Solution Manual for Business and Society A

Strategic Approach to Social Responsibility 4th

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Solution Manual for Business and Society A Strategic Approach to Social Responsibility 4th E

CHAPTER 8
Consumer Relations

PURPOSE AND PERSPECTIVE

From a social responsibility perspective, the key challenge is how an organization assesses its stakeholders’
needs, integrates them with company strategy, reconciles differences between stakeholders’ needs, strives
for better relationships with stakeholders, achieves mutual understandings with them, and finds solutions
for problems. In this chapter, we explore relationships with consumers and the expectations of the
economic, legal, ethical, and philanthropic responsibilities that must be addressed by business.

LECTURE OUTLINE
I. Consumer Stakeholders
Consumers are individuals who purchase, use, and dispose of products for personal and household
use.
II. Responsibilities to Consumers
A. Economic Issues
1. Consumers are primary stakeholders because their awareness, purchase, use, and
repurchase of products are vital to a company’s existence.
2. A firm’s economic responsibilities depend on interactions with consumers and include
following through on promises made in the exchange process.
3. Consumers do not always act as a fair participant in the exchange.
a. Consumer fraud involves intentional deception (shoplifting, collusion, duplicity, and
guile) to derive an unfair economic advantage over an organization.
b. These consumer acts can be very difficult to prove, and many companies are
reluctant to accuse patrons of a crime when there is no way of verifying it.
4. There are cases where buyers and sellers disagree on whether or how well companies have
satisfied their economic responsibilities.
B. Legal Issues
1. Legal issues with respect to consumers in the United States primarily fall under the domain
of the Federal Trade Commission (FTC).
a. The FTC enforces federal antitrust and consumer protection laws.
b. Within the FTC, the Bureau of Consumer Protection works to protect consumers
against unfair, deceptive, and fraudulent practices.
2. Health and Safety
a. The Food and Drug Administration enforces laws and regulations enacted to prevent
distribution of adulterated or misbranded foods, drugs, medical devices, cosmetics,
veterinary products, and potentially hazardous consumer products.
b. The Consumer Product Safety Commission enforces laws and regulations designed to
protect the public from unreasonable risk of injury from consumer products.
3. Credit and Ownership
a. The most significant consumer laws prohibit discrimination in the extension of credit,
require creditors to disclose all finance charges and related aspects of credit
transactions, give consumers the right to dispute and correct inaccurate information
on their credit reports, and regulate the activities of debt collectors.

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48 Chapter 8: Consumer Relations

4. Marketing, Advertising, and Packaging

a. Legal issues in marketing often relate to sales and advertising communications and
information about product content and safety.
b. Abuses in promotion can range from exaggerated claims, concealed facts, and
deception to outright lying.
c. Another legal issue in marketing has to do with the promotion of products that have
health or safety issues associated with them.
5. Sales and Warranties
a. The Magnuson-Moss Warranty Act established rules for consumer product
warranties.
b. This act included minimum content and standards for disclosure.
6. Product Liability
a. Product liability refers to a business’s legal responsibility for the performance of its
products.
b. Because the law holds businesses liable for their products’ performance, many
companies choose to recall potentially harmful products, although such recalls may
also be required by legal or regulatory authorities.
7. International Issues
a. Concerns about protecting consumers’ legal rights are not limited to the United
States.
C. Ethical Issues
1. Ralph Nader’s activism about auto safety and Kennedy’s speech about consumer
protection provided support for consumerism, the movement to protect consumers from an
imbalance of power with business and to maximize consumer welfare in the marketplace.
2. Over the last four decades, consumerism has affected public policy through a variety of
mechanisms.
a. The Consumers Union (CU), for example, works with regional and federal legislators
and international groups to protect consumer interests; sponsors conferences and
research projects; and tests consumer products, with the results published in the
organization’s Consumer Reports magazine.
b. Consumer groups and information services have shifted the balance of power
between consumer and business because consumers are able to compare prices; read
independent rankings; communicate with other buyers; and in general have greater
knowledge about products, companies, and competitors.
3. All U.S. presidents since Kennedy have confirmed the four basic consumer rights and
added new ones in response to changing business conditions.
a. Right to Choose—The right to choose implies that, to the extent possible, consumers
have the opportunity to select from a variety of products at competitive prices.
b. Right to Safety—The right to safety means that businesses have an obligation not to
knowingly market a product that could harm consumers. This right also implies that
all products should be safe for their intended use, include instructions for proper and
safe use, and be sufficiently tested to ensure reliability.
c. Right to Be Informed—Consumers also have the right to be informed with written or
verbal information that is accurate, adequate, and free of deception so that they can
make sound decisions.
d. Right to Be Heard—The right to be heard relates to opportunities for consumers to
communicate or voice their concerns in the public policy process.
e. Right to Seek Redress—In addition to the rights described by Kennedy, consumers
also have the right to express dissatisfaction and seek restitution from a business
when a good or service does not meet expectations.

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 Chapter 8: Consumer Relations 49

f.
Right to Privacy—The advent of new information technology and the Internet has
prompted increasing concerns about consumer privacy rights. This right relates to
consumers’ awareness of how personal data are collected and used, and it places a
burden on firms to protect this information.
4. A firm’s ability to address these consumer rights can serve as a competitive advantage.
5. When consumers believe a firm is operating outside ethical or legal standards, they may be
motivated to take some type of action.
a. Stakeholders may use the three types of power—symbolic, utilitarian, and coercive—
that were discussed in Chapter 2 to create organizational awareness on an important
issue.
b. A boycott is a consumer action of abstaining from using, purchasing, or dealing with
an organization.
D. Philanthropic Issues
1. Businesses are investigating ways to link their philanthropic efforts with consumer
interests in order to differentiate themselves.
2. A firm’s ability to link consumer interests to philanthropy should lead to stronger
economic relationships.
III. Strategic Implementation of Responsibilities to Consumers
A. Social responsibility entails relationships with many stakeholders—including consumers—and
firms are finding creative ways to meet these responsibilities.
B. Resources devoted to this effort may include programs for educating and listening to consumers,
surveys to discover strengths and weaknesses in stakeholder relationships, hiring consumer
affairs professionals, and other initiatives.
C. Just like other aspects of social responsibility, these relationships must be managed, nurtured,
and continuously assessed.
ANSWERS TO THE DISCUSSION QUESTIONS
1. List and describe the consumer rights that have become social expectations of business. Why have
some of these rights been formalized through legislation? Should these rights be considered ethical
standards?
To choose: access to a variety of products at competitive and reasonable prices.
To safety: protection of health, safety, and financial well-being in the marketplace.
To be informed: opportunity to have accurate and adequate information on which to base decisions,
and protection from misleading or deceptive information.
To be heard: consideration given to consumer interests in government processes.
To redress: opportunity to express dissatisfaction and to have the complaint resolved effectively.
To privacy: protection of consumer information and its use.
There are many laws all over the world that influence business practices with respect to consumers.
Every year, new laws are enacted and existing rules are modified in response to the changing business
environment. In situations where companies have failed to honor these rights or new information has
disclosed a need for protection, legislation and regulation have been enacted. For most companies,
these rights are considered ethical standards, but that consideration is made on a company-by-
company basis.

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50 Chapter 8: Consumer Relations

2. Review Southwest Airline’s plan for customer service in Figure 8.4. Create a chart to link a specific
commitment to an economic, legal, ethical, or philanthropic responsibility that the airline has to its
customers.

Fares and fare rules Economic

Rapid rewards Ethical

Safety Legal

Baggage handling Ethical

3. What is the purpose of a boycott? Describe the characteristics of companies and consumers that are
likely to be involved in a boycott situation. What circumstances would cause you to consider
participating in a boycott?
Consumers who believe a firm is operating outside ethical or legal standards may choose to
implement a boycott. This strategy is taken with the goal of stopping the firm’s actions or hoping it
will take responsibility or remedy its actions. Firms that participate in unethical, but legal, business
practices are likely to be targeted by boycotts. Some boycotts are even based on decisions the firm
made in years past, before the current management or executives were in place. Almost any company
or consumer could be involved in a boycott situation. There are many choices and alternatives in most
product categories, so it may be easier for consumers to boycott today. Today, companies have all
types of risks and stakeholders, so a boycott may not be an unexpected occurrence.
4. How can companies strive for successful relationships with consumers, including meeting their
economic, legal, ethical, and philanthropic expectations?
A firm’s economic responsibilities depend on interactions with consumers and include following
through on promises made in the exchange process. Legal issues with respect to consumers in the
United States primarily fall under the domain of the Federal Trade Commission and include areas
such as health and safety, credit and ownership, marketing, advertising and packaging, sales and
warranties, product liability, and international issues. Ethical issues concerning consumers tend to
focus on six rights—the right to choose, the right to safety, the right to be informed, the right to be
heard, the right to redress, and the right to privacy. Businesses are investigating ways to link their
philanthropic efforts with consumer interests in order to differentiate themselves and secure stronger
economic relationships.
5. How will consumer rights and activism change over the next decade? Will the movement strengthen
or decline? Why?
There are several factors that affect the nature of consumer rights and consumer activism. In many
ways, consumers are much more vocal and clear about their expectations. This is especially true in the
growing movements against globalization of the world. At the same time, companies are ensuring that
consumer issues are fully considered in the development of strategies and tactics. Both consumers and
organizations are working to better understand each other.

COMMENTS ON THE EXPERIENTIAL EXERCISE

Visit the website of Consumers International (http://www.consumersinternational.org/). What is the
purpose of this website? Select any element of the “Key Issues” section and read the information provided
by CI on that issue. How useful is this information to you? With what information do you agree and/or

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 Chapter 8: Consumer Relations 51

disagree? How could a business manager use this site to understand and improve a company’s relationship
and reputation with consumers?
Consumers International is described as “The global voice for consumers.” The site provides
information on consumer issues, campaigns and projects, and media coverage. Students should choose
an issue and examine it as presented from a consumer perspective. This exercise will enable students
to think critically about the information presented and agree and/or disagree with its accuracy. Finally,
students should determine how a business manager might learn from this site’s content and use it to
improve consumer relations.

COMMENTS ON THE WHAT WOULD YOU DO? EXERCISE

This exercise focuses on the work experiences of Justin Thompson, who is employed by Kingston’s retail
store. He is faced with a number of ethical issues on the job. Students must provide specific
recommendations for Justin’s actions once he learns that a coworker is giving friends unwarranted
discounts and free merchandise.

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Solution Manual for Business and Society A Strategic Approach to Social Responsibility 4th E

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