stakeholders' responsibility focuses on the obligations an organisation has

to those who can affect achievement of its objectives. These include
customers, employees, suppliers and distributors.

3. Societal responsibility refers to obligations that organisations have to the

preservation of the ecological environment and to the general public. Two
marketing practices reflect socially responsible behaviour:
Green marketing represents marketing efforts to produce, promote and
reclaim environmentally sensitive products. A critical problem
for marketers right now is that local differences make it
extremely difficult to market "green" products on a large scale.
Cause-related marketing (CRM) exists when the charitable
contributions of a firm are tied directly to the customer revenues

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 produced through the promotion of one of its products or
services.

b. THE SOCIAL AUDIT - is a systematic assessment of a firm's objectives,

strategies and performance in the domain of social responsibility. It consists of
five steps:
1. Recognition of a firm's social expectations and the rationale for engaging in
social responsibility endeavours.

2. Identification of social responsibility causes or programs consistent with the

company's mission.

3. Determination of organisational objectives and priorities for programs and

activities it will undertake.

4. Specification of the type and amount of resources necessary to achieve social

responsibility objectives.

5. Evaluation of social responsibility programs and activities undertaken and

assessment of future involvement.

c. THE VALDEZ PRINCIPLES· The coalition for environmentally

responsible economics drafted guidelines designed to focus attention on
environmental concerns and corporate responsibility. These guidelines, called
the Valdez Principles, encourage companies to:
1. Eliminate pollutants, minimise hazardous wastes and conserve non-renewable
resources.

2. Market environmentally safe products and services.

3. Prepare for accidents and restore damaged environments.

4. Provide protection for employees who report environmental hazards.

5. Appoint an environmentalist to its board of directors, name an executive for

environmental affairs and develop an environmental audit of its global
operations to be made available for pubHc inspection.

d. CONSUMER ETHICS AND SOCIAL RESPONSIBILITY - Unethical

practices of consumers are a serious concern to marketers. Such practices as
filing warranty claims after the claim period, coupon mis-redemptions and
fraudulent returns on merchandise costs marketers huge amounts in lost sales
revenue and prevention expense.

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Consumer purchase, use and disposition of environmentally sensitive products
relates to consumer social responsibility. However, research shows that
consumers

prices
sions dealing with the purchase,
use and disposition of products.

MARKETING ETHICS

NATURE AND SIGNIFICANCE OF MARKETING ETHICS

Ethics are the moral principles and values that govern the actions and decisions
of an individual or group. They serve as guidelines on how to act rightly and
justly when faced with moral dilemmas. Ethics deal with personal moral
principles and values. Laws are society's values and standards that are
enforceable in the courts. Judgement plays a large role in defining ethical and
legal boundaries. Very often, actions that are legal could be viewed as unethical
and sometimes actions considered to be ethical may not be legal.

Current Perceptions of Ethical Behaviour From research carried out in the

USA consumers and business people have serious concerns about the ethical
environment

"fair" or "poor"
-collar crime is "very common" or "somewhat
common."
to tumbling social standards.

dealings, 15% believe "often" unethical and 16% consider people

"seldom" without ethics.

There are at least four possible reasons why the current state of business ethical
conduct is at its present level:
1. Increased pressure on business people to make decisions in a society
characterised by diverse value systems.
2. Growing tendency for business decisions to be judged publicly by
groups with different values and interests.
3. Public's expectations of business ethical behaviour has increased.
4. Business ethical conduct may have declined.

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UNDERSTANDING ETHICAL MARKETING BEHAVIOUR
Numerous factors that influence ethical behaviour. They include:
1. Societal culture and norms
2. Business culture and industry practices
3. Organisational culture and expectations
4. Personal moral philosophy

1. SOCIETAL CULTURE AND NORMS affect ethical relationships and

serve as a socialising force that dictates what is morally right and just. Moral
standards are relative to particular societies and often reflect the laws and
regulations that affect social and"economic behaviour, including marketing
practices. It is common to observe different ethical views in different countries.

2. BUSINESS CULTURE AND INDUSTRY Practices reflects the"rules of

the game, the boundaries Between competitive and unethical behaviour and the
codes of conduct in business dealings. A business culture affects ethical conduct
both in the exchange relationship between sellers and buyers and competitive
behaviour between sellers.
a. Ethics of Exchange. Ethical exchange relationships means that both
the buyer and seller should be better off after a transaction. (WIN-WIN)
This was not always the case since the legal concept of "caveat emptor" -
let the buyer beware - was once (prior to 1960) pervasive in the American
business culture. In 1962, president John F. Kennedy outlined a
Consumer Bill of Rights which codified the ethics of exchange between
buyers and sellers. These Rights were:
· the right to be protected against goods and
services that are hazardous to health and life
· the right to be protected against
fraudulent, deceitful or misleading advertising or other
practices and the right to be given the facts they need to
make an informed choice
- the right to be assured, whenever possible, of
access to a variety of goods and services at competitive
prices. In those industries in which competition is not
workable, government regulation is substituted to ensure
satisfactory quality and service at fair prices.
- the right to be assured that consumer
interests will receive full and sympathetic consideration in
the formulation of government policy and fair and
expeditious treatment in its administrative tribunals

b. Ethics of competition. Business culture also affects the ethics of

competition. Two forms of unethical competitive behaviour are:

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 Industrial espionage· Industrial espionage is the clandestine collection of
trade secrets or proprietary information about a company's competitors

- Bribery in international marketing prompted the passage of the

Foreign Corrupt Practices Act. This act makes it a crime for U. S.
Corporations to bribe an official of a foreign government to obtain or
retain business in a foreign country.

3. CORPORATE CULTURE AND EXPECTATIONS.

Corporate culture reflects the shared values, beliefs and purposes of employees
that affect individual and group behaviour. Corporate ethical culture manifests
itself in codes of ethics and the ethical behaviour of top management and fellow
workers.
a. A code of ethics is a formal statement of ethical principles and rules of
conduct. It is estimated 93 percent of major U. S. Corporations
have an ethics code. Lack of specificity is one of the major
reasons for the violation of ethics codes. The American
Marketing Association has provided a detailed code of ethics.
b. Behaviour of top management and co-workers also affects how an
individual views ethical behaviour and may be more influential
on ethical behaviour than a written code of ethics.

4. PERSONAL MORAL PHILOSOPHY AND ETHICAL BEHAVIOUR.

Ultimately, ethical choices are based on the Personal Moral Philosophy of the
decision-maker. Moral philosophies are of two types:
a. Moral idealism is a personal moral philosophy that considers certain
individual rights or duties as universal regardless of outcome.
This philosophy exists in the consumer bill of rights.
b. Utilitarianism is a personal moral philosophy that focuses on "the
greatest good for the greatest number" by assessing the costs
and benefits of-the consequences of ethical behaviour. This
philosophy underlies the economic tenets of capitalism.

BUSINESS ACTIONS TOWARD SOCIALLY RESPONSIBLE

MARKETING A. ENLIGHTENED MARKETING

The enlightened marketing concept hold that a company's marketing should
support the best long-run performance of the marketing system. Enlightened
marketing and marketing ethics work together to create socially responsible
marketing practices. Enlightened marketing consists of five key principles:

1. Consumer-Oriented Marketing - means the company should view and

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organise its marketing activities from the consumer's point of view.

2. Innovative Marketing - requires that a company seek real product and

marketing improvements. Overlooking improvements or settling on "bells and
whistles" eventually leads to a loss of competitive advantage.

3. Value Marketing - holds that a company should put most of its resources
into valuebuilding marketing investments. This principle would re-prioritise
marketing decisions from using incentives to affect reapportionment of demand
to long-term incentives to create brand loyalty by constant improvement in the
value consumers receive from the firm's offer.

4. Sense-of-Mission Marketing - means that a company defines its mission in

broad social terms rather than narrow product terms. Product use by the target
consumer should help advance those social goals to the benefit and profit of
consumer, company and society alike.

5. Societal Marketing - holds that a company should make marketing decisions

by considering consumer's wants, the company's requirements and society's
long-run interests.
-term
benefits.
-term but may harm consumers.

present appeal.
nt products provide neither short-term satisfaction nor long-term
benefits.

b. MARKETING ETHICS
Conscientious marketers face many moral dilemmas. Companies need to
develop corporate marketing ethics policies--broad guidelines that everyone in
the organisation must follow. However, the finest guidelines cannot resolve all
the difficult ethical situations a marketer faces.

Two general philosophies can be used to guide companies and marketing

managers on issues of ethical and social responsibility:
ues are decided by the free market and legal system.

approach says that the company should have a "social

conscience" that guides action.

Each company and marketing manager must work out a philosophy of socially-
responsible and ethical behaviour. Given the challenges of the next century,

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companies that are able to create new values in a socially responsible way will
have a world to conquer.

1. Distributor Relations - A comprehensive implementation of marketing

ethics should include policies and guidelines for defining the company's
relationship with distributors.

2. Advertising Standards - When considered in light of increasing activism

among consumer groups to regulate advertising, marketers have a unique
opportunity to proactively address the needs for strong advertising ethical
standards. While protecting free speech, marketers could adopt a statement on
ethics in advertising that promotes accurate information exchange and
encourages creative and innovative message generation.

3. Customer Service - How to respond to customers and how to treat them

while responding says a lot about a company. Customer ethics might be posted
or mailed to customers to encourage all employees to live up to a standard
known to the customer before the sale.

4. General Code of Ethics - Corporate marketing policies can provide broad

guidelines that everyone in the organisation must follow.

5. Pricing - Ethics can influence strategic decisions on such pricing decisions as

market penetration versus market skimming.

6. Product Development - Product development may be influenced by ethical

codes seeking more desirable products or changes is salutary product concepts
to make them more desirable.

PUBLIC POLICY and MARKETING

The goal is to have a marketing-consumer environment that is efficient but fair
for marketers and consumers alike. Citizen concerns about marketing practices
usually lead to public attention and legislative proposals.

CITIZEN AND PUBLIC ACTIONS TO REGULATE MARKETING

1. Consumerism - is an organised movement of citizens and government
agencies to improve the rights and power of buyers in relation to sellers.

2. Environmentalism - is an organised movement of concerned citizens and

government agencies to protect and improve people's living environment.

3. Public Actions to Regulate Marketing - The task for the marketer is to

translate laws into the language that marketing executives understand as they

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 make decisions about competitive relations, products, price, promotion and
channels of distribution.

Some public policy issues:

- an ad which has the capacity to deceive
- the idea that companies must provide evidence
for the truth of their claims
- advertising that is mandated by a government agency
to correct consumer impressions that were formed by previously misleading
advertising

PRINCIPLES FOR PUBLIC POLICY TOWARD MARKETING

A. The Principle of Consumer and Producer Freedom - When consumer and

producer freedom drive the marketplace, needs are met more efficiently and
profitably than under any other system. Consumer and producer freedom has
lead to the highest standard of living in history.

B. The Principle of Curbing Potential Harm - Political intervention is

warranted if and when a transaction or potential transaction creates harm to
either party or any third party.

C. The Principle of Meeting Basic Needs - The marketing system should serve
disadvantaged consumers as well as affluent ones.

D. The Principle of Economic Efficiency - Producers are motivated to cut

costs and raise quality to meet the needs of value-seeking consumers.

E. The Principle of Innovation - Authentic innovation is the most reliable

source of longterm profits and business success.

F. The Principle of Consumer Education and Information - An effective

marketing system invests heavily in consumer education and information to
increase long-run consumer satisfaction and welfare.

G. The Principle of Consumer Protection - Modern products are so complex

that consumers need help in understanding them. Companies have a vested
interest in protecting their customers

GREEN MARKETING
Unfortunately, a majority of people believe that green marketing refers solely to
the promotion or advertising of products with environmental characteristics.

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Terms like Phosphate Free, Recyclable, Refillable, Ozone Friendly, and
Environmentally Friendly are some of the things consumers most often
associate with green marketing. While these terms are green marketing claims,
in general green marketing is a much broader concept, one that can be applied to
consumer goods, industrial goods and even services. For example, around the
world there are resorts that are beginning to promote themselves as "ecotourist"
facilities, i.e., facilities that "specialise" in experiencing nature or operating in a
fashion that minimises their environmental .

Thus green marketing incorporates a broad range of activities, including product

modification, changes to the production process, packaging changes, as well as
modifying advertising.

Defining green marketing is not a simple task. Indeed the terminology used in
this area has varied, it includes:
ting

While green marketing came into prominence in the late 1980s and early 1990s,
it was first discussed much earlier. The American Marketing Association
(AMA) held the first workshop on "Ecological Marketing" in 1975. The
proceedings of this workshop resulted in one of the first books on green
marketing entitled "Ecological Marketing. Since that time a number of other
books on the topic have been published.

The AMA workshop attempted to bring together academics, practitioners, and

public policy makers to examine marketing's impact on the natural environment.
At this workshop ecological marketing was defined as: the study of the positive
and negative aspects of marketing activities on pollution, energy depletion and
non-energy resource depletion.

This early definition has three key components:

ed.

WHY IS GREEN MARKETING IMPORTANT

The question of why green marketing has increased in importance is quite
simple and relies on the basic definition of Economics: Economics is the study
of how people use their limited resources to try to satisfy unlimited wants.

Thus mankind has limited resources on the earth, with which it must attempt to

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provide for the worlds' unlimited wants. In market societies where there is
"freedom of choice", it has generally been accepted that individuals and
organisations have the right to attempt to have their wants satisfied. As firms
face limited natural resources, they must develop new or alternative ways of
satisfying these unlimited wants. Ultimately green marketing looks at how
marketing activities utilise these limited resources, while satisfying consumers
wants, both of individuals and industry, as well as achieving the selling
organisation's objectives.

WHY ARE FIRMS USING GREEN MARKETING?

When looking through the literature there are several suggested reasons for
firms increased use of Green Marketing. Five possible reasons cited are:
1. Organisations perceive environmental marketing to be an opportunity that can
be used to achieve its objectives

2. Organisations believe they have a moral obligation to be more socially

responsible

3. Governmental bodies are forcing firms to become more responsible

4. Competitors' environmental activities pressure firms to change their

environmental marketing activities [

5. Cost factors associated with waste disposal, or reductions in material usage

forces firms to modify their behaviour

1. OPPORTUNITIES
It appears that all types of consumers, both individual and industrial are
becoming more concerned and aware about the natural environment. Firms
marketing goods with environmental characteristics will have a competitive
advantage over firms marketing non- environmentally responsible alternatives.
There are numerous example of firms who have strived to become more
environmentally responsible, in an attempt to better satisfy their consumer
needs.

of increased consumer concern relating to polystyrene production

and Ozone depletion
e
increased concern over driftnet fishing, and the resulting death of
dolphins

attempt to satisfy the demands of firms for less environmentally

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 harmful products.

This is not to imply that all firms who have undertaken environmental
marketing activities actually improve their behaviour. In some cases firms have
misled consumers in an attempt to gain market share. In other cases firms have
jumped on the green bandwagon without considering the accuracy of their
behaviour, their claims, or the effectiveness of their products. This lack of
consideration of the true "greenness" of activities may result in firms making
false or misleading green marketing claims.

2. SOCIAL RESPONSIBILITY
Many firms are beginning to realise that they are members of the wider
community and therefore must behave in an environmentally responsible
fashion. This translates into firms that believe they must achieve environmental
objectives as well as profit related objectives. This results in environmental
issues being integrated into the firm's corporate culture. Firms in this situation
can take two perspectives; 1) they can use the fact that they are environmentally
responsible as a marketing tool; or 2) they can become responsible without
promoting this fact.

There are examples of firms adopting both strategies. Organisations like the
Body Shop heavily promote the fact that they are environmentally responsible.
While this behaviour is a competitive advantage, the firm was established
specifically to offer consumers environmentally responsible alternatives to
conventional cosmetic products. This philosophy is directly tied to the overall
corporate culture, rather than simply being a competitive tool.

An example of a firm that does not promote its environmental initiatives is

Coca-Cola. They have invested large sums of money in various recycling
activities, as well as having modified their packaging to minimise its
environmental impact. While being concerned about the environment, Coke has
not used this concern as a marketing tool. Thus many consumers may not realise
that Coke is a very environmentally committed organisation.

Another firm who is very environmentally responsible but does not promote this
fact, at least outside the organisation, is Walt Disney World 0NDW). WDW has
an extensive waste management program and infrastructure in place, yet these
facilities are not highlighted in their general tourist promotional activities

3. GOVERNMENTAL PRESSURE
As with all marketing related activities, governments want to "protect"
consumers and society; this protection has significant green marketing
implications. Governmental regulations relating to environmental marketing are

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designed to protect consumers in several ways,
-products

environmental composition of goods.

Governments establish regulations designed to control the amount of hazardous

wastes produced by firms. Many by-products of production are controlled
through the issuing of various environmental licenses, thus modifying
organisational behaviour. In some cases governments try to "induce" final
consumers to become more responsible. For example, some governments have
introduced voluntary curbside recycling programs, making it easier for
consumers to act responsibly. In other cases governments tax individuals who
act in an irresponsible fashion. For example in some countries there is a higher
gas tax associated with leaded petrol.

4. COMPETITIVE PRESSURE
Another major force in the environmental marketing area has been firms' desire
to maintain their competitive position. In many cases firms observe competitors
promoting their environmental behaviours and attempt to emulate this
behaviour. In some instances this competitive pressure has caused an entire
industry to modify and thus reduce its detrimental environmental behaviour. For
example, it could be argued that Xerox's "Revive 100% Recycled paper" was
introduced a few years ago in an attempt to address the introduction of recycled
photocopier paper by other manufacturers. In another example when one tuna
manufacture stopped using driftnets the others followed suit.

5. COST OR PROFIT ISSUES

Firms may also use green marketing in an attempt to address cost or profit
related issues. Disposing of environmentally harmful by-products, such as
polychlorinated biphenyl (PCB) contaminated oil are becoming increasingly
costly and in some cases difficult. Therefore firms that can reduce harmful
wastes may incur substantial cost savings. When attempting to minimise waste,
firms are often forced to re-examine their production processes. In these cases
they often develop more effective production processes that not only reduce
waste, but also reduce the need for some raw materials. This serves as a double
cost savings, since both waste and raw material are reduced.

In other cases firms attempt to find end-of-pipe solutions, instead of minimising

waste. In these situations firms try to find markets or uses for their waste
materials, where one firm's waste becomes another firm's input of production.
One Australian example of this is a firm who produces acidic waste water as a
by-product of production and sells it to a firm involved in neutralising base

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materials.

The last way in which cost or profit issues may affect firms' environmental
marketing activities is that new industries may be developed. This can occur in
two ways:

firms

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