BUSINESS ETHICS

Lecture 3

Ethics in Business – Consumer

 Learning Objectives:

• Understand ethical issues surrounding

consumers
• Analyse the duties of the manufacturer and the
rights of consumer
• Understand the contract theory, due care theory
and social costs view
• Review the advertising ethics.
Learning Outcomes:

On completion of this topic, students must

be able:
• to understand the role of business in
product/services production & marketing.
• to analyze & evaluate the application of the
various business ethics principles in the context
of production & marketing dilemmas.
Consumer as Stakeholders

• Importance of consumer support for the

ongoing success of an organisation
• The buyer of the goods or services that a
seller has risked the knowledge, skill, and
money to produce and sell.
• The moral issues in the seller – quality,
quantity, safety, health and service of
the product.
Ethical issues related to consumerism

• Multinational drug companies have been accused of

exploiting the sick and poor in developing countries by
maintaining high prices for treatments for diseases, and
preventing the sale of cheaper generic drugs.
• Fast food and soft drinks companies have been condemned
for targeting children with unhealthy, high sugar, low nutrition
products.
• Banks and credit card companies have put their customers,
and even their own businesses, at risk of financial ruin by
offering credit to people with serious debt.
• Technology companies have raised concerns about
consumer privacy by enabling the tracking of web use by
marketing research firms.
Key Duties of Manufacturers
• Produce product to suit a human needs
• Responsible in product development
• Research and Development
• Product safety
• Innovation
Consumer Rights
• Consumers entitlements to fair treatment when
entering into exchanges with sellers.
• 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.
• Consumer Rights involved:
• Safety (protection from hazardous goods)

• Information (right to be informed, ads, labeling)

• Choice (availability of various goods)

• Representation (express consumer interests)

• Redress (compensated for unsatisfactory goods)

• Consumer education (acquire knowledge and skills)

 Theories of ethical consumerism

Contractual Theory Due Care Theory Social Costs Theory

1. Contractual Theory

The view that the relationship between a

business firm and its customers is
essentially a contractual relationship, and
the firm’s moral duties to the customer are
those created by this contractual
relationship.
Moral Duties to Consumers Under
Contractual Theory

• Complying with the terms of the sales contract

and secondary duties (Duty to comply).
• Disclosing the nature of the product (Duty of
Disclosure).
• Avoiding misrepresentation (Duty Not to
Misrepresent).
• Avoiding the use of duress (threats) and undue
influence (Duty not to Coerce).
Moral Duties to Consumers Under
Contractual Theory

(1) Duty To Comply

The next basic moral duty that a business firm
owns its customers (under contract view) is the
duty to provide consumers with a product that
lives up to those claims that the firms expressly
made about the product which led the
customers to enter the contract freely.
 Moral Duties to Consumers
(Contractual Theory)

(1) Duty to Comply

• Eg. Winthrop Laboratories - marketed a
painkiller that it advertised as nonaddictive.
A patient using the painkiller became
addicted to it and died of overdose.
• Court found Winthrop liable for the patient’s
death because although it had expressly
stated that the drug as non addictive
Winthrop Labs had failed to live up to its duty
to comply with this express contractual claim
• Carlill v. Carbolic Smoke Ball Co.
Moral Duties to Consumers Under
Contractual Theory
(1) Duty to Comply
• The express or implied claims that a seller might
make about the qualities possessed by the product
range over a variety of areas are affected by a
number of factors.
• The definition of product quality used here is : the
degree to which product performances meet
predetermined expectation with respect to :-
a) reliability
b) service life
c) maintainability
d) safety
Moral Duties to Consumers Under
Contractual Theory
(a) Reliability
• The probability that at product will function as
the consumer is led to expect that it will
function.
(b) Service Life
• The period of time during which the product
will function as effectively as the consumer is
lead to expect it to function;
Moral Duties to Consumers Under
Contractual Theory
(c) Maintainability
• The ease with which the product can be repaired and
kept in operating condition;
• E.g.: Warranty

(d) Product Safety

• The degree of risk associated with using a product.

• Seller has a moral duty to provide a product whose

use involves no greater risk than those seller
expressly communicate to the buyer
Moral Duties to Consumers Under
Contractual Theory
(2) The Duty of Disclosure
• An agreement is not binding unless both parties to the
agreement knows what they are doing and freely
choose to do it.
• The seller who intends to enter to contract with a
customer has a duty to disclose exactly what the
customer is buying and what the terms of the sale
are.
• The seller has a duty to inform the buyer of any
characteristics of the product that could affect the
customer’s decision to purchase the product.
 Moral Duties to Consumers Under
Contractual Theory
For Example:-
• if the product the consumer is buying possesses
a defect that poses a risk to the user’s health or
safety, the consumer should be so informed.
• Seller’s should also disclose a product’s
components or ingredients, its performance
characteristics, cost of operation, product ratings
and any other applicable standards.
Moral Duties to Consumers Under
Contractual Theory

(3) The Duty Not To Misrepresent

• Misrepresentation renders freedom of choice
impossible
• Misrepresentation is coercive

• A person who intentionally misled, acts as the

deceiver wants the person to act and not as
the person would freely have chosen to act if
the person had known the truth.
Moral Duties to Consumers Under
Contractual Theory
• Varieties of Misrepresentation
• computer software or hardware manufacturer
may market a product it knows contains “bugs”
without informing the buyers of that fact.
• Manufacturer may give a product a name that the
manufacturer knows will confuse with the brand
name of a higher-quality competing product
(Microsoft).
• A producer may solicit paid “testimonials” from
professionals who have never really used the
product. Eg. Slimming products, herbal products.
Moral Duties to Consumers Under
Contractual Theory

(4) Duty Not To Coerce

• People act irrationally when under the
influence of fear or emotional stress.
• When a seller takes advantage of a buyer’s
fear or emotional stress to extract consent to
an agreement that the buyer would not make
if the buyer was thinking rationally, the seller
is using duress or undue influence to coerce.

TME 6
Moral Duties to Consumers Under
Contractual Theory

• Entry into a contract requires freely given

consent, therefore the seller has a duty to
refrain from exploiting emotional states that
induce buyers to act irrationally against their
best interests.

TME 6
2. Due Care Theory

The view that because manufacturers are

in a more advantaged position and
consumers must rely on them, they have
a duty to take special care to ensure that
consumers’ interests are not harmed by
the products that they offer them.
- Conduct test to products, warning labels
Manufacturer’s Duties in Due Care Theory
• In designing product:
– research its risks in conditions of use

– design it so risks are minimized

– take capacities of users into account

• In production:
– use strict quality control to eliminate defects

– ensure materials and manufacturing do not add defects or

risk
• In marketing:
– provide users with information about using product safely

– warn of all dangers

– do not market to those unable to avoid risk

 Advertising Ethics

Characteristics:
• Commercial advertising sometime defines as
a form of information and an advertiser as one
who give information.
• more than half of television ads contain no
consumer information about the advertised
product.
• It succeeds by creating a desire for the
seller’s product or a belief that a product
will satisfy a preexisting desire.
Criticisms of Advertising Based on
Social Effects

• Psychological effects of advertising:

• It debases the tastes of the public.
• It inculcates materialistic values.
Criticisms of Advertising Based on
Social Effects
• Its costs are selling costs that, unlike
production costs, do not add to the utility
of products and so waste resources.
• It is used by big firms to create brand
loyalties which let them become
monopolies or oligopolies.
Criticisms of Advertising Based on Its
Effects on Desires
• Advertising creates psychic desires
which, unlike physical desires (food and
shelter), are pliable and unlimited.
– Psychic desires are created so firms can use
us to absorb their output.
– The physical based desires originate in the
buyer and are relatively immune to being
changed by persuasion.
– Using us this way treats us as means and not
as ends and so is unethical.
What is your opinion on the ethics of the advertisement below?
Requirements of Deceptive Advertising

• An author who (unethically) intends to make

the audience believe what he or she knows is
false by means of an intentional act or
utterance.
• Media or intermediaries who communicate
the false message of the advertisement .
• An audience who is vulnerable to the
deception and who lacks the capacity to
recognize the deceptive nature of the
advertisement.