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MACQUARIE CITY CAMPUS

ETHICS AND MARKETING MANAGEMENT

by

Natasha Lee

LENYC0901

Submitted as partial fulfilment of the requirements for

Marketing Management

MKTG208

Stephen Burke

21 December 2010
As the world spins on, dramatic changes are occurring in the marketing arena. An

organisation’s bottom line is no longer just about earning big bucks, but also earning social

profit. Social profit is defined as the net benefit that both the organisation and society receive

from the organisation’s ethical practices and social responsible behaviour (Solomon, Marshall

and Stuart, 2009). The success of an organisation today is measured by the triple bottom line,

which integrates economic, environmental and social aspects.

Over the past few years, many have seen images, reputations and marketing efforts of

large corporations being wrecked due to their unethical business practices. Some of the major

ones include Enron, WorldCom and HIH. The collapses of these large corporations raises the

issue of how damaging unethical practices can be to society at large. Marketers acknowledge

that the pressures to ethical behaviour today are part of the overall business environment in

which they operate. Many firms have developed their own codes of ethics – the standards of

behaviour to which everyone in the organisation must comply.

Ethics is a subdivision of philosophy that deals with moral principles, with the

emphasis on the determination of right and wrong. Ferrel’s study (Stoll, 2002) indicates that

for marketers, ethics in the workplace refers to rules (standards, principles) governing the

conduct of organisational members and the consequences of marketing decisions. In other

words, it is defined as practices that emphasises transparent, trustworthy, and responsible

personal and organizational marketing policies and actions that exhibit integrity as well as

fairness to consumers and other stakeholders (Fan, 2005). The purpose of this essay is to

describe and analyse the ways ethics in marketing management can assist organisations in

connecting with customers; explain how ethical marketing can build brands; and deliver and

communicate values.

Brands are the most fundamental and enduring assets of a firm that are used to

enhance the retailer’s reputation and add value to consumer goods by supplying meaning as

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well as communicating competence and standards to the consumer (Fan, 2005). The

American Marketing Associated defines a brand as ‘a name, term, sign, symbol or design, or

a combination of them, intended to identify the goods or services of once seller or group of

sellers and differentiate them from those of competitors (Kotler, Keller and Burton, 2009).

David Aaker (Fan, 2006) defines a strong brand is formed through brand awareness,

perceived quality, brand loyalty, and brand associations. The conservative wisdom of

branding believes that the ultimate aim of branding is to command a favourable position in

the mind of consumers, distinctive from competition. A successful brand is believed to

generate its owner great financial value in terms of high revenue. The purpose of marketing is

to create competitive advantage over rivals and the ultimate objectives are to dominate the

market, increase customers’ loyalty and raise entry barriers. However, these branding

objectives could be ethically questionable under scrutiny.

A brand may be amoral, but there are ethical issues relating to it. Ethical branding, as a

subset of ethical marketing, relates to certain moral principles that define right and wrong

behaviour in branding decisions (Fan, 2005). A brand needs to be evaluated not by just the

economic or financial criteria but also by the moral ones. Thus, an ethical brand should not

cause any harm to the public, rather it should contribute to or help promote public good.

When an organisation behaves ethically, customers tend to develop a more positive attitude

towards the company and its products or services. Customer relationship management (CRM)

is perhaps the most important concept in the modern marketing arena. CRM is the overall

process of building and maintaining profitable customer relationships by delivering superior

customer value and satisfaction (Kotler, Keller, and Burton 2009). These relationships exist

because of mutual expectations built on trust, good faith, and fair dealing in their interaction.

Organisations must have a full understanding of how buyers buy in order to build the

connection with them.

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As goods become more commodities, consumers become more socially conscious.

Some companies (e.g. The Body Shop, Timbaland) are increasing social responsibility as a

way to distinguish themselves from competitors, build consumer preference, and achieve

notable sales and profit gains (Kotler, Keller and Burton, 2009). The Body Shop does not only

does market itself as a company sensitive to the needs of people living in the third world

countries, but also an opposed to unnecessary animal testing, and opposed to preying upon

women’s insecurities, with respect to masculinise notions of beauty, it also opens itself up to

outside audits on a regular basis (Stoll, 2002). The value leading cosmetics company

promotes corporate transparency through campaigns by enforcing its five core values: support

community trade, defend human rights, against animal testing, activate self-esteem, and

protect our planet (The Body Shop International, 2010). Founder of The Body Shop, Dame

Anita Roddick once said, “The business of business should not just be about money, it should

be about responsibility. It should be about public good, and private greed.”

According to Aaker (1991), brand identity is particularly important for building brand

equity (Fan, 2005). Ind (2004) emphasised the importance of “living” the brand – which

relates to “living up to” norms and values in various ways (Fan, 2005). It is important how

internal relationships of an organisation are conducted. For example, how employees interact

with customers, and how relationships with suppliers and partners are maintained (Hay,

2006). This communication-based value connects everyone to work together. Brand value is

affected by positive, as well as negative, perceptions. When marketing practices steer away

from standards that the society considers acceptable, the marketing process becomes less

efficient. Not engaging ethical marketing practices may lead to dissatisfied customers, bad

publicity, loss of trust, or, in severe cases, legal actions. Prior studies have revealed many

incidences of unethical practices in marketing research selling, advertising and promotion.

For example, commonly found unethical practices in marketing research include violation of

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participants' anonymity, invasion of privacy, data falsification, and the use of research as a

pretext to sell merchandise.

The tobacco industry provides a classic setting to study the ethicality of marketing

practices in general. Philip Morris is well known for its unethical business practices. The

company has been repetitively accused and convicted for having knowingly deceived

customers concerning the health risks of smoking and of having targeted children who lack

adequate skills to make well-reasoned decisions concerning the purchase of the product (Stoll,

2002). In 2001, Philip Morris launched its so-called “corporate responsibility campaigns” to

neutralise the negative publicity associated with its deceptive and manipulative practices, but

with the means of emphasising the many positive things that it has achieved through its

philanthropic donations to charitable organisations. At the same time, Adbusters Media

Foundation (a non-for-profit, anti-consumerist organisation) criticised Philip Morris for

spending USD 108 million on advertising these purported good deeds and only USD 60

million on corporate donations to these charitable organisations (Stoll, 2002). Due to the fact

that Philip Morris spends far more on advertising its good deeds, then on facilitating good

deeds, it is questionable whether or not the actions are truly morally praiseworthy and

whether or not this sort of advertising is unacceptably misleading. Action on Smoking and

Health (1967) reported that the intolerable deceptive ad campaigns were banned in France.

Marketing is about identifying and meeting consumers’ needs for goods and services.

The famous Four Ps of the marketing mix is used to communicate with customers. Marketing

managers are responsible for determining the most ethical way to price, package, promote and

distribute their products or services to reach profit and market-share objectives. Ethical

considerations include making products safe, pricing products fairly, promoting products

honestly, focusing on product quality, and making the product available to consumers

ethically (Solomon, Marshall and Stuart, 2009).

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Product safety is customers’ main concern. Companies can be tempted to cut costs on

design, safety testing, and production to rush a new product to market. The recent engine

explosion on a Qantas A380 has put the Australian airline in jeopardy. “It went from people

not putting Qantas and air-safety concern in the same sentence to them asking, 'How safe is

Qantas?'” says Barry Urquhart, the managing director of Marketing Focus, a Perth-based

market-research and strategic-planning practice. According to Time.com, Colmar Brunton

Research and BusinessDay conducted a survey of shareholders and the results showed that

90% of 2,000 investors agreed that the Qantas brand is at risk. The QF32 incident has put its

customers in fear with some vowing never to fly with Qantas again.

Price is the only element that generates revenue; the other elements generate costs.

Price communicates to the market the company’s intended value positioning of its product or

brand. Purchase decisions are based on how consumers perceive prices and how they consider

the price as reasonable. The potential for unethical pricing strategies is so great that many

shady pricing practices are illegal. Marketers in the United States face laws that prevent

greedy firms from hurting consumers or other business with pricing practices that are

deceptive, that are unfair, or that discriminate against some customers. Recent concerns about

price gouging at the gas pump exemplify these issues.

Firms use promotion and other forms of marketing communication to influence

attitudes and behaviour of buyers. The traditional form of marketing communications are

advertising, sales promotion, public relations, and sales presentations. Today’s marketers

have discovered newer types of communication tactics, such as buzz and viral marketing. The

integrated marketing communication (IMC) is a strategic business process that marketers use

to plan, develop, execute, and evaluate coordinated, measurable, persuasive brand

communication programs over time to targeted audiences (Solomon, Marshall and Stuart,

2009). At a lower total communications cost, the IMC can produce stronger message

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consistency and help to build brand equity and create greater sales impact (Kotler, Keller and

Burton, 2009)

Among the Four Ps of the marketing mix, promotion is more likely to receive the most

criticisms. Many critics think that advertising and marketing communications are socially

undesirable. The major complaints against advertising are that many ads are misleading or

untruthful and deceive consumers. According to the Advertising Standards Bureau (2010),

sexuality and nudity, social values, discrimination and vilification, language and health and

safety are issues, which concerned the community in this year’s most complained about

advertisements. Seven of the ads relate to sexuality and nudity. Marketers using sex appeal in

ads knowingly court adverse public reaction.

Consumers today are becoming more conscious about behaving and consuming in a

more responsible way. Consumers are opting for healthier food options; increasing physical

activities to manage health; balancing work and life, and a new appreciation for values. What

comes to mind first when people think of fast food? It would definitely be patty burgers

together with greasy fries (e.g. McDonald’s, KFC) that tend to be perceived as convenient but

unhealthy.

With more than 30,000 outlets around the globe and annual revenue of at least US$22

billion, McDonald’s donates part of its revenue to support medical fees of children with life

threatening illnesses. However, the diet provided by this corporation contributes to obesity,

heart disease, asthma, and possibly mad cow disease. What sort of message is McDonald’s

trying to relate to children when parents are actually promoting healthy eating? Study has

found that at least 59 of the nation's 250 children's hospitals have fast-food restaurants

(NaturalNews.Com, 2010). Environmentally, McDonald’s practices are also questionable.

Unlike a fresh ground beef patty at a local butcher shop, “a typical fast-food hamburger patty

contains meat from more than one thousand different cattle, raised in as many as five

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countries (Gibison, 2008). This raises the possibility of a particular patty containing

contaminants of unknown origin. Instead of locally grown potatoes, the corporation uses their

own genetically modified potatoes to ensure that all fries have the same uniform taste. The

unethical practices of food production has put customers into fear, which had led some of

them into taking legal actions against McDonald’s. According to Los Angeles Times, a

mother-of-two from California, USA, launched a class-action lawsuit against McDonald’s,

claiming the toys given out with Happy Meals unfairly lure kids into eating unhealthy food

(Bernstein, 2010). Miss Parham said, “I am concerned about the health of my children and

feel that McDonald’s should be a very limited part of their diet and their childhood

experience.”

Holistic marketers are increasingly taking a value network view of their businesses.

Instead of focusing only at immediate suppliers, distributors and customers, marketers now

assess the whole supply chain that links raw materials, components, and manufactured goods

ands shows how they move towards the final consumers. Most companies today have

integrated the multi-channel marketing system, such as Flight Centre. Distribution channels

create efficiencies by reducing the number of processes necessary for goods are services to

flow to the customers. Companies are legally free to have their preferable channel

arrangements, but there are certain legal and ethical issues to be considered with the regard to

practices such as exclusive dealing or territories, tying agreements and dealer’s rights. Such

practices are not necessarily illegal, but they do breach the Australian Trade Practices Act if

they tend to lessen competition substantially (Kotler, Keller and Burton, 2009).

As the worldwide consumerism and environmentalism movements advance, marketers

today are being called upon to take great accountability for the social and environmental

impact of the actions. Marketers are trying hard in reassessing their relationships with social

values and responsibilities with the very Earth that sustains us. Business ethics has become

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the main concern for almost every business. Hence, many organisations have embraced the

ethical codes of conduct and rules of professional ethics to guide managers and employees.

In general, consumers do have ethical concerns but such concerns do not necessarily

become manifest in their actual purchasing behaviour. It is often asked if consumers do really

care about the ethicality of a product or service. Some surveys have shown that ethical

behaviour is an important consideration while some how shown that it is not necessary.

Despite the conflicting results, society today seems to be more concerned about ethical

marketing compared to 20 years ago. An ethical product or service may not guarantee a firm

with success in the marketplace but it secures the relationship with loyal customers.

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References

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Douglas, J., ‘Fast Food Restaurants at Children’s Hospital Influence Parents to Feed Their
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<http://www.naturalnews.com/021250.html

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