Selling, Marketing, and

Advertising

Lecture Notes
Chapter 5
 CHAPTER 5

CHAPTER 5 Slide 2

Ethical Selling, Marketing, and

Advertising

 Companies go to great lengths to sell their

products and services.
 Do companies ever go too far?
 Should more be done to protect children
and other vulnerable customers?
 CHAPTER 5

CHAPTER 5 Slide 3

Objectives
 Identify and explain common ethical
problems and ethical standards in
advertising.
 Identify and explain key ethical problems
and principles of honest and ethical
selling.
 CHAPTER 5

CHAPTER 5 Slide 4

Key Terms and Concepts

 false advertising  warranty
 puffery  testimonial
 bait and switch  price gouging
 telemarketing  false prizes
 code of ethics  commission
 substantiation  straight commission
 CHAPTER 5
Slide 5

Ethics in Advertising
 Advertising is the practice of attracting
public attention to a product or business
for the purpose of increasing sales.
 Most people in the field of advertising act
ethically and serve an essential function in
business.
Evolution of the Marketing 12-6

Concept
 Over time, marketing activities evolved
 Four Eras in the History of Marketing

ETHICS in the WORKPLACE

© 2012 Cengage Learning. All Rights Reserved.
 CHAPTER 5

Ethical Problems in Slide 7

Advertising
 Free speech rights apply to organizations,
including corporations.
 Government is limited in the types of
restrictions that can be placed on advertising.
 Regulations can attack fraudulent ads that make
claims that are flatly false.
 Ads for dangerous products, like cigarettes, can be
curbed.
 Still, to a large extent, businesses are free to run
many kinds of ads that are manipulative.
Risks to Consumers

 Deceptive selling practices

 Deceptive and unpleasant advertising

 Failure to honor warranties

 Poorly constructed products

 Dangerous and risky products

 CHAPTER 5

Common Types of Slide 9

Deceptive Ads
 False Advertising
 Puffery
 Baitand Switch
 Advertising to Children
 Telemarketing and Spam
 CHAPTER 5
Slide 10

False Advertising
 Falseadvertising is the practice of
making statements about products that
the advertiser knows are not true.
 The claims can be about how the product
works, how it is made, or how it will affect
people who buy or use it.
 In a society in which lawsuits are common,
false and deceptive advertising is unwise and
expensive.
 CHAPTER 5
Slide 11

Puffery
 Pufferyis a term used to describe
statements that are not outright lies, but
merely exaggerations.
 Ispuffery unethical?
 Should puffery claims be illegal?
 The FTC allows puffery
 For an advertising claim to be considered puffery
and not false advertising, the average consumer
must be able to see easily that the claim is an
overstatement.
 CHAPTER 5
Slide 12

Bait and Switch

 Bait and switch is the practice of
advertising a product at a low price while
intentionally stocking only a limited
number in hopes of luring shoppers to buy
more expensive items.
 This practice is illegal, but can sometimes
be difficult to prove.
 CHAPTER 5
Slide 13

Advertising to Children
 Childrenare especially vulnerable to deceptive
advertising.
 They are generally trusting and believe what adults
tell them.
 They can be naive, often believing that claims on
TV or in the newspaper are true.
 They often have difficulty differentiating between
fantasy and reality.
 Lawshave been passed to protect them from
deceptive ads.
 CHAPTER 5
Slide 14

Telemarketing and Spam

 Telemarketing is the practice of selling
directly to individuals through unsolicited
phone calls, e-mails, or faxes.
 The unsolicited ads can waste customers’
money and time.
 Telemarketers make little money per call,
e-mail, or fax, but so many ads are sent
out that a few eventually result in sales.
 CHAPTER 5
Slide 15

Telemarketing and Spam

Continued from previous slide

 Protection
 “Do not call” lists
 Unsubscribe options
 Prohibition of automatic
calling programs in some states
 CHAPTER 5

Ethical Standards in Slide 16

Advertising
 Most people in the field of advertising have a
vested interest in setting, promoting, and
maintaining high ethical standards for
themselves and their peers.
 Professional organizations generally publish
such standards in a code of ethics, a
written set of principles and rules intended to
serve as a guideline for ethical behavior for
individuals under the organization’s authority.
 CHAPTER 5

Advertising Ethics and Slide 17

Principles
 The American Advertising Federation
(AAF) created a set of “Advertising Ethics
and Principles” in 1984.
 It defines professional standards and
provides a way to evaluate the ethics of
advertisers.
 CHAPTER 5
Slide 18

Truth
 Advertising shall tell the truth, and shall
reveal significant facts, the omission of
which would mislead the public.
 Lying about a product is unfair to customers,
who are cheated and exploited by the
dishonest claim.
 Intentionally choosing not to reveal important
facts about a product is a form of dishonesty,
too.
 CHAPTER 5
Slide 19

Substantiation
 Advertisingclaims shall be substantiated
by evidence in possession of the
advertiser and advertising agency, prior to
making such claims.
 Substantiation is the validation of advertising
claims with objective data from independent
research. The burden of responsibility is on
the advertiser to be able to prove that all
claims are true.
 CHAPTER 5
Slide 20

Comparisons
 Advertising shall refrain from making
false, misleading, or unsubstantiated
statements or claims about a competitor
or his/her products or services.
 To make false claims and comparisons about
competitors is unethical, and it is also illegal.
 A firm making such claims may be sued for
libel.
 CHAPTER 5
Slide 21

Guarantees and Warranties

 Advertising of guarantees and warranties
shall be explicit, with sufficient information
to apprise consumers of their principal
terms and limitations or, when space or
time restrictions preclude such
disclosures, the advertisement should
clearly reveal where the full text of the
guarantee or warranty can be examined
before purchase.
 CHAPTER 5
Slide 22

Guarantees and Warranties

Continued from previous slide

 A guarantee is an assurance attesting to the

durability or quality of a service or product.
 A warranty is a written promise to repair or
replace a product if it breaks or becomes
defective within a specified period of time.
 CHAPTER 5
Slide 23

Price Claims
 Advertising shall avoid price claims which
are false or misleading, or saving claims
which do not offer provable savings.
 CHAPTER 5
Slide 24

Testimonials
 Advertising containing testimonials shall
be limited to those of competent
witnesses who are reflecting a real and
honest opinion or experience.
 A testimonial
is an endorsement of a product
by someone claiming to have benefited from
its use.
 CHAPTER 5
Slide 25

Taste and Decency

 Advertising shall be free of statements,
illustrations or implications which are
offensive to good taste or public decency.
 Advertisers risk alienating the audience a
company is trying to reach.
 A company may be trying to connect with an
audience that reacts positively to material that
offends others.
 Sometimes when groups find material offensive
or inappropriate, they organize.
 CHAPTER 5

Limitations of the Slide 26

Advertising Code of Ethics

 While professional codes of ethics benefit
both members of a profession and the
public, they have limitations.
 Vague rules are easier to bend.
 A professional code of ethics for advertising
professionals is not enforceable.
 CHAPTER 5
Slide 27

Ethical Problems in Selling

 When a person’s income is based on his
or her ability to sell products, temptations
can arise.
 If the only goal is to make a sale, a person
may begin to think that the end justifies
the means—that anything that helps to
make the sale is permissible.
 CHAPTER 5
Slide 28

Price Gouging
 Price gouging is the practice of pricing a
product far above the normal market value
on the assumption that consumers have
no other way to buy the product.
 Price gouging is illegal in most states and,
fortunately, seems to be occurring with
less frequency.
 CHAPTER 5
Slide 29

False Prizes
 The offer of false prizes seeks to trick
potential customers into thinking they have
won valuable prizes.
 It is illegal for a business to promise a
customer something and then break that
promise.
 Those who utilize the false prize technique
have found creative loopholes in the
consumer laws, however.
 CHAPTER 5
Slide 30

Commission
 Many businesses pay their sales staff on
commission.
 In addition to paying a salary or hourly
wage, the company rewards salespeople
with a commission—a percentage of the
money from the sales they make.
 The more employees sell, the more they
earn.
 CHAPTER 5
Slide 31

Straight Commissions
 Ethical lapses are most commonly driven
by the practice of offering salespeople a
straight commission.
 Straight commission means employees
get no salary or hourly wage; their income
is based entirely on what they sell.
 CHAPTER 5

Commissions vs. “Straight” Slide 32

Commissions
 Being paid on commission motivates
people to work hard to sell products.
 Many companies believe that paying their
salespeople this way produces more sales
and higher revenue for the business.
 On the other hand, the practice also can
encourage deceptive and dishonest sales
techniques, especially when a straight
commission is paid.
 CHAPTER 5
Slide 33

Principles of Ethical Selling

 Selling does not have to be manipulative,
deceptive, or disrespectful to be effective.
 Many people make excellent incomes in
sales while treating their customers with
integrity and fairness.
 CHAPTER 5
Slide 34

Think Long-Term
 The majority of unethical business actions
and decisions are based on short-term
thinking.
 People sometimes think in terms of acquiring
money immediately, which can lead to cutting
corners and taking shortcuts.
 They do not consider the long-term
consequences of their actions.
 CHAPTER 5
Slide 35

Elevate the Goal

 The goal of many sales calls today is not
simply to sell a product to a customer, but
to create a mutually beneficial
relationship.
 There is no reason for manipulation or lying.
 Ethical selling means acting in the customers’
best interests, not merely trying to get their
money.
Risks to Consumers

 Deceptive selling practices

 Deceptive and unpleasant advertising

 Failure to honor warranties

 Poorly constructed products

 Dangerous and risky products

Contract View of Business Firm’s
Duties to Customer
 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 Duty to Consumers under
Contractual Theory
 Dutyto comply with express and implied
claims of:
 reliability
 servicelife
 maintainability
 safety
 Duty of disclosure
 Duty not to misrepresent
 Duty not to coerce
Due Care Theory
 The “due care” approach is based on the
assumption that in commercial
transactions, the consumer and
manufacturer do not meet as equals in the
relationship. The manufacturer, and to a
lesser degree the retailer, has greater
knowledge and expertise.
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