Business & Society
Ethics, Sustainability, and Stakeholder
Management
Eighth Edition
Archie B. Carroll
Ann K. Buchholtz
© 2012 South-Western, a part of Cengage Learning
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Chapter 13
Consumer
Stakeholders:
Information
Issues and
Responses
© 2012 South-Western, a part of Cengage Learning
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Learning Outcomes
1. Recite the consumer’s Magna Carta and explain
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7.
its meaning.
Chronicle the evolution of the consumer movement, highlighting
Ralph Nader’s role.
Identify the major abuses of advertising and discuss specific
controversial advertising issues.
Enumerate and discuss other product information issues that
present problems for consumer stakeholders.
Describe the role and functions of the FTC.
Explain recent consumer-related legislation that has passed.
Discuss the strengths and weaknesses of regulation and selfregulation of advertising and proposed consumer financial
protection regulations.
© 2012 South-Western, a part of Cengage Learning
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Chapter Outline
• The Consumer Movement
• Product Information Issues
• The Federal Trade Commission (FTC)
• Recent Consumer Legislation
• Self-Regulation in Advertising
• Summary
• Key Terms
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Consumer Spending
Consumer Expectations
• Consumers have decreased their spending in
recent years.
• Businesses have to fight hard for customers.
 Firms must pay careful attention to
customer stakeholders and their fair
treatment.
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Customer Relationship
Management
Customer Relationship Management
• The ability of an organization to effectively
identify, acquire, foster, and retain loyal
profitable customers.
 Customers remain dissatisfied with how
they are treated and are mistrustful of
businesses.
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The Consumer’s Magna Carta
Right to Safety
Right to Be Informed
Right to Choose
Right to Be Heard
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The Consumer Movement
Consumer Expectations
• “Fair value” for money spent
• Product that meets “reasonable”
expectations
• Full disclosure of product specifications
• Truthful advertising
• Safe products
• Removal of dangerous products
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Consumerism
Consumerism
• A social movement seeking to augment the
rights and powers of buyers in relation to
sellers.
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Lessons From the Consumer
Movement
1. Achieve a fair and just marketplace for all
consumers.
2. Provide public oversight where:
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Corporations lack the incentives to regulate their own
behavior.
Issue of health, safety and other special concerns.
3. Provide resources, authority, and support for
public watchdogs.
4. Intensify the fight for affordable goods and
services, fair financial practices, and a chance at a
decent standard of living.
5. Curb wasteful overconsumption that threatens the
environment.
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Ralph Nader’s Consumerism
• Ralph Nader is considered the father of the
modern consumer movement.
• Unsafe At Any Speed criticized the auto
industry and General Motors 40 years ago.
• Nader and the consumer movement were
the impetus for consumer legislation in the
1970s.
• Nader made consumer complaints
respectable.
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Consumer Problems with Business
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High prices of products
Poor quality of products
Failure to live up to advertising claims
Hidden fees
Poor quality of after-sales service
Product breakage
Misleading packaging or labeling
Feeling that consumer complaints are a waste of
time
Inadequate guarantees and warranties
Failure of company complaint handling
Dangerous products
Absence of reliable product / service information
Not knowing what to do if something is wrong with
product
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Advertising Issues
Arguments for
Advertising
Informs consumers
Increases consumer
satisfaction
Arguments Against
Advertising
It is wasteful and
inefficient– and
decreases our standard of
living
Raises the price of
products and is an
unnecessary business
cost
Inefficient means of
distributing information
Ineffective
Promotes efficiency in
the supply chain
Effective at reaching
consumers
An economical means of High cost
reaching consumers
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Advertising Benefits
• The lifeblood of the free-enterprise system
• Stimulates competition
• Provides information for comparison
buying
• Provides competitive information to
competition
• Sales response provides a mechanism for
immediate feedback
• Provides social and economic benefits
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The Need for Information
Clear
Consumers
need information
that is…
Accurate
Adequate
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Advertising Abuses
Ambiguity
Exaggerated Claims
Concealment
of Facts
Psychological
Appeals
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Weasel Words
Weasel Words
• Are inherently vague so companies can
claim they were not misleading consumers.
 Help
 Like
 Virtually
 Up to
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Concealed Facts
Concealed Facts
• The practice of not telling the whole truth
or deliberately not communicating
information the consumer ought to have
access to in making an informed choice.
 Hidden Fees
 Product placement (“stealth advertising”)
 Plot placement
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Exaggerated Product Claims
Exaggerated Claims
•
Cannot be substantiated by any kind of
evidence.
1.
Induce people to buy things that do them no good.
2.
Result in loss of advertising efficiency as
companies match puffery with puffery.
3.
Drive out good advertising.
4.
Result in consumer loss of faith in product claims.
Puffery
•
A euphemism for hyperbole or exaggeration
that usually refers to the use of general
superlatives.
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Psychological Appeals
Psychological Appeals
• Designed to persuade on the basis of
human emotions and emotional needs
rather than reason.
• The products can seldom deliver what the
ads promise.
 Marketers appeal to all our senses, even
sound, when making psychological
appeals.
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Controversial Advertising Issues
 Comparative advertising
 Use of sex in advertising
 Advertising to children
 Marketing to the poor
 Advertising of alcoholic beverages
 Cigarette advertising
 Health and environmental claims
 Ad creep
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Principles of Advertising to Children
Consider the audience’s level of knowledge and maturity
Be neither deceptive nor unfair to children
Have adequate substantiation for advertising claims to children
Do not stimulate children’s unreasonable expectations
Products inappropriate for children should not be advertised to them
Present positive and pro-social roles and role models
Use advertising to serve an educational role
Parents are responsible for providing guidance for children
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Controversial Advertising Issues
Environmental Claims
• Companies have been ramping up their
advertising claims about the environmental
friendliness of their products.
• The green economy was estimated in 2010
to be worth $1.04 trillion and growing.
• An industry of “green watchdogs” has been
growing.
• Growing “green fatigue” developing
among some consumers who are weary of
claims.
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Warranties
• Initially used by manufacturers to limit the
length of time they were responsible for
products.
•
Came to be viewed by consumers as
mechanisms to protect the buyer against faulty
or defective products.
Express Warranty
• Promise or affirmation of fact that the seller
makes at the time of the sale.
Implied Warranty
• Unwritten promise that there is nothing
wrong with the product and its intended use.
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Warranties (continued)
Full Warranty
• Covers the entire product.
Limited Warranty
• Certain parts or types of defects are not
covered under the warranty.
Extended Warranty
• Service plans that lengthen the warranty
period and are offered at an additional cost.
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Product Information Issues
Magnuson-Moss Warranty Act of
1975
• Full warranty
• Limited warranty
 The Warranty Act set standards for what must
be contained in a warranty and the ease with
which consumers must be able to understand it.
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Packaging and Labeling
Federal Packaging and Labeling Act
of 1967
• Prohibits deceptive labeling on consumer
products
• Requires disclosure of certain important
information on consumer products
 The FTC and the Food and Drug
Administration (FDA) have responsibilities
under the Act.
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Other Product Information
Legislation
Equal Credit Opportunity Act
•
Prohibits discrimination in extending
consumer credit.
Truth-in-Lending Act
•
Requires all suppliers of consumer credit to
fully disclose all credit terms.
Fair Credit Reporting Act
•
Ensures that consumer-reporting agencies
provide information in a manner that is fair
and equitable.
Fair Debt Collection Practices Act
•
Regulates the practices of third-party debtcollection agencies.
© 2012 South-Western, a part of Cengage Learning
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The Federal Trade Commission
 The government’s major instrument for
ensuring that business lives up to its
responsibilities in the areas of
advertising, warranties, and
packaging/labeling.
Major Activities of the FTC
1. To maintain free and fair competition in
the economy.
2. To protect consumers from unfair or
misleading practices.
© 2012 South-Western, a part of Cengage Learning
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The Role of the FTC
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Seeks to ensure that the nation’s markets
function competitively and are free of undue
restrictions.
Works to enhance the smooth operation of the
marketplace by eliminating unfair or deceptive
acts or practices.
Efforts are directed toward stopping actions
that threaten consumers’ opportunities to
exercise informed choice.
Undertakes economic analysis to support its
law enforcement efforts and to contribute to
the policy deliberations of government.
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The Divisions of the FTC
Advertising practices
Credit practices
Enforcement
Marketing practices
Service industry practices
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The Federal Trade Commission
Historical Overview
• Early activism of the FTC
• Less active years of the FTC
• Reassertion of the FTC in the 1990s
• The FTC in the Twenty-First Century
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Recent Consumer Legislation
 Credit Card Act of 2009
 Consumer Financial Protection
Agency
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Self-Regulation in Advertising
Types of Self-Regulation
• Self-discipline
• Pure self-regulation
• Co-opted self-regulation
• Negotiated self-regulation
• Mandated self-regulation
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The National Advertising Division’s
Program
• NAD was created to help sustain high
standards of truth and accuracy in national
advertising.
 Initiates investigations
 Determines issues
 Collects and evaluates data
 Makes initial decision regarding
substantiated claims
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Three Moral Management Models
Immoral
Management
Customers are viewed as opportunities
to be exploited
Amoral
Management
Management does not think through the
ethical consequences of decisions
Moral
Management
Customers are viewed as equal partners
in transactions
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Key Terms
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Accurate information
Ad creep
Adequate information
Age compression
Ambient advertising
Ambiguous advertising
Clear information
Comparative
advertising
• Concealed facts
• Consumerism
• Consumer Financial
Protections Agency
(CFPA)
• Consumer’s Magna
Carta
• Co-opted selfregulation
• Credit Card Act of
2009
• Customer Relationship
Management (CRM)
• Exaggerated claims
• Express warranty
• Extended warranty
• Full warranty
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Key Terms (continued)
• Implied warranty
• Limited warranty
• Mandated selfregulation
• Negotiated selfregulation
• Plot placement
• Product information
• Product placement
• Psychological appeals
• Puffery
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Pure self-regulation
Right to be heard
Right to be informed
Right to choose
Right to safety
Self-discipline
Self-regulation
Warranties
Weasel words
© 2012 South-Western, a part of Cengage Learning
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