Chapter 7

Marketing, Advertising and Product

Safety
Introduction

 Marketing is important in any business

 The purpose of business is to create and keep a
customer
 Businesses must develop products and services that
customers want at prices they are willing to pay
 Marketing includes making decisions about
 what products or services to put on the market,
 who are potential customers for these goods
 How to reach the target markets & induce them to buy
 How to price the product or service to make it attractive to these
customers
 How to deliver the goods physically to the ultimate consumers
Introduction
 Marketing Mix – 4 Ps
 The decisions that marketing managers must make about
each of these Ps involve numerous ethical issues
 Product
 raises obvious concerns about product safety,
 alcohol and tobacco,
 unhealthy foods,
 gas-guzzling SUVs
Introduction

 Price
 Predatory pricing (which undercuts the
competition unfairly)
 Price discrimination (charging more to some
customers than others)
 Misleading prices
 Price fixing (with other competitors)
Introduction
 Promotion is the most visible face of
marketing and for this reason it draws the
greatest moral scrutiny
 Promotion
 Sales techniques
 Deception and manipulation in advertising
 Direct marketing – spam
Introduction
 Distribution
 Anticompetition practices
 Controlling the channels of distribution
 Paying so-called slotting allowances for shelf space in
stores
Marketing

 Marketing affects everyone

 Marketers have strong incentive to sell products and
services
 Despite the doctrine of consumer sovereignty – the
notion that consumers are ‘kings’ in the economy
because they ultimately decide whether to buy a
company’s products – individual consumers are still
vulnerable given the vast power of companies to
determine what goods are offered and through
advertising, what consumers want
Marketing

 Because selling is so important for business

and such powerful means are available,
ethical problems are inevitable
A Framework for Marketing Ethics

 Most of the ethical problems in marketing

involve three ethical concepts: -
 Fairness (or justice)
 Freedom
 Well-being
A Framework for Marketing Ethics

 Fairness is a central concern because it is a

basic moral requirement for any market
transaction – and the result of successful
marketing is always a market transaction
 In a market transaction, each party gives up
something of value in return for something they
value more
 And such exchanges are fair (and mutually
beneficial) as long as each party acts freely and
has adequate information
A Framework for Marketing Ethics

 The requirement of acting freely rules out

exchanges in which there is coercion or
manipulation or when one party lacks
competence (children or elderly) and the
adequate information requirement excludes
the making of false or deceptive statements
A Framework for Marketing Ethics

 The need for information in a fair market

transaction is problematic
 A seller does not have an obligation to
provide ALL relevant information to a buyer,
and a buyer has some obligation to become
informed about what is being bought
Traditional Doctrines in Marketing
A Framework for Marketing Ethics

 In practice, the responsibility is divided

between buyers and sellers
 Buyers have good economic reasons to be
informed (to protect themselves)
 Sellers – to provide information to attract the
buyers
A Framework for Marketing Ethics

 Generally, consumer laws require only the

disclosure of information that buyers need to
make rational purchasing decisions
A Framework for Marketing Ethics

 Freedom is at issue in marketing with respect to having a

range of consumer options
 Freedom is denied when marketers engage in deceptive
or manipulative practices and take advantage of
vulnerable populations such as children, the poor and
the elderly
 Large retailers have been accused of using their power
to force small suppliers into accepting unfavourable
agreements
 Larger suppliers can similarly take advantage of size to
disadvantage small retailers
A Framework for Marketing Ethics

 These 3 principles of FAIRNESS, FREEDOM

and WELL-BEING can be expressed in the
four-point bill of rights for consumers that
President JF Kennedy proclaimed in 1962: -
 (a) The right to safe products,
 (b) The right to be informed about all relevant aspects
of a product,
 (c) The right to be heard in the event of a complaint,
and
 (d) The right of consumers to choose what they buy.
A Framework for Marketing Ethics

 These rights are now embodied into

consumer protection legislations like
 The Consumer Product Safety Act 1972
 The Fair Packaging and Labeling Act 1966
 The Magnuson-Moss Warranty Act 1975
Sales Practices and Labeling

 Most transactions – personal selling

 Personal selling done through sales personnel
 Sales personnel are typically put under great
pressure to sell by such means as commissions,
quotas and others
 They may be led by this pressure to lie to
customers, conceal information, make unrealistic
promises, criticize the competition and oversell
(pushing products the customer does not need)
Sales Practices

 Others
 Agreeing to pay kickbacks or outright bribes with or
without the company’s knowledge
 No close supervision
 Misrepresent their work
 Pad their expense account
 Cheat their employers
Sales Practices

 Salesperson – moral obligation to facilitate a fair

transaction
 Allow the consumer to act freely
 Provide adequate information
 Main unethical sales practices – deception and
manipulation
Sales Practices

 Deception: -
 Consumers are led to hold false beliefs about

a product
 Knowingly make a false statements
Sales Practices

 Examples: -
 ‘Special sale’ ends today but fail to add that another ‘special
sale’ will begin the next day
 Markdowns from ‘suggested retail price’ that is never charged
 Introductory offers
 Bogus clearance sales in which inferior goods are brought in for
the ‘sale’
 Packaging and labeling - size or shape of a container, a picture
or description
 ‘Economy size’
 ‘new and improved’
 Warranties that cannot be easily be understood by the average
consumer
Sales Practices

 Manipulation: -
 No false or misleading claims
 Taking advantage of consumer psychology to make a
sale
Sales Practices

 Examples: -
 “bait and switch”
 A consumer is lured into a store by an advertisement for a
low-cost item and then sold a higher-priced version
 Often the low-cost item is not available
Sales Practices

 Manipulation takes place when salesperson use

high-pressure tactics
 Deception to gain entry to the homes of prospects by
claiming to be conducting advertising research
Labeling

 Many consumer purchasers occur without any

contact with a salesperson
 When a consumer merely takes a product off a
shelf, the main contact between that consumer
and the manufacturer is the print on the package
 The label becomes a means not only for selling
a product but also informing the consumer
 Label - important
Labeling

 If no information on a box, a consumer has no

practical means for determining the size,
ingredients used, the nutritional content or the
length of time the product has been sitting in the
self
 Health-conscious consumers are especially
disadvantages by claims about low fat and salt
content and the unregulated use of words such
as ‘light’ and ‘healthy’
Labeling

 The more information consumers have, the

better they can protect themselves in the
marketplace
 The ethical questions are: -
 How much information is a manufacturer obliged to
provide?
 To what extent are consumers responsible for
informing themselves about the products for sale?
Labeling

 Thus, legislation plays an important role here in

ensuring that the manufacturers provide the
necessary information about the product to the
consumers
Labeling

 Reasons given by manufacturer for not proving

information: -
 Secret recipe
 Unnecessary cause consumers to panic
 Misunderstood by consumers
 Reject older goods which are still good
Pricing

 Anti competition pricing

 Price fixing

 Resale price maintenance

 Price discrimination

 Predatory pricing
Pricing

 Unfair pricing
 Unconsciously high prices (price gouging)

 Misleading prices
Distribution

 Slotting allowances to gain access to shelf space in

stores
 Parallel importing
 Direct marketing
Distribution

 Three illegal abuses of powers in distribution: -

 Reciprocal dealing
 Require to buy something in return
 Exclusive dealing
 Not allowed to sell other brands
 Tying arrangements
 One is sold with condition another is purchased as well
 Full-line forcing
 Forced to carry a manufacturer’s full line of products
Q&A