Consumers and Business Ethics

CONSUMERS AS STAKEHOLDERS

• 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

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
Area of marketing Some common ethical Main rights involved
problems
Product policy Product safety Right to safe and efficacious products
Fitness for purpose
Marketing Deception Right to honest and fair
communications Misleading claims communications
Intrusiveness
Promotion of materialism Right to privacy
Creation of artificial wants
Perpetuating dissatisfaction
Marketing Reinforcing stereotypes
management
Pricing Excessive pricing Right to fair prices
Price fixing
Predatory pricing
Deceptive pricing
Distribution Buyer-seller relationships Right to engage in markets
Gifts and bribes
Slotting fees Right to make a free choice
Marketing strategy Targeting vulnerable Right to be free from discrimination
consumers Right to basic freedoms and amenities
Consumer exclusion

Market research Privacy issues Right to privacy

 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
ETHICAL ISSUES IN MARKETING 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
ETHICAL ISSUES IN MARKETING 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”
ETHICAL ISSUES IN MARKETING 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
 ETHICAL ISSUES IN MARKETING
MANAGEMENT –
DISTRIBUTION
• Concerned with relations between
manufacturers and firms, and firms
and market
• Primary concern is product supply chain
– Example: retailers demanding ‘slotting fees’ from
manufacturers in order to stock their products
• Dealt with in detail next chapter
ETHICAL ISSUES IN MARKETING 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
ETHICAL ISSUES IN MARKET RESEARCH

• Main issue is possible threats posed to

the consumer’s right to privacy
• Recent areas of concern:
– Personal information available online
• Example: Phorm’s advertising targeting service,
which British Telecom trialled without consent
– Use of genetic testing results by insurance
companies
• Predict likelihood of an individual’s genetic predisposition
to certain conditions and illnesses
• ‘genetic discrimination’?
 Globalisation and Consumers
THE ETHICAL CHALLENGES OF THE GLOBAL
MARKETPLACE
 Issues Around Marketing In a Global
Marketplace

• Different standards of consumer protection

– Consumer protection varies widely in terms of government regulation
and company standards
– Example of tobacco
• Exporting consumerism and cultural homogenization
– Global brands’ huge success has led to increasing concerns over
standardization and uniformity
– Considerable debate around role of advertising in promoting consumerism
in emerging and transitional economies
 Issues Around Marketing In a Global
Marketplace

The role of markets in addressing poverty and development

Globalization also raises prospect of firms targeting products to low income consumers
• ‘Bottom of the pyramid’ concept
• Examples of successful initiatives:
– Microcredit institutions (e.g. Brazil)
– High nutrition yoghurt company (Bangladesh)
– One Laptop Per Child
• Criticism
– Bottom of the pyramid is a mirage: profit opportunities limited
– Social purpose and CSR probably more important than profit motive in developing inclusive markets
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.
capability in rational decision making age, 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 to Promotes

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