Chapter 2

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Chapter 2
Managing Ethics in a
Sales Environment
PowerPoint presentation prepared by
Dr. Rajiv Mehta
New Jersey Institute of Technology
Chapter Outline
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What Is Business Ethics?
Salespeople Are Boundary Spanners
Applying Professional Sales Codes of Ethics
Ethical Philosophies and Moral Judgments
Creating an Ethical Work Climate
Managing the Ethical Climate
Legal Considerations in the Sales Environment
Practicing Good Ethics Among the Sales Force
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Learning Objectives
After reading this chapter, you should be
able to do the following:
1. Define ethics and defend its importance to sales and
sales management.
2. Show how salespeople are boundary spanners.
3. Apply a code of ethics to sales and sales management
situations.
4. Apply the criteria for making moral judgments.
5. Create and manage an ethical climate.
6. Observe legal regulations that affect the sales
environment.
7. Model good ethical behavior among the sales force.
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Business Ethics, Sales,
and Sales Management
• Ethics describes the
moral content of behavior.
• Business ethics is the
study of how
businesspeople behave
when facing a situation
with moral consequences.
• Sales management
ethics is the specific
component of business
ethics that deals with
ethically managing the
sales function.
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Source: S. Pearce/PhotoLink
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Balancing Between Individual,
Professional, and Organizational Values
Individual ethics
• personal integrity
• moral values
• social influences
Pressures
Organizational ethics
• profit
• growth
• survival
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Professional ethics
• professional standards
• group goals
• prestige
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Customer Vulnerability
1.
Vulnerability
Consumer-directed
approaches
2.
Ignorance
3.
lack of some
vital knowledge,
often product
knowledge,
needed to
participate in a
fair exchange
Powerlessness
lack of either
competition within a
marketplace or
sufficient assets with
which to be persuasive
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lack of
experience or
the ability to
conduct a
transaction or
negotiate terms
of a fair deal
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Types of Codes of Ethics
suggested by
government agencies
or other special
interest groups
3.
Business
association
codes
ethical boundaries for
people engaged in the
same line of business;
e.g., Direct Selling
Association of America
4.
Advisory group
codes
Types of codes
of ethics
2.
Professional
codes
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ethical boundaries
for employees
1.
Company codes
ethical boundaries
for occupational
groups such
advertisers, sales
representatives,
doctors, lawyers, and
accountants
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Moral Philosophy
Moral philosophy deals with the systematic ways that
individuals recognize and resolve decisions having moral
content.
1.
Bases of
moral philosophy
Relativism
Idealism
Ideals are a set of
principles by which
individuals
determine morality.
A moral absolute
represents a rule that
should always be
applied with no
exceptions or
excuses.
2.
3.
Teleology
Teleology defines morality based on the
consequences of the behavior that
allows some indiscretion based on the
argument that the “good” that results is
more important than the harm caused.
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Relativism is a process
by which individuals
reach moral decisions
based more on the
actions they perceive to
be acceptable given a
particular situation.
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Moral Judgments
A moral judgment is a person’s evaluation of the situation
from an ethical perspective.
1.
Moral equity
the inherent
fairness or
justice in a
situation
Bases of
moral judgments
2.
Acceptability
3.
Contractualism
how culturally or
socially acceptable
we perceive an
action to be
the extent to which an
act is consistent with
stated or implied
contracts and or laws
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Unethical Sales Practices:
Prohibited Actions
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bribes, gifts, kickbacks
conflicts of interest
illegal political payments
violation of laws in general
use of insider information
violations of secrecy
agreements
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falsification of sales accounts
moonlighting
violation of antitrust laws
fraud and deception
illegal payments abroad
justifying the means by the
intended end
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Ethical Concerns in
Selling and Sales Management
1.
Employer ethics with
their salespeople
5.
Customer
relationships
Ethical
concerns
4.
Treatment of
coworkers
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2.
Salespeople’s ethics
& their company
3.
Treatment of
competitors
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Employer Ethics with Their Salespeople
• Compensation
– prompt, accurate payment of
salary, commissions, and bonuses
as well as timely reimbursement of
selling expenses
• Sales territories
– fair assignment of sales territories
• Sales quotas
– setting realistic achievable sales
quotas
• Hiring, promoting, and firing
– sexism, racism, and ageism must
not influence managerial decisions
Source: Digital Vision
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Ethical Violations
• misusing company assets
• expense account padding
• unauthorized use of company
funds
• personal use of company time
• fabrication of sales records
• manipulation of customer
orders
• cheating in sales contests
• circumventing company policy
Source: Digital Vision
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Ethical Violations Against
Coworkers and Competitors
Treatment of coworkers
a. sexual harassment
b. stealing customers from
colleagues
c. undermining coworkers
Treatment of competitors
a. disparaging competitors
and their products or
services
b. tampering with competitor's
products
c. competitive snooping
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Source: Digital Vision
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Ethical Issues
Regarding Treatment of Customers
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Source: Digital Vision
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special gifts
entertainment
over-promising
over-selling
misrepresenting, covering
up the facts, or distorting
the truth
manipulating order forms
disclosing confidential
information
showing favoritism
conflicts of interest
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Ethical Issues: Marketing Mix
1. Product quality and service
• poor product quality
• unsafe products
• unreasonable return
policies
• poor after-sales service
2. Pricing
• inflated list prices
• not honoring pricing
incentives
• adding hidden costs
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Ethical Issues: Marketing Mix
3. Distribution
• using resellers that are
aggressive, dishonorable,
“fly-by-night” operators
• using “bait and switch”
strategies
4. Promotion
• deceptive advertising
• misleading product
warranties
• phony promotional contests
• dishonest fundraising
activities
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Creating an Ethical Work Climate
pressure employees
feel to prioritize
increased sales,
profits, margins, or
other financial
returns over all other
concerns
3.
Peer behavior
the extent to which
employees view
coworkers as having
high moral standards
4.
Bottom-line
sales emphasis
Types of codes
of ethics
2.
Trust and
responsibility
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standard business
norms and
regulations as
defined by senior
management
1.
Policies and
rules
how far people are
trusted to behave in a
responsible way and
are held personally
responsible for their
actions
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Managing the Ethical Climate
• Sales managers
should be sure of the
following:
– that salespersons are
aware of rules and
policies
– that salespersons are
rewarded and
reprimanded with no
favoritism or bias
– that an ethical climate
is promoted at all
levels of the sales
organization
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Source: Digital Vision
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Legal Considerations in the
Sales Environment: Federal Regulation
Protecting Companies from Each Other
• Laws that ensure that
a competitive
marketplace exists
include the following:
– Robinson-Patman Act
– Sherman Antitrust Act
– Clayton Act
Source: Hisham Ibrahim
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Federal Regulation Protecting
Companies from Each Other
1.
Price
discrimination
Laws protect firms
against
2.
Collusion
3.
Price discrimination consists of
favoring different customers on
price or terms of sale when the
discrimination has a harmful
effect on competition.
Price discrimination is allowed
under two conditions:
(a) The price differential is
given in good faith to meet a
price offered by a competitor.
(b) The price differential is
based upon cost savings
stemming from quantities in
which products are sold or
delivered.
Price fixing
Competitors who conspire
to set or maintain uniform
prices and profit margins
are fixing prices.
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Collusion occurs when
competitors conspire to
set prices, agree to
divide territories on a
noncompetitive basis,
or join together to act
to the detriment of
another competitor.
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Federal Regulation Protecting
Companies from Each Other
Tie-in sales occur when
purchasers are forced to
buy an unwanted item or
items in return for being
allowed to purchase a
product in heavy demand.
7.
Reciprocity
Reciprocity consists of
selecting only suppliers
who will also purchase
from the buyer—“Buy from
me and I’ll buy from you.”
4.
Tie-in sales
Laws protect firms
against
6.
Restraint of
trade
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Exclusive dealing consists of
agreements in which a
manufacturer or wholesaler
grants one dealer exclusive
rights to sell a product in a
certain trading area or insists
that the dealer not carry
competing lines.
5.
Exclusive dealing
Competitors colluding to
divide a market into
noncompetitive territories
or to restrict competition in
a market are in restraint of
trade.
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Federal Regulation Protecting
Companies from Each Other
Unordered goods are
goods that are not ordered
but shipped along with an
existing order in hopes that
the buyer will pay for them.
11.
False product
descriptions
Salespeople must not
misrepresent the way a
product is produced (e.g.,
claim that mass-produced
products are custom-made.)
8.
Unordered goods
Laws protect firms
against
10.
False business
descriptions
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Companies may not misrepresent
delivery dates, fail to actually fill an
order, or not fill an order in a
reasonable time.
Terms of sale include warranties
and guarantees, the ability of the
buyer to cancel a contract or obtain
a refund.
9.
Inaccurate orders/
terms of sale
Salespeople must never
misrepresent the company’s
financial strength, length of
time in business, or
reputation, nor may they
misrepresent facts
concerning its plant,
equipment, or facilities.
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Federal Regulation Protecting
Companies from Each Other
12.
Customer
coercion
13. Business
Defamation
Laws protect
against
– Business slander
Placing undue pressure,
intimidation, or fear on
the buyer into a sale is
illegal.
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– Business libel
– Product disparagement
– Unfair competition
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Legal Considerations in the
Sales Environment: Federal Regulation
Protecting Consumers from Companies
• U.S. legislation
protecting consumers
and society from
unfair business
practices includes the
following:
– Fair Packaging and
Labeling Act
– Consumer Goods
Pricing Act
– Nutrition Label and
Education Act
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Source: David Buffington
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State and Local Regulation
•
State and local laws that regulate selling activities
include the following:
1. Uniform Commercial Code, which regulates the
performance of goods, sellers’ warranties, and the
maximum allowable rates of interest,
misrepresentations, and promises not kept
2. Green River Ordinances, which requires
nonresidents to obtain a license from city
authorities to sell goods or services direct to
consumers in that vicinity
Source: Hisham Ibrahim
3. Cooling-Off Rules, which requires door-to-door
salespeople to give written notice to customers
placing orders of $25 or more that they can cancel
their purchase within three days
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Ethics and Regulation
in International Sales
Source: Jack Star/PhotoLink
• In international negotiations,
salespeople must not confuse
varying ethical standards with
the U.S. and foreign laws
governing their activities.
• In planning to sell products or
services to a foreign country,
sales representatives should
contact the commercial
attaché at the U.S. embassy
for information on legal
requirements in conducting
business there.
Source: Jack Star/PhotoLink
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Practicing Good Ethics Among the Sales
Force: Maintaining a Positive Ethical Climate
• Understanding ethics
– Salespeople reach ethical maturity
when they place the moral
treatment of others ahead of shortterm personal gain.
• Measuring the ethical climate
– Monitor the ethical climate with
surveys.
• Leading by example
– A positive, healthy, and moral
ethical work climate begins at the
top with sales management.
• Sales manager ethics
checklist
Source: Triangle Images
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Sales Manager Ethics Checklist
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Will the action I take diminish the
value of the product we are
selling?
Will the action I take result in
inequitable or disrespectful
treatment of a salesperson?
Will this action place a greater
emphasis on sales or profits than
on the ethical treatment of the
customer?
Will my action, either intentionally
or unintentionally, motivate a
salesperson to treat someone
unethically?
Would I be comfortable telling my
children about the way I acted in
this situation?
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Source: © Jack Hollingsworth/Corbis
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Ten Ethical Commandments for
Sales Managers and Salespeople
• For an interesting article on the ten
commandments of sales ethics, see
– http://www.davekahle.com/chap16.htm
• Peruse the Direct Selling Association’s code of
ethics at
– http://www.dsa.org/ethics/code/
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Ethical Situation: What Would You Do?
Discussion Question:
It’s Friday night and your family car has just broken down.
You promised your wife that you would take her to her high
school reunion about 200 miles away this weekend. The
company car assigned to you as a sales manager is parked
in the company parking lot, so you’re considering using it
for the high school reunion trip. No one at work will know
that you used the company car for pleasure since you often
pick the car up early on Monday mornings in case you have
to accompany any of your salespeople to make sales calls.
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Ethical Situation: What Would You Do?
Discussion Question:
Your salesperson just signed a contract with a hard
bargaining customer who has never bought from your
company before. You, as a sales manager, are pleased to
have finally sold this potentially large account after trying
for two years. But, the sales agreement price leaves your
company with virtually no profit on the deal because a
major part of the contract requires your company to provide
a high level of expensive monthly customer service. You’re
wondering whether you should recommend to the
company’s customer service people to just cut back on the
quality and quantity of service provided this customer, so
the deal will become profitable.
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