Chapter 2

Chapter 2
Managing Ethics in a
Sales Environment
Annalyn Mallari-Caymo
Instructor
Chapter Outline
• What Is Business Ethics?
• Salespeople Are Boundary Spanners
• Applying Professional Sales Codes of Ethics
• Ethical Philosophies and Moral Judgments
• Creating an Ethical Work Climate
• Managing the Ethical Climate
• Legal Considerations in the Sales Environment
• Practicing Good Ethics Among the Sales Force
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Learning Objectives
After reading this chapter, you should be

able to do the following:
1. Define ethics and defend its importance to sales and
sales management.
2. Show how salespeople are boundary spanners.
3. Apply a code of ethics to sales and sales management
situations.
4. Apply the criteria for making moral judgments.
5. Create and manage an ethical climate.
6. Observe legal regulations that affect the sales
environment.
7. Model good ethical behavior among the sales force.
Business Ethics Video
These might include:
• Misleading customers by leaving out important
facts
• Using guilt tactics such as telling older people
they should have life insurance policies for many
relatives
• Making a product seem more complex than it
really is
• Using excessive jargon and fine print to make
the terms of sale unclear
Business Ethics, Sales,
and Sales Management
• Ethics describes the
moral content of behavior.
• Business ethics is the
study of how
businesspeople behave
when facing a situation
with moral consequences.
• Sales management
ethics is the specific
component of business
ethics that deals with
ethically managing the Source: S. Pearce/PhotoLink
sales function.
Salespeople as Boundary
Spanners
Boundary Spanner is someone who performs
his or her job in the “boundary” between a
company and a customer.
Dilemma means weighing telling the truth versus
winning business.
Salesperson
Big customer Big company
Balancing Between Individual,
Professional, and Organizational Values
Individual ethics
• personal integrity
• moral values
• social influences
Pressures
Organizational ethics Professional ethics
• profit • professional standards
• growth • group goals
• survival • prestige
Customer Vulnerability
1. Source of Customer 2.
Vulnerability
Ignorance Naivete
3.
lack of some Powerlessness
vital knowledge, lack of
often product experience or
knowledge, the ability to
needed to conduct a
participate in a lack of either transaction or
fair exchange competition within a negotiate terms
marketplace or of a fair deal
sufficient assets with
which to be persuasive
Types of Codes of Ethics
suggested by
government agencies 4. ethical boundaries
or other special Advisory group for employees
interest groups
codes
3.
Business Types of codes 1.
association of ethics Company codes
codes
ethical boundaries
2.
ethical boundaries for for occupational
Professional
people engaged in the groups such
codes
same line of business; advertisers, sales
e.g., Direct Selling representatives,
Association of America doctors, lawyers, and
accountants
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Do Code of Ethics affect behavior?

Moral Philosophy
Moral philosophy deals with the systematic ways that
individuals recognize and resolve decisions having moral
content.
Bases of
1. moral philosophy 2.
Idealism Relativism
Ideals are a set of

3.
principles by which Teleology Relativism is a process
individuals by which individuals
determine morality. reach moral decisions
based more on the
A moral absolute actions they perceive to
represents a rule that Teleology defines morality based on the be acceptable given a
should always be consequences of the behavior that particular situation.
applied with no allows some indiscretion based on the
exceptions or argument that the “good” that results is
excuses. more important than the harm caused.

Moral Judgments
A moral judgment is a person’s evaluation of the situation
from an ethical perspective.
1. Bases of 2.
moral judgments
Moral equity Acceptability
3.
the inherent
fairness or Contractualism how culturally or
justice in a socially acceptable
situation we perceive an
action to be
the extent to which an
act is consistent with
stated or implied
contracts and or laws

Unethical Sales Practices:
Prohibited Actions
• bribes, gifts, kickbacks • falsification of sales accounts
• conflicts of interest • moonlighting
• illegal political payments • violation of antitrust laws
• violation of laws in general • fraud and deception
• use of insider information • illegal payments abroad
• violations of secrecy • justifying the means by the
agreements intended end

Ethical Concerns in
Selling and Sales Management
1.
Employer ethics with
their salespeople
5. 2.
Customer Salespeople’s ethics
relationships Ethical & their company
concerns
4. 3.
Treatment of Treatment of
coworkers competitors

Employer Ethics with Their Salespeople
• Compensation
– prompt, accurate payment of
salary, commissions, and bonuses
as well as timely reimbursement of
selling expenses
• Sales territories
– fair assignment of sales territories
• Sales quotas
– setting realistic achievable sales
quotas
• Hiring, promoting, and firing
– sexism, racism, and ageism must
not influence managerial decisions
Source: Digital Vision

Ethical Violations
• misusing company assets
• expense account padding
• unauthorized use of company
funds
• personal use of company time
• fabrication of sales records
• manipulation of customer
orders
• cheating in sales contests
• circumventing company policy

Ethical Violations Against
Coworkers and Competitors
Treatment of coworkers
a. sexual harassment
b. stealing customers from
colleagues
c. undermining coworkers
Treatment of competitors
a. disparaging competitors
and their products or
services
b. tampering with competitor's
products
c. competitive snooping
Ethical Issues
Regarding Treatment of Customers
• special gifts
• entertainment
• over-promising
• over-selling
• misrepresenting, covering
up the facts, or distorting
the truth
• manipulating order forms
• disclosing confidential
information
• showing favoritism
• conflicts of interest

Ethical Issues: Marketing Mix
1. Product quality and service
• poor product quality
• unsafe products
• unreasonable return
policies
• poor after-sales service
2. Pricing
• inflated list prices
• not honoring pricing
incentives
• adding hidden costs

Ethical Issues: Marketing Mix
3. Distribution
• using resellers that are
aggressive, dishonorable,
“fly-by-night” operators
• using “bait and switch”
strategies
4. Promotion
• deceptive advertising
• misleading product
warranties
• phony promotional contests
• dishonest fundraising
activities
Creating an Ethical Work Climate
standard business
pressure employees norms and
feel to prioritize regulations as
increased sales, 4. defined by senior
profits, margins, or Bottom-line management
other financial sales emphasis
returns over all other
concerns
1.
3. Types of codes
Policies and
Peer behavior of ethics
rules
how far people are

2. trusted to behave in a
the extent to which Trust and responsible way and
employees view are held personally
responsibility
coworkers as having responsible for their
high moral standards actions

Managing the Ethical Climate
• Sales managers
should be sure of the
following:
– that salespersons are
aware of rules and
policies
– that salespersons are
rewarded and
reprimanded with no
favoritism or bias
– that an ethical climate Source: Digital Vision
is promoted at all
levels of the sales
organization
Legal Considerations in the
Sales Environment: Federal Regulation
Protecting Companies from Each Other
• Laws that ensure that
a competitive
marketplace exists
include the following:
– Robinson-Patman Act
– Sherman Antitrust Act
– Clayton Act
Source: Hisham Ibrahim

Federal Regulation Protecting
Companies from Each Other
1. Laws protect firms 2.
Price against
discrimination Collusion
3.
Price discrimination consists of
favoring different customers on
Price fixing Collusion occurs when
price or terms of sale when the competitors conspire to
discrimination has a harmful set prices, agree to
effect on competition. divide territories on a
Price discrimination is allowed noncompetitive basis,
under two conditions: Competitors who conspire or join together to act
(a) The price differential is to set or maintain uniform to the detriment of
given in good faith to meet a prices and profit margins another competitor.
price offered by a competitor. are fixing prices.
(b) The price differential is
based upon cost savings
stemming from quantities in
which products are sold or
delivered.

Exclusive dealing consists of
agreements in which a
Tie-in sales occur when manufacturer or wholesaler
purchasers are forced to grants one dealer exclusive
buy an unwanted item or rights to sell a product in a
items in return for being 4. certain trading area or insists
allowed to purchase a Tie-in sales that the dealer not carry
product in heavy demand. competing lines.
7. Laws protect firms 5.

Reciprocity against Exclusive dealing
Competitors colluding to
divide a market into
Reciprocity consists of 6. noncompetitive territories
selecting only suppliers Restraint of or to restrict competition in
who will also purchase trade a market are in restraint of
from the buyer—“Buy from trade.
me and I’ll buy from you.”

Companies may not misrepresent
delivery dates, fail to actually fill an
order, or not fill an order in a
reasonable time.
Unordered goods are Terms of sale include warranties
goods that are not ordered 8. and guarantees, the ability of the
but shipped along with an Unordered goods buyer to cancel a contract or obtain
existing order in hopes that a refund.
the buyer will pay for them.
11. 9.
Laws protect firms
False product against
Inaccurate orders/
descriptions terms of sale
Salespeople must never

misrepresent the company’s
financial strength, length of
Salespeople must not 10. time in business, or
misrepresent the way a False business reputation, nor may they
product is produced (e.g., descriptions misrepresent facts
claim that mass-produced concerning its plant,
products are custom-made.)
equipment, or facilities.
12. 13. Business

Customer Defamation
coercion
Laws protect
against
– Business slander
Placing undue pressure, – Business libel
intimidation, or fear on – Product disparagement
the buyer into a sale is
illegal. – Unfair competition

Legal Considerations in the
Sales Environment: Federal Regulation
Protecting Consumers from Companies
• U.S. legislation
protecting consumers
and society from
unfair business
practices includes the
following:
– Fair Packaging and
Labeling Act
– Consumer Goods
Pricing Act
– Nutrition Label and Source: David Buffington
Education Act

State and Local Regulation
• State and local laws that regulate selling activities
include the following:
1. Uniform Commercial Code, which regulates the
performance of goods, sellers’ warranties, and the
maximum allowable rates of interest,
misrepresentations, and promises not kept
2. Green River Ordinances, which requires
nonresidents to obtain a license from city
authorities to sell goods or services direct to
consumers in that vicinity
Source: Hisham Ibrahim
3. Cooling-Off Rules, which requires door-to-door
salespeople to give written notice to customers
placing orders of $25 or more that they can cancel
their purchase within three days

Ethics and Regulation
in International Sales
• In international negotiations,
salespeople must not confuse
varying ethical standards with
the U.S. and foreign laws
governing their activities.
• In planning to sell products or
Source: Jack Star/PhotoLink services to a foreign country,
sales representatives should
contact the commercial
attaché at the U.S. embassy
for information on legal
requirements in conducting
business there.
Source: Jack Star/PhotoLink

Practicing Good Ethics Among the Sales
Force: Maintaining a Positive Ethical Climate
• Understanding ethics
– Salespeople reach ethical maturity
when they place the moral
treatment of others ahead of short-
term personal gain.
• Measuring the ethical climate
– Monitor the ethical climate with
surveys.
• Leading by example
– A positive, healthy, and moral
ethical work climate begins at the
top with sales management.
• Sales manager ethics
checklist
Source: Triangle Images

Sales Manager Ethics Checklist
• Will the action I take diminish the
value of the product we are
selling?
• Will the action I take result in
inequitable or disrespectful
treatment of a salesperson?
• Will this action place a greater
emphasis on sales or profits than
on the ethical treatment of the
customer?
• Will my action, either intentionally
or unintentionally, motivate a
salesperson to treat someone
unethically?
• Would I be comfortable telling my Source: © Jack Hollingsworth/Corbis
children about the way I acted in
this situation?
Ethical Situation: What Would You Do?
Discussion Question:
It’s Friday night and your family car has just broken down.
You promised your wife that you would take her to her high
school reunion about 200 miles away this weekend. The
company car assigned to you as a sales manager is parked
in the company parking lot, so you’re considering using it
for the high school reunion trip. No one at work will know
that you used the company car for pleasure since you often
pick the car up early on Monday mornings in case you have
to accompany any of your salespeople to make sales calls.

Ethical Situation: What Would You Do?
Discussion Question:
Your salesperson just signed a contract with a hard
bargaining customer who has never bought from your
company before. You, as a sales manager, are pleased to
have finally sold this potentially large account after trying
for two years. But, the sales agreement price leaves your
company with virtually no profit on the deal because a
major part of the contract requires your company to provide
a high level of expensive monthly customer service. You’re
wondering whether you should recommend to the
company’s customer service people to just cut back on the
quality and quantity of service provided this customer, so
the deal will become profitable.

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After reading this chapter, you should be

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Ideals are a set of

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how far people are

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Source: Hisham Ibrahim

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7. Laws protect firms 5.

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Salespeople must never

12. 13. Business

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