Marketing, Advertising and Product

Safety

Marketing, Advertising,
and Product Safety
 Introduction

• The 4 Ps of marketing are:

– Product
– Price
– Promotion
– Placement

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 Marketing

• Consumer sovereignty
– The notion that consumers are “kings” in the
economy
• Because they ultimately decide whether to buy
a company’s products

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 A Framework for Marketing Ethics

• Most of the ethical problems in marketing involve

three ethical concepts:
– Fairness / justice
• Basic moral requirement of any market transaction
(problematic b/c both buyer and seller share responsibility)
– Freedom
• Having a range of consumer options
– Well-being
• The social impact of products and advertising as well as
product safety

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 A Framework for Marketing Ethics

• Two traditional doctrines in marketing are:

– Caveat Emptor- buyer beware
• Buyer has full responsibility to judge the
quality of the goods
– Caveat Venditor - seller beware
• Places a responsibility on the seller to
fully reveal the quality of the goods sold

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 Marketing Ethics
• Consumer law requires only the disclosure of information
that buyers need to make rational purchasing decisions

• Freedom (consumer) is denied when marketers engage

in deceptive or manipulative marketing practices which
take advantage of vulnerable populations

• Well-being is a consideration in evaluating the social

impact of products and advertising as well as product
safety

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 A Framework for Marketing Ethics

• The Consumer Product Safety

Commission has the power to
– Issue standards
– Require warnings
– Ban dangerous products entirely

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 Salespeople
• Commission driven and under pressure to make sales
• Have a moral obligation to facilitate the conditions of a
fair transaction
– So that consumers can act freely and with adequate knowledge
• Sales practices are deceptive when consumers are led
to hold false beliefs about a product.

• Manipulation on the other hand has to do with taking

advantage of the consumers psychology to make the
sale

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 Labeling

• The Fair Packaging and Labeling Act

(1966) Requires that containers disclose
• The Ingredients of the product
• The amount
• Other pertinent information
– Including nutritional content in the case of
food

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 Anticompetitive Pricing
• Most anticompetitive marketing practices are illegal.
• Major anticompetitive marketing practices which are
prohibited are:
– Price fixing – agreement between two or more companies to sell
goods at a set price
– Resale price maintenance - products are sold on the condition
that they be resold at a fixed price by distributor (vertical price
fixing)
– Price discrimination – Charging different prices for same good
depending on the buyer
– Predatory pricing – Setting a price so low that it drives
competitors out of business

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 Unfair Pricing
• Pricing done in ways which treats consumers unfairly

• Price gouging – Taking advantage of temporary shortages of critical

goods during periods of shortage to charge unreasonably high
prices

• Misleading pricing – Inducing consumers to buy products because

they believe the good is a bargain (Selling below MSRP, when
MSRP is never used)

• Hidden Cost – Consumers are unaware of the true cost of a product

or service (cost of a tire, does not include instillation, balancing and
other extras)

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 Distribution
• Distribution
– The means by which products are delivered from the
manufacturer to the consumer
• Illegal abuses of power in distribution are:
– Reciprocal dealing – A sale in which the seller is expected to
buy something in return
– exclusive dealing – A seller provides a product on the condition
that the buyer not handle competing brands
– tying arrangements – Selling products on the condition that the
buyer purchase another product as well.

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 Distribution

• Ethical issues in distribution

– Abuse of power in channeling relations
– Slotting allowances to gain access to shelf
space in stores
– Gray markets that arise from diverting and
parallel importing

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 Advertising
• Advertising is communication about an organization and
its products
– It is transmitted to a target audience through a mass medium
• Ethical concerns about advertising, include
– Deceptive advertising – When a false belief, which an
advertisement either creates or takes advantage of, substantially
interferes with the ability of people to make rational consumer
choices
– Irrational persuasion – Creating (through advertising) a desire
and need for products which at one time was unfamiliar to the
public,

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 Advertising Cont.
• Impact of advertising on persons
– Advertising has successfully identified products with our
conception of the “good life” so consumption has become an end
in itself (makes us into consumers who work in order to spend)
– Advertising does not educate people to grapple with the
problems of complex life
– Advertising has harmful effects on people’s conception of
themselves, which affects their self-esteem and confidence
– Advertising leads to “objectify” themselves (people view
themselves as marketable commodities
• Impact of advertising on society
– Can present damaging stereotypes of minority and other
protected groups.

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 Product Safety

• The main question in this regard is the right of

consumers to be protected from harmful
products
• Three main theories are used to determine when
a product is defective and the what is owed to
victims of accidents caused by defective
products
– Due care theory
– Contractual theory
– Strict liability theory

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 The Due Care Theory
• Manufacturers have an obligation to exercise due care.
– Taking all reasonable precautions to
• Ensure that products they put on the market are free of
defects
• Manufacturers are liable when they fail to carry out this
obligation.
• The standards of due care entail
– Product design / Materials used / Fabrication and
production / Quality control / Packaging, labeling and
warnings / Notifications of actual & potential hazards
• Also extends to foreseeable misuse by the customer

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 The Concept of Negligence
• Negligence involves the interplay of three factors:
1. The probability of harm
2. The severity of the harm
3. The burden of protecting against the harm

• Manufacturers have a greater obligation to protect

consumers when injury in an accident is more likely to
occur, when the injury is apt to be greater and when
the cost of avoiding injury is relatively minor

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 The Contractual Theory

• The Contractual Theory

– States the responsibility of manufacturers for harm
resulting from defective products is Specified in a
sales contract

– i.e. A contractual relation exist between the buyer and

seller

– Manufacturers must not take unfair advantage of

customers by exposing them to the risk of harm from
hazards that are not disclosed
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 Objections to Contractual Theory

• The understanding in the sales agreement is

often not very precise
– i.e. Theory leaves consumers with little protection,
except in cases where the manufacturer sells a
grossly defective product
• The sales agreement may consist of a written
contract with language that sharply limits the
rights of an injured consumer to be
compensated.

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 The Strict Liability Theory

• The Strict Liability Theory

– Holds manufacturers responsible for harm resulting
from a
• Dangerously defective product
– Even when due care has been exercised and all contracts
observed
– i.e. The mere fact that a product is put in the hands of
a consumer in a defective condition that poses an
unreasonable risk is sufficient for holding the
manufacturer liable.

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 Ethical Arguments for strict liability

• Two ethical arguments

– Efficiency (utilitarian) Justifies strict liability for
securing the greatest amount of protection for
consumers a the lowest cost

– Equity insofar as manufacturers are the beneficiaries

of their profit-making activity, it is only fair, according
to this principle that they be forced to bear the cost –
which includes the cost of injuries to consumers as a
result of defective products.

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 Objections to Strict liability
• Since product liability covers many kinds of accidents,
the most efficient or equitable for one kind may not be
the most efficient or equitable for another
– i.e. strict liability may not be adequate in all circumstances (e.g.
A company that makes poor quality clothes, won’t necessarily
put a consumer at risk)
• The assumption that corporations are able to distribute
the burden of strict liability to consumers effortlessly is
not always true since company may go out of business
as a result of having to pay multi-million dollar awards in
product liability suits

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