Business Ethics
Lecturer: Piet Westerhuis
Consumers and Business Ethics
Lecture 3
Overview
• Discuss the specific stake that consumers have in
corporate activity
• Outline the ethical issues and problems faced in
business-consumer relations
• Examine issues in context of globalization
• Arguments for more responsible marketing practices
• Develop notion of corporate citizenship in relation to
consumers
• Examine the challenges posed by sustainable
consumption
Consumers as stakeholders (I)
• 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:
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Multinational drug companies
Fast food and soft drink companies
Banks and credit card companies
Mobile phone companies
Technology companies
Schools
Consumers as stakeholders (II)
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
problems
Product safety
Fitness for purpose
Main rights involved
Deception
Misleading claims
Intrusiveness
Promotion of materialism
Creation of artificial wants
Perpetuating dissatisfaction
Reinforcing stereotypes
Right to honest and fair
communications
Pricing
Excessive pricing
Price fixing
Predatory pricing
Deceptive pricing
Right to fair prices
Distribution
Buyer-seller relationships
Gifts and bribes
Slotting fees
Right to engage in markets
Marketing strategy
Targeting vulnerable
consumers
Consumer exclusion
Right to be free from discrimination
Right to basic freedoms and amenities
Market research
Privacy issues
Right to privacy
Product policy
Marketing
communications
Marketing
management
Right to safe and efficacious products
Right to privacy
Right to make a free choice
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
• 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”
• 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:
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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:
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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
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
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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
Globalization has brought a new set of problems
and issues relevant to consumer stakeholders
• 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
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
capability
Freedom from limitations
Vulnerability factors, e.g. age,
in rational decision making education, health
Information
Availability and quality of
relevant data
Quantity, comparability and
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
ethic
Saving
Instant gratification and
consumption
Environmental
ethic
Consumption
Alternative meanings of growth
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
(b) Circular flow of
resources
Distribution
Extraction
Consumption
Manufacture
Product
recapture
Distribution
Consumption
Disposal
Disposal
Summary
• The specific stake held by consumers and outlined
some of the main rights of consumers:
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Rights to safe products
Honest and truthful communications
Fair prices
Fair treatment
Privacy
• Rise of ethical consumption
• The challenges of sustainability
• In the consumer society that we currently live in, it
appears that consumers might be expected to
shoulder increased responsibilities as well as being
afforded certain rights