Consumers and Business Ethics

Prepared for class discussion

By
Prof.S.Suryanarayanan
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 (buyer
beware ie without a warranty the buyer takes the risk)
• But Caveat emptor eroded by changing expectations & consumer
laws
 Ethical issues, marketing and the consumer
Area of marketing Some common ethical Main rights involved
problems
Product policy Product safety Right to safe and efficacious products
Fitness for purpose

Marketing Deception Right to honest and fair

communications Misleading claims communications
Intrusiveness
Promotion of materialism Right to privacy
Creation of artificial wants
Marketing Perpetuating dissatisfaction
management Reinforcing stereotypes

Pricing Excessive pricing Right to fair prices

Price fixing
Predatory pricing
Deceptive pricing

Distribution Buyer-seller relationships Right to engage in markets

Gifts and bribes
Slotting fees Right to make a free choice

Marketing strategy Targeting vulnerable Right to be free from discrimination

consumers Right to basic freedoms and amenities
Consumer exclusion

Market research Privacy issues Right to privacy

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
Ethical issues in marketing management – marketing
communications (II)

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 (III)

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 – pricing

• 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 – distribution

• 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
• Dealt with in detail next chapter
Ethical issues in marketing strategy – vulnerable customers

• 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 –customer exclusion

• Takes variety of forms

• Access exclusion
• Condition exclusion
• Price exclusion
• Marketing exclusion
• Self-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’?
 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
Consumer sovereignty
• Concept suggests that under perfect competition, consumers drive market
• Two ethical limitations based on fairness( making informed choices)
• Individual transactions will be unfair to certain consumers
• Economic system does not work efficiently and allocate resources unfairly.
• Consumer sovereignty – customer is king
• Consumer sovereignty has three elements
• Consumer capability
• Information
• Choice
• How is consumer sovereignty to be assessed? Consumer sovereignty test
Consumer sovereignty test
Dimension Definition Sample criteria for
establishing adequacy

Consumer Freedom from limitations Vulnerability factors, e.g. age,

capability in rational decision making education, health

Information Availability and quality of Quantity, comparability and

relevant data complexity of information;
degree of bias or deception

Choice Opportunity for switching Number of competitors and level

of competition; switching costs
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
 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 Promotes

to

Protestant ethic Consumption Investment in productive capacity

Consumerism Saving Instant gratification and

ethic consumption

Environmental Consumption Alternative meanings of growth

ethic and investment in the
environment
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 recapture
From a linear to a circular flow of resources

(a) Linear flow of resources

Extraction Manufacture Distribution Consumption Disposal

(b) Circular flow of Extraction

Manufacture
resources

Product
Distribution
recapture

Consumption
Disposal
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