Consumers and Business

Ethics
Lecture 8
 Overview
 Discuss the specific stake that consumers have in
corporate activity
 Outline the ethical issues and problems faced in
business-consumer relations
 Examine issues in context of globalization
 Arguments for more responsible marketing practices
 Develop notion of corporate citizenship in relation to
consumers
 Examine the challenges posed by sustainable
consumption
 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
 But Caveat emptor eroded by changing expectations &
consumer laws
Ethical issues and the
consumer
Ethical issues, marketing
and the consumer
 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 (Boatright, 2009: 295)
 Consumers’ right to a safe product is not an
unlimited right
 Safety also a function of the consumer and their
actions and precautions
 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
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” (Boatright,
2009: 285)

 The UK’s Advertising Standards Authority says ads

should be “legal, decent, honest and truthful”
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
 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
Consumers and corporate
citizenship
Consumer sovereignty and the politics of purchasing
 Consumer sovereignty
 Concept suggests that under perfect competition,
consumers drive market
 Two ethical limitations based on fairness
 Consumer sovereignty – customer is king
 Consumer sovereignty has three elements (Smith, 1995)
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

Source: Derived from Smith (1995)

 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
Sustainable consumption
 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

Source: derived from Buchholz (1998)

 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