Ethical Issues in Marketing Relationship ***Ethical Relationship Marketing? “Relationship Marketing is the ongoing process of engaging in collaborative activities and programs with immediate and end-user customers to create or enhance mutual economic, social and psychological value, profitably. There is an implicit assumption in the literature that businesses operate on the basis of honesty, fairness and transparency ***Franchising? A problem for many brand owners is that their retail activity is based on franchising. This is a business arrangement where an organisation (the franchisor) contracts with other firms, individuals or groups (franchisees) to offer products and services under its brand names. For example, many McDonald’s outlets are franchises. Each party, i.e. franchisor and franchisee, is vulnerable to negative impacts by the other party. If franchisees do not deliver on the contracted quality of offerings, it is the franchisor’s brand reputation that will suffer. If a franchisor does not provide the level of support agreed to, franchisees may struggle to deliver the outputs expected. Advantages: Access to better talent Easy expansion capital Minimized growth risk Disadvantages: Less control over managers A weaker core community Innovation challenges ***Retailing and Personal Selling? - Banks and financial institutions focus on more customer retention & loyalty based on continuous transactions - Many sectors of retailing rely on part-time “causal” sales staff who have little motivation to build a long-term relationship with customers - Thus a bad encounter at a retail outlet or via Internet, phone contact may lead to negative perceptions about the organization and the brands on offer, coupled with an increased likelihood of considering other brands & outlets - The sales function also offers more direct opportunities for unethical activities due to pressure to make sales target abound, such as where sales force remuneration is based primirilay on commission from sales *** Ethical issues in specific sales sectors ……Pharmaceutical Marketing- detailing? • Detailing- the direct marketing or promotion of pharmaceutical products to doctors or other medical professionals • Sales representatives visit medical professionals, provide free product samples and gifts, and explain the “details “ of drugs in their portfolio including results from drug trails • The aim of reinforcing prescribing choices or persuading doctors to switch to the company’s brands • Ethical issues involve overstating the advantages of a medication compared to other options or the suppression of negative information • Th impact of this activity on prescribing the behaviors & potential increases in expenditures on medication due to prescribing branded drugs vs cheaper generic alternatives is vigorously debated in academic & practitioner literature, with widely divergent views and contradictory evidence evident • Direct-to-Consumer-advertising (DTCA)- DTCA (often shown as DTC to reflect activity beyond conventional advertising) involves the promotion of medication direct to the consumer through mass media, including television, radio, newspaper and consumer magazines, and through personalised communication (such as direct mail) with individual patients, and, increasingly, through both advertising and the ‘editorial’ content of Internet sites (Dens et al., 2008: 45). In terms of mass media, branded advertising of prescription medications is only technically legal in the United States, where the law was changed to permit it, and in New Zealand, where the American actions led to the identification of a loophole in prevailing legislation. The Internet and related technologies however enable the promotion of branded drugs across national borders (Brennan et al., 2010). The main concern in the context of relationship marketing is whether, and in what way, DTCA changes the nature of patient–doctor relationships. • Business-to Business Marketing (B2B)- While the ethical issues discussed so far have relevance to the business-to-business (B2B) marketing sector, there are some additional characteristics in the sector that warrant examination. B2B sales staff will deal with individuals or groups of individuals from the ‘buyer’ firm with sales being of high value and repeat business being the seller’s aim. The relationship between the two parties may develop into social settings, where close personal relationships may develop, with the potential for inappropriate behaviour noted (Fisher, 2007). One strategy to minimise the potential negative effects from this has been to propose a splitting of functional sales, increasingly using various levels of automation, and ongoing relationship development and maintenance of commitment to the relationship (Davies et al., 2010b) although there is no evidence of this having been widely accepted – or minimising rather than transferring the potential for unethical behaviour from sales to relationship development staff. ***Ethical Issues Relationships? in Supply Chain Management 1. Retailer Dominance : Own-label brands; Compete directly with manufacturer brands , often with preferential shelf positioning & lower relative prices. Retail chains are frequently criticized for aggressive negotiations with suppliers to drive purchase prices down & to thus generate greater profits for themselves. While some suppliers, have been able to form large marketing cooperatives or strategic alliances in order to provide themselves with market negotiating power Farmers and food producers have been increasingly vocal in many countries regarding dominant supermarket chains, complaining of abuse power, including driving prices paid to suppliers down below the cost of production, together with other tactics such as “delayed payment times for goods supplied; retrospective reduction in prices paid to suppliers; and requiring suppliers to contribute to marketing costs. 2. Slotting & Promotional allowances: Lump sum payments made by manufacturers to retailers, especially, but not restricted to, the Fast Moving Consumer Goods (FMCG) Sector in return for shelf space Commonly used for new product introductions, in effect sharing the risk of failures between producer and retailer Ethical issues arise in relation to the use of slotting to restrict access by competitor products Some manufacturers can’t afford to pay the slotting fees demanded by dominant retailers, even if their products offers a competitive advantage over competitor offerings It is also argued that slotting fees drive up prices for the consumer as the manufacturer seeks to recover costs It is claimed that Walmart, the world’s largest retailer, and owner of the ASDA supermarket chain in the UK, is one of the few dominant retail organizations that neither demands nor accepts slotting fees Closely related to slotting is the equally controversial practice of promotional allowances marketers offer, or are forced by dominant retailers to provide, funds to cover advertising costs or price discounting Consumers don’t benefit from this as the costs of the activity are passed on to them Some brands may lose shelf space if competitors offer more lucrative promotional allowances to retailers, thereby potentially reducing consumer choice. 3. Multi-level marketing & Pyramid Selling • Multi-level marketing (MLM) door to door selling approaches It is a strategy whereby products or services are distributed or sold through a number of different supply chain levels Agents at a high level in MLM distribute products to lower level agents in return for commission or others forms of payment Payment is also made for recruiting other agents Example: Amway, Tupperware Further Discussion about ethical issues: Ethical issues arise in relation to the cost of purchasing stock at different levels within the structure & the level of fees or commission agents may be required to provide Other issues relate to the use of personal home environments into which the home occupier’s friends are invited to meet the selling agents & to view and try the products, potentially leading to feelings of obligation on the part of friends to make purchase As western—based MLM organizations have expanded globally into potentially lucrative markets such as China, they have faced significant legal restrictions on their MLM operations & have been forced to adopt more traditional supply-chain strategies including establishing retail stores. Pyramid selling • It involves people making a financial investment in return for a license to recruit others to the scheme, with the promise of high financial returns • These recruits in turn recruit others to the scheme, with each tier of the pyramid being paid for each person they recruit, and for those recruited by those they introduced to the scheme (Bangladesh- Destiny,) • Payments are made to those who invested early using revenue from new recruits • Those who invest early in a scheme’s establishment may gain good initial returns- those at the bottom of the recruitment chain will make very little if anything • Those schemes rely on continuous recruitment to generate funds to keep rewarding those already in the system ***Controversial tactics – Gifts and incentives • In pharmaceutical industry, making large cash payments and providing expensive gifts such as free holidays to prescribers such as doctors • In medical sector, it is still debatable as to whether even small gifts such as pens & notepads that contain branded medication names are mere reminders that promote positive relationships between the pharmaceutical sales representatives and doctors whether they have stronger influence on actual prescribing • The influence of these tactics on purchase behaviors in other sectors such as B2B is unresearched. More controversial still is the provision of free meals or other forms of hospitality as free tickets to sporting or cultural events (Fisher, 2007) • The issue with all corporate gifts is whether their impact is just to strengthen relationships and the creation of goodwill. If they also promote sales of a company’s products or services, which is an obvious objective of the selling company. • A related issue is whether and at what point gift giving becomes bribery. While gifts may be a means of rewarding past business, they are also an inducement to continue the business relationship, the gift recipient feels obliged or even pressured into future purchase. • When a gift becomes a bribe remains a contested area, particularly in relation to cultural prescriptions of acceptable practice. Bribery implies payment for an act (such as a purchase) that would not have occurred without the bribe, resulting in an action that is actually or potentially detrimental to the interests of an employee’s firm or ultimately to its customers. This may lead to conflicts of interest which will ultimately undermine longterm relationships (Fisher, 2007) ***Ethical issues with “Bait and Switch tactics” • Bait and Switch tactics are said to have been used when a specific product is offered at a low price, but when potential buyers try to make a purchase, the advertised product isn’t available and they are offered more expensive alternatives instead. • These tactics attempt to deter potential purchasers from conducting a detailed price comparison that would include competitors’ products and other retailers. ( LindseyMullikin and Petty, 2011) • Comparisons become more difficult of potential purchasers when separate products are bundled together into a single package that is cheaper overall than if the individual products or components were purchased individually. • A package may include a computer, plus a printer, plus a guarantee with potential bonus items such as printer cartridges or paper being offered “free” with a purchase or even a free tablet computer with a package worth over a specific amount • Online bait and switch tactics are a relatively new phenomenon. Consumers making internet searches for a specific brand name or company are presented with a promotional material for a competitor ***Loss leaders tactics • Loss leaders practices involve selling a specific product at or below cost price in order to draw in customers who will purchase other full price products • This may seem a non-controversial tactic unless you are the supplier of products being sold as a loss leader and you are expected to lower your own selling price to “compensate” • Additional issues arise in terms of the types of products used as loss leaders as alcohol; alcohol abuse is recognized as the third leading cause of preventable and premature disease and disability globally • Printers. They often sell below cost because the ink is where all the money is made. • Free Trial Software. You can give away a low-feature version of your software to get people hooked on it- eventually they’ll pay for upgrades • Free Video Games. Sure you can play for free, but all the cool stuff is a paid option. And such a small price to pay! And it’s on sale! • E-books. You can read endless first-in-series e-books for free because the author wants to hook you into buying the rest of the series. ***Data Mining • Data mining is a process used by companies to turn raw data into useful information. By using software to look for patterns in large batches of data, businesses can learn more about their customers to develop more effective marketing strategies, increase sales and decrease costs. Data mining depends on effective data collection, warehousing and computer processing. BREAKING DOWN Data Mining: Grocery stores are well-known users of data mining techniques. Many supermarkets offer free loyalty cards to customers that give them access to reduced prices not available to nonmembers. The cards make it easy for stores to track who is buying what, when they are buying it and at what price. After analyzing the data, stores can then use this data to offer customers coupons targeted to their buying habits and decide when to put items on sale or when to sell them at full price. Data mining can be a cause for concern when a company uses only selected information, which is not representative of the overall sample group, to prove a certain hypothesis CLUSTER ANALYSIS TO IDENTIFY SINGLE TARGET GROUPS: Cluster analysis enables identifying a given user group according to common features within a database. These features can include age, geographic location, education level and so on. It is a data mining technique that is useful in marketing to segment the database and, for example, send a promotion to the right target for that product or service (young people, mothers, pensioners, etc.). The variable combinations are endless and make cluster analysis more or less selective according to the search requirements. Lessons learned• Years ago Netflix had a challenge for machine learning (more than 10 years ago). They wanted scientist to find new ways for their recommendation engine. They anonymized people’s ratings of movies and zip codes if I remember it correctly. So you could compare someone else’s ratings with this data and then recommend other movies that they might like. That challenge kicked off a new era of machine learning and data science. One unintended consequence was that people merged it with other databases (facebook, imdb, geolocation data and their personal data) and were able de-anonymize some of the people in the data set. Lesson: Controlling the data you release ( anonymizing etc) is not enough. • Insurance companies collect data from many different sources. They merge them in many different ways to calculate risk (expected lifespan, weather patterns for farming insurance, car accidents etc). They then calculate premiums based on that risk. The better/more data they have the better can they price the risk and the more they can manage their profits. When/if DNA analysis companies start selling anonymized data to insurance companies they will be able to include it into their risk analysis. There will be a lot of biases, a lot of mistakes. On average nothing will change but there will be biased shifts in premiums in subgroups. Lesson: If your data belongs to a subgroup even if you do not share every characteristics of that subgroup you might be negatively impacted. Assignment -Case study Different countries have very different legislative provisions regarding what personal data can be sold to third parties without an individual’s consent. Consider the following : the on-selling of prescribing data, minus patient names and other forms of identification ,but containing prescriber names and drugs prescribed and their dosage and prescribing frequency, is permitted in some areas. On the other hand many other countries, have prohibited this practice. The data purchasers are usually pharmaceuticals companies who use the data to inform their marketing activity ( Petersen wt.al., 2013) ** While we have highlighted a pharmaceutical marketing practice, the ethical issues it raises apply to other business sectors as well. What do you believe the main ethical issues are in relation to this practice ?
