Islamic business ethics and their impact on marketing

Islamic marketing ethics differ from their secular counterparts in two major respects

• Based on the principles, of Qur’an marketing ethics are fixed and absolute and cannot differ from the
officially accepted and proclaimed interpretations.

• Value maximization must be for the benefit of society, and not to maximize profits.

Thus Islamic marketing ethics are governed by two moral pillars;

- Submission to the moral order of God, and empathy with and mercifulness to God’s creations,
which means abstaining from harmful actions and unethical practices
- With regard to the production of goods and their sale in the market, this must be ethical from
start to finish.
 The value of goods to society and their social impact are constantly scrutinized and evaluated.
The primary objective of production is to ensure the supply of goods that satisfy the needs of
individuals and benefit as a whole society.
 In many countries of the world pricing practices are designed to exploit human psychology and
retail prices are deliberately set high so that a discount can be offered. Thus purchasers are
misled into thinking that they have secured a bargain.
 Islamic law prohibits this practices and disallows price changes that do not reflect a change in
product quality and/or quantity, as well as intentionally deceiving purchasers for personal gain.
 Moreover merchandise must not be assigned qualities it does not possess.
 Producers and retailers are obliged to acquaint their customers with all the qualities of their
products, both desirable and undesirable.
 Extra costs incurred by distribution problems must not be passed on to consumes.
 With regard to promotional activities, appeal to the emotions, the use of female personalities,
sexual images and exaggerated or false claims are forbidden.
 Honesty is encouraged and praised.
 The ethical norms of Islam disallow burdening the final customer with higher prices or delays
associated with distribution.
 Islamic marketing ethics stipulate that the major goal of distribution channels is to create value
and improve the service provided to customers by delivering products ethically.

Western business operations in Islamic countries

The presence of Western companies in many Islamic countries is limited and in general foreign direct
investment is lower than anywhere else in the world. However some Islamic countries, such as Egypt,
Indonesia and Malaysia, have received sizable amounts of Western capital, and Nestlé has invested
heavily in production facilities in Egypt, Saudi Arabia, Syria, Turkey, and the United Arab Emirates.

There are several reasons for the limited involvement of Western companies.

 First, there is a huge cultural gap between the Western and Muslim worlds, mostly based on
religion.
  Second, some companies are deterred by the perceived threat of terrorist actions and hostility
towards Westerners.
 Third, there is the legacy of colonial occupation in countries such as Bangladesh, Pakistan, the
Gulf states.

Intra-Islamic cooperation

There has been very limited economic cooperation between Islamic countries despite many efforts in
that direction. There are many political, economic and religious reasons for the failure to create an
Islamic or Arab common market, an idea that has been mooted for quite some time.

NO EXCEPTIONAL MODEL TO FOLLOW:

One reason is that the significance accorded to and application of Islamic law varies substantially from
country to country, and no country, not even Saudi Arabia, is held to be the model for center of the
Islamic world.

One enduring example of inter-Islamic economic and trade cooperation is the Organization of the
Islamic Conference (OIC), which was founded in 1969.

It currently has 57 Middle Eastern, African and Asian member countries and four with observer status.

The participation of the member countries in world trade is significant. Since the mid 1990s their
combined exports and imports have accounted for about 23 per cent of the total value of world trade.
However this trade is predominantly with non-OIC member countries.

 The structure of foreign trade by Islamic countries differs.

 While some countries such as the Islamic Republic of Iran trade predominately with other
Islamic countries,
 other countries, e.g. Saudi Arabia have their trade mostly with non-Islamic states. Oil, natural
gas

- In an attempt to increase the significance of the OIC , the member countries held the First World
Islamic Economic Forum in October 2005.
- There the groundwork was laid for an Islamic Common Market (ICM), which would start with
the establishment of Islamic Free Trade Agreement
- This would make Islamic countries less dependent on trade with the rest of the world and
provide more favorable conditions for improving the economic viability of Muslim countries (
- Future plans include an Islamic capital market with a common currency to facilitate inter-Islamic
trade and counterbalance the dominance of the US dollar and the euro in international
marketing exchanges.
- Only a few projects based on intra-Islamic foreign investment have been concluded to date.
- Some believe that an ICM is essential because of globalization trends and the unfavorable
attitude towards Islam that has arisen in various parts of the world as a result of terrorist attacks
by extremists.
 - However it is noteworthy that not even the Arab countries have managed to create a common
market or any other form of economic integration that could be used as a stepping stone for the
formation of an ICM.

Market segmentation

divided the OIC countries into three major groups:

those with a combined indicator of more than 1.00;

those with a combined indicator of 0.01–0.99;

and those whose combined indicator has a negative value

The OIC countries also fall into three groups based on per capita income.

 The first group comprises the oil-rich states of Brunei, Kuwait, Qatar, and the United Arab
Emirates, which have a high per capita annual income of more than US$9,000. All four countries
are small and the total population consists of fewer than five million people.
 There are 21 middle-income countries with a per capita income of $800–9,000. These are
Algeria, Bahrain, Djibouti, Gabon, Indonesia, Iran, Egypt, Jordan, Kazakhstan, Lebanon, Libya,
Malaysia, the Maldives, Morocco, Oman, Saudi Arabia, Syria, Tunisia, Turkey, Turkmenistan, and
Uzbekistan.
 The final group consists of 27 countries with a per capita income of less than $800: Afghanistan,
Albania, Azerbaijan, Bangladesh, Benin, Burkina Faso, Cameroon, Chad, Comoros, Iraq, Gambia,
Guinea, Guinea-Bissau, Kyrgyzstan, Mali, Mauritania, Mozambique, Niger, Nigeria, Pakistan,
Senegal, Sierra Leone, Somalia, Sudan, Tajikistan, Uganda, and Yemen.

There have been few studies of market segmentation in Islamic countries, and those which have been
published focus on Arab markets.

These adopt one of two approaches.

- The first assumes that each national market is unique and there is no homogeneity among them
- The second identifies commonalities among the countries in respect of general characteristics,
socioeconomic factors, psychological features, and behavior

Talking about lifestyle dimensions:

On the basis of the first dimension they identify four groups of Arab countries: those in the Arabian
Gulf, North Africa, the Eastern Mediterranean and some ‘unique’ countries.

In the second dimension there are modern societies, ‘crossover’ societies and slowly changing or
resolutely traditional societies.

The third dimension consists of the newly rich, the poor, and the young and modern in any particular
society.
He has found that commonalities exist and these allow for the implementation of standardized
marketing strategies for particular segments at country and consumer level. Both macro and micro
indicators can be used to define the profile of each segment. Thus a standardized marketing plan can be
used for each identified market segment and differentiated marketing strategies applied to differing
segments. However the choice of markets to be segmented and the marketing variables incorporated
will have an impact on the validity of this approach.

Market characteristics of Islamic countries

The religious and cultural norms in Islamic countries must be addressed by any marketer operating
there.

In terms of culture there is considerable diversity among the countries.

For example Kazakhstan, Tajikistan, Turkmenistan, and Uzbekistan were Soviet republics for 70 years
and secularism rather than Islam held sway in the functioning of society. To a large degree this remains
the case today.

In Afghanistan, by contrast, Islamic fundamentalism under Taliban rule reached extreme proportions
and resulted in almost total isolation of the country from the rest of the world.

Another factor that marketers need to take into account is the difference in wealth among the Islamic
countries.

For example most of Gulf states have a high per capita GDP, whereas in Bangladesh it is very low.

In this regard the Islamic countries can be divided into those which are rich in natural resources and
those which are not.

While living standards have improved markedly in Bahrain, Kuwait, Saudi Arabia and the United Arab
Emirates, the same is not true in Algeria, Indonesia, Iran, Libya, and Nigeria.

Islamic countries that have limited natural resources but a satisfactory level of economic development
and stability are Egypt, Jordan, Lebanon, Tunisia, Turkey, Syria, and Pakistan.

countries have limited natural endowments, weak economic growth and low or very low living
standards. These include Afghanistan, Bangladesh, Chad, Gambia, Mali, and Niger.

Thus the Islamic world is heterogeneous across the world and within particular regions.

For instance in the Middle East the United Arab Emirates is one of the world’s richest countries in terms
of per capita income while the Republic of Yemen is one of the poorest.

Marketers should analyze this diversity in terms of financial and human resources, economic viability,
income distribution, level of industrialization, policies towards foreign investment, and priorities for
social and economic development.

Countries with a well-educated population and a high proportion of affluent consumers, such as Bahrain,
Kuwait, and the United Arab Emirates, are promising markets for both services and consumer goods,
Consumers’ receptiveness to Western products and brands in the affluent societies of the Gulf region is
facilitated by experiential learning and a balanced education that combines the religious with the
secular. Highly educated young consumers are exhibiting purchasing patterns that are more typical of
consumers in advanced market countries.

For example the expectations of consumers are more like those of North American and West European
consumers than of consumers in other Arab countries (Raven and Welsh, 2004).

Regardless of the differences in their living standards all Islamic countries can be categorized as
emerging markets because adherence to market principles is in its infancy or has yet to begin.

although in countries where there is strict adherence to Islam and a high degree of ethnocentrism, such
as Iran, there is considerable animosity towards Western goods.

Financial services are governed by Islamic law. Therefore marketing campaigns for financial products,
packages and services must fall within the requirements of Islam. For example it is forbidden to charge
interest on credit and therefore invitations to purchase on credit would be considered inappropriate by
the majority of Islamic consumers.

Promotion and distribution

Promotional activities in Islamic countries must take account of the role of religion and Islamic law in the
functioning of society.

In addition cultural differences between countries prevent a uniform approach to promotion.

For example the Arab culture differs significantly from that in Indonesia and Malaysia, where the
national culture has been strongly influenced by other religions and ethnic groups.

However the cultural similarity of and unified business practices in Egypt, Kuwait, Lebanon, Saudi Arabia,
and the United Arab Emirates mean that a uniform approach can produce positive results in their case
(Melewar et al., 2000).

several important guidelines for marketing in the Islamic world:

• Promotional messages should be gender specific, generally targeting male consumers and applying
more subtle approaches to female consumers.

• Messages should not exaggerate, mislead or deceive; rather they should be mostly informative.

• The use of religious words and phrases in a promotional message generally has a reassuring effect.
However, inappropriate use of religious terminology can repel rather than lure consumers.

• Promotion in general and advertising in particular should avoid negative publicity, both intentional and
unintentional.

• Promotional messages should emphasize modesty, simplicity and the opportunity to save money
when buying any particular goods or services.
Coupling promotional messages with money-off offers can have negative consequences as consumers
may question the fairness of the previous price and lose faith in the producer or retailer.

As a result of religious restrictions on private ownership and government restrictions on foreign

ownership the distribution systems in Islamic countries tend to be underdeveloped.

It is possible for foreign companies to set up their own distribution networks but in general this must be
done through local partnerships or joint ventures.

Most of the affluent Islamic countries, such as those in the Gulf region, have only small markets so a
large investment in a distribution network is not justified.

Franchising is a viable alternative because it overcomes the problem of foreign ownership and the
financial risk is mostly borne by the franchisee.

Business-to-business and consumer markets

 The world’s Islamic population is mostly concentrated in the emerging markets in Asia and
Africa, where as yet the possibilities for businessto-business marketing have been limited.
 However there are opportunities to do business with oil-rich countries and those wishing to
purchase military equipment.
 In most Arab states, and especially the Gulf countries, there is sizable proportion of affluent
consumers and a high demand for imported goods and services.
 In the 1990s franchises grew at an average rate of 20 per cent per annum, and in most of the
Gulf countries franchises now account for 70–80 per cent of the newly created businesses.
 Some of the best know franchisers are Dunkin Donuts, Kentucky Fried Chicken and Pizza Hut in
the fast-food business.
 Supermarkets and shopping malls are flourishing in the region. A unique shopping center called
Deira City in Dubai provides locals and tourists with a huge choice of goods, services and
entertainment all in one location.
 As a rule the consumer base in the Gulf countries can be segmented according to ethnicity,
religion and income; that is native and nonnative residents, Muslim and non-Muslim, affluent
and non-affluent.
 An additional segment consists of tourists (the United Arab Emirates) and pilgrims during the
annual Hajj (Saudi Arabia)…