Chapter 13

Consumer Protection
Advocacy for Consumer Interests
• As long as business has existed—since the ancient beginnings of commerce and trade—consumers have tried
to protect their interests when they buy goods and services.
• They have haggled over prices, taken a careful look at the goods they were buying, compared the quality and
prices of products offered by other sellers, and complained loudly when they felt cheated by shoddy products.
• However, the increasing complexity of economic life has led to organized, collective efforts by consumers to
safeguard their own rights in many nations. These organized activities are usually called consumerism or the
consumer movement
• Today, many organized groups actively promote and speak for the interests of millions of consumers.
• Many other nations have also experienced movements for consumer rights. Consumers International is an
international nongovernmental organization that represents more than 220 consumer groups in 115 nations.
Headquartered in London, it has offices in Asia, Latin America, and Africa.
Advocacy for Consumer Interests
• For example:
• In 2012, consumer rights organizations in 11 European countries
organized to force Apple to provide a free two-year warranty, as
required by European Union law. The company had been providing a
one-year warranty and requiring consumers to pay more for an
AppleCare Protection Plan extended warranty
Reasons for the Consumer Movement
• Complex products have enormously complicated the choices consumers need to make when they shop. For
this reason, consumers today are more dependent on business for product quality than ever before. Because
many products, from smartphones to hybrid automobiles, are so complex, most consumers have no way to
judge at the time of purchase whether their quality is satisfactory.
• Services, as well as products, have become more specialized and difficult to judge. When choosing health
plans, Internet service providers, credit cards, or colleges, most consumers do not have adequate guides for
evaluating whether they are good or bad. They can rely on word-of-mouth experiences of others, but this
information may not be entirely reliable
• When businesses try to sell either products or services through advertising, claims may be inflated or they
may appeal to emotions. In the process, consumers do not always receive reliable and relevant information
about products and services.
Reasons for the Consumer Movement
• Technology has permitted businesses to learn more than ever about their customers—potentially violating
their privacy. As more and more people go online to browse, compare products and services, and purchase
items, companies are able to learn a great deal about their preferences, desires, and habits.
• Some businesses have ignored product safety. Business has not always given sufficient attention to product
safety. Certain products, such as automobiles, pharmaceutical drugs, medical devices, processed foods, and
children’s toys, may be particularly susceptible to causing harm
The Rights of Consumers
• The right to be informed: to be protected against fraudulent, deceitful, or grossly misleading information,
advertising, and labeling, and to be given the facts to make an informed purchasing decision.
• 2. The right to safety: to be protected against the marketing of goods that are hazardous to
• health or life.
• 3. The right to choose: to be assured, wherever possible, access to a variety of products and services at
competitive prices; and in those industries in which competition is not workable and government regulation is
substituted, to be assured satisfactory qualityand service at fair prices.
The Rights of Consumers
• 4. The right to be heard: to be assured that consumer interests will receive full and sympatheticconsideration
in the formulation of government policy and fair and expeditious treatment in the courts.
• 5. The right to privacy: to be assured that information disclosed in the course of a commercial transaction,
such as health conditions, financial status, or identity, is not sharedwith others unless authorized.
 How Government Protects Consumers

• consumer protection laws

• First, some laws are intended to provide consumers with better information when making purchases .
Consumers can make more rational choices when they have accurate information about the product. For
example, the laws requiring health warnings on cigarettes and alcoholic beverages broaden the information
consumers have about these items.
• A second aim of consumer legislation is to protect consumers against possible hazards .As the opening
example about contaminated sprouts showed, consumers can be injured—and even killed—by dangerous
products. U.S. laws seek to safeguard consumers in many ways, such as requiring warnings about possible
side effects of pharmaceutical drugs, placing limits on flammable fabrics, restricting pesticide residues in
fresh and processed foods, banning lead-based paints, and requiring regular inspections to eliminate
contaminated meats.
How Government Protects Consumers
• The third and fourth goals of consumer laws are to promote competitive pricing and consumer choice . When
competitors secretly agree to divide up markets among themselves, or when a single company dominates a
market, this artificially raises prices and limits consumer choice.
• A fifth and final goal of consumer laws is to protect privacy. This issue has recently received heightened
regulatory attention, as discussed later in this chapter. The Children’s Online Privacy Protection Act, which
took effect in 2000, limits the collection of information online from and about children under the age of 13.
Consumer Privacy in the Digital Age
• In the early 21st century, rapidly evolving information technologies have given new urgency to the
broad issue of consumer privacy . Shoppers have always been concerned that information they
reveal in the course of a sales transaction—for example, their credit card or driver’s license
numbers—might be misused.
• Individuals are often unaware of how much information about themselves they reveal to others as
they shop, interact with friends, play games, or look for information online. A variety of
technologies make this possible.
• The main reason for all this tracking is to tailor commercial messages to individuals. The term
behavioral advertising refers to advertising that is targeted to particular customers, based on their
observed online behavior. For example, a shopper might view a dress while browsing online for an
outfit for an upcoming event, and then later when checking a news site might see an advertisement
for the same dress pop up on her screen
How best to protect consumer privacy in the digital age

• Consumer self-help. In this view, the best solution is for users to employ technologies that enable
them to protect their own privacy. For example, special software can help manage cookies,
encryption can protect e-mail messages, and surfing through intermediary sites can provide user
anonymity.
• Industry self-regulation. Many Internet-related businesses have argued that they should be allowed
to regulate themselves. In their view, the best approach would be for companies to adopt voluntary
policies for protecting the privacy of individuals’ information disclosed during electronic
transactions.
• Privacy legislation. Some favor new government regulations protecting consumer privacy online.
In 2012, the Federal Trade Commission issued a comprehensive report on protecting consumer
privacy
Consumerism
• the protection or promotion of the interests of consumers. "the growth of consumerism
has led to many organizations improving their service to the customer
• Consumerism is the idea that increasing the consumption of goods and services
purchased in the market is always a desirable goal, and that a person's well-being and
happiness depend fundamentally on obtaining consumer goods and material
possessions.
Positive Business Responses to Consumerism
• Managing for Quality
One way that many businesses address consumer interests is to manage quality in a highly proactive way.
Quality has been defined by the International Organization for Standardization (ISO) as “a composite of all the
characteristics, including performance.
• Voluntary Industry Codes of Conduct
In another positive response, businesses in some industries have banded together to agree on voluntary codes of
conduct, spelling out how they will treat their customers. Often, this action is taken to forestall even stricter
regulation by the government. For example:
The Western Growers Association, a trade association of farmers, adopted voluntary guidelines for growers and
handlers of leafy green vegetables
Positive Business Responses to Consumerism
• Consumer Affairs Departments
Many large corporations operate consumer affairs departments, often placing a vice president in charge. The
consumer affairs officer typically manages a complex network of contacts with customers. The contact
infrastructure usually includes a website with a self-service component; many sites are interactive, allowing
customers to post comments or questions that are answered electronically by customer relations staff.
• For example: Johnson & Johnson posted a promotion for its pain reliever, Motrin, on its website. The ad
showed a mother who was suffering from back and neck pain from wearing a baby carrier, and referred to
mothers who “wear their babies.” Many mothers who saw the ad were annoyed, and they started messaging,
blogging, and twittering. “A baby will never be a fashion statement,”
• Product Recalls
Companies also deal with consumer dissatisfaction by recalling faulty products. A product recall occurs when a
company, either voluntarily or under an agreement with a government agency, takes back all items found to be
dangerously defective.