Lesson 2 Business Ethics
ETHICAL SELLING, MARKETING, &
ADVERTISING
OBJECTIVES
Identify and explain common ethical problems
in advertising.
 Identify and explain key ethical problems and
principles of honest and ethical selling.
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KEY TERMS
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False advertising
Puffery
Bait and switch
Telemarketing
Price gouging
Commission
Straight commission
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Code of ethics
Substantiation
Guarantee
Warranty
Testimonial
False prizes
PROPAGANDA & ADVERTISING
ADVERTISING
Advertising – practice of attracting public
attention to a product or business for the
purpose of increasing sales.
 How can people purchase a product if they
don’t know about it?
 Fine line between encouraging people to
purchase a product and manipulating or
deceiving people into purchasing a product.
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ETHICAL PROBLEMS IN ADVERTISING
False Advertising
 Puffery
 Bait and Switch
 Advertising to Children
 Telemarketing
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FALSE ADVERTISING
False advertising – practice of making
statements about a product that the advertiser
knows are not true.
 May be about how product works, how it is
made, or how it will affect people who buy or
use it.
 Unethical and dishonest
 Public reaction can be severe
 Example: Tobacco Industry
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PUFFERY
Puffery – term used to describe statements that
are not outright lies, but merely exaggerations.
 Example: Amusement park claiming to be “the
best time you’ll ever have in one day”.
 Unethical? Illegal?
 Federal Trade Commission (FTC) regulates
advertising and advertisers.
 FTC allows puffery, defining it as “exaggerations
reasonably to be expected of a seller as to the
degree of quality of his product, the truth or falsity
of which cannot be determined.”
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BAIT AND SWITCH
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Bait and switch – the practice of advertising product at a low
price while intentionally stocking only a limited number in
hopes of luring shoppers to buy more expensive items.
Illegal, but sometimes hard to prove.
No legally mandated minimum number of products that
must be kept in stock.
Businesses must do the following:
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Clearly state the number of products in stock
Offer rain checks to customers who request them.
Rain check – written guarantee that customers can have the
product at the discounted price when more are delivered to the
store.
ADVERTISING TO CHILDREN
Vulnerable to deceptive advertising.
 Believe claims on TV.
 Children have difficulty differentiating between
fantasy and reality.
 Laws passed to protect children.
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 Prohibits
creators/producers of children’s cartoon
from advertising products related to the characters
of that program during the broadcast.
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Buy Me That http://youtu.be/d7VNFO4ksCE
TELEMARKETING
Telemarketing – practice of selling directly to
individuals through unsolicited phone calls, emails, or faxes.
 Technology has made this practice more
common.
 Many people feel that telemarketers are
wasting their time.
 Do not call lists.
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ADVERTISING CODE OF ETHICS
American Adverting
Federation’s (AAF) Code
of Ethics:
 Truth
 Substantiation
 Comparisons
 Bait advertising
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Guarantees and
warranties
Price claims
Testimonials
Taste and decency
TRUTH
Advertising shall tell the truth, and shall reveal
significant facts, the omission of which would
mislead the public.
 Ethics starts with truth and fairness.
 Choosing not reveal important facts about a
product is a form of dishonesty.
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SUBSTANTIATION
Advertising claims shall be substantiated by
evidence in possession of the advertiser and
advertising agency, prior to making such claims.
 Requires more than believing a claim to be true.
 Substantiation – the validation of advertising
claims with objective data from independent
research.
 Advertiser must be able to prove all claims are
true.
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COMPARISONS
Advertising shall refrain from making false,
misleading, or unsubstantiated statements or
claims about a competitor or his/her products
or services.
 Making false claims about competitors is
illegal.
 Company may be sued for libel.
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BAIT ADVERTISING
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Advertising shall not offer products or services
for sale unless such offer constitutes a bona
fide effort to sell the advertising products or
services and is not a device to switch
consumers to other goods, or services, usually
higher priced.
GUARANTEES AND WARRANTIES
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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.
GUARANTEES AND WARRANTIES (CONT.)
Guarantee – an assurance attesting to the
durability or quality of a service or product.
 Warranty – written promise to repair or replace
a product if it breaks or becomes defective
within a specified period of time.
 Often explained in small print and complex
language.
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PRICE CLAIMS
Advertising shall avoid price claims which are
false or misleading, or saving claims which do
not offer provable savings.
 Violations are hard to prove.
 People fail to notice the small print containing
disclaimers to the ad.
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TESTIMONIALS
Advertising containing testimonials shall be
limited to those of competent witnesses who
are reflecting a real and honest opinion or
experience.
 Testimonial – an endorsement of a product by
someone claiming to have benefited from its
use.
 Feature celebrities or experts
 Very effective sales technique
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TASTE AND DECENCY
Advertising shall be free of statements,
illustrations or implications which are offensive
to good taste and public decency.
 How many people must be offended for an ad
to be considered offensive?
 Pleasing everyone is impossible.
 Offending a particular group can have huge
consequences for a company.
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LIMITATIONS OF THE ADVERTISING
CODE OF ETHICS
For code to be effective, must be enforceable
and actually enforced.
 Membership in trade groups like the American
Advertising Federation (AAF) is voluntary.
 Don’t need a license to be an advertiser.
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ETHICAL PROBLEMS AND CONCERNS IN
SELLING
When income is based on ability to sell
products, temptation is greater.
 Salesperson may think the ends justify the
means.
 Most salespeople are honest.
 Small number of dishonest salespeople give
the profession a negative image.
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PRICE GOUGING
The practice of pricing a product far above the
normal market value on the basis that
consumers have no other way to buy the
product.
 Example: Gas prices increasing on 9/11 to
over $4.00/gallon.
 Illegal in most states.
 Stores are monitored after disasters.
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FALSE PRIZES
Winning a valuable prize such as a car or
vacation and then told you must pay a service
or delivery charge before you can collect the
prize.
 Prize doesn’t exist and money disappears.
 Loopholes usually explained in small print.
 May lure you in with prize to get you to listen to
a sales pitch on another product/service.
 Too good to be true? Probably is!
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COMMISSION
Earning a percentage of the total sales that a
person makes.
 More you sell, more you earn.
 Straight commission – employee doesn’t not get a
salary or hourly wage; income is based solely on
what they sell.
 Motivates people to sell.
 Can encourage deceptive and dishonest sales
techniques.
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PRINCIPLES OF ETHICAL SELLING
Think long term
 Elevate the goal
 Change the tactics
 Learn to listen
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THINK LONG-TERM
Majority of unethical business
decisions/actions are based on short-term
thinking.
 Acquiring money immediately which can lead to
taking shortcuts/cutting corners.
 Often forget about long-term consequences of
their actions.
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ELEVATE THE GOAL
Goal is to create a mutually beneficial
relationship, not just selling a product.
 No reason for manipulation or lying.
 Act for the customers’ best interests, not
making a buck.
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LEARN TO LISTEN
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Traditional model of selling
 Memorize
key points
 Present information to customers
 Hope the pitch convinces customers
 Questions asked of customers lead to a decision to
buy
 Unsolicited questions are considered distractions
Put yourself in customers’ shoes
 Forget the sales pitch! Listen to your customer!
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