Global business ethics lesson 05

43 Ethics in Marketing and Consumer Protection LESSON 5 ETHICS IN MARKETING AND CONSUMER PROTECTION CONTENTS 5.0 Aims and Objectives 5.1 Introduction 5.2 Ethics: Concept and Consequen

41 Ethics in Marketing and Consumer Protection

UNIT II

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Global Business Ethics

42

Global Business Ethics

43 Ethics in Marketing and Consumer Protection

LESSON

5

ETHICS IN MARKETING AND CONSUMER PROTECTION

CONTENTS

5.0 Aims and Objectives

5.1 Introduction

5.2 Ethics: Concept and Consequents

5.3 Unethical Practices - The Cause

5.4 Establishing Ethical Standards

5.5 Ethics and Marketing

5.6 Consumer Protection Act

5.6.1 Pecuniary Jurisdiction of the Redress Tiers Raised

5.6.2 State Commission to have Multiple Benches

5.6.3 District Forum Empowered to Give Punitive Awards

5.6.4 Review of Orders by National Commission

5.6.5 Power for the District Forum to Attach Property

5.7 Culture

5.7.1 Cultural Impact

5.7.2 Cultural Diversification

5.8 Let us Sum up

5.9 Lesson End Activity

5.10 Keywords

5.11 Questions for Discussion

5.12 Suggested Readings

5.0 AIMS AND OBJECTIVES

After studying this lesson, you should be able to understand:

z The ethics, concepts and consequents

z The unethical practices

z The ethics and marketing

z The Consumer Protection Act

z The cultural impact and diversification

5.1 INTRODUCTION

The question in marketing is: Why should marketers worry about ethics? What role do

moral values play in an economic system? Do competitive pressures conflict with

ethical considerations in marketing? Does the legal system provide too many or too

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Global Business Ethics few ethical constraints on the marketer? While most marketers have always been

conscious of ethical considerations, today's climate of consumerism renders many traditional attitudes obsolete Marketers must adopt a broadly based view of ethics if they really want to understand and meet the needs of today's customers

Is marketing completely unethical? More extreme critics appear to think so Others find it hard to see anything unethical about attempting to meet customer's needs with appropriate goods and services These contrasting view points span a variety of differing opinions on what constitute ethical practice in marketing In this lesson, we provide to explore the issue raised by these opinions and to provide some guidance to the marketer, who is increasingly be leagued by ethical criticism

Marketing consists of the performance of business activities that direct the flow of goods and services from producer or manufacturer to consumer or user A number of distinct functions are coming under this broad characterization which includes:

z Product Development

z Distribution

z Pricing

5.2 ETHICS: CONCEPT AND CONSEQUENTS

Ethics necessarily implies some set of criteria by which to judge the merits of a given act These criteria are moral value, or the rules of conduct deemed acceptable by society at a given time

For the marketer, whose promotional activities render him a very visible agent in society, two acute problems emerge from the definition of ethics Society is by no means homogeneous in its ethical values

Ethical values though defined 'at a given time', are not fixed and unalterable They change over time

The focus of ethics is normative, 'what should be', rather than 'what is', notions of the ideal vary from group to group and from time to time Marketers who wish to avoid criticism of their ethics are faced therefore with the unenviable task of attempting to make decisions which do not necessarily conflict with variety of changing ethical ideals This type of balancing act should not, however, be strange to the marketer

Example: Segmentation strategies reflect social heterogeneity Yet marketing seems

able to adopt to this complexity reasonably well It would be a very unperceptive and probably unsuccessful marketing manager who did not recognise the fact that markets

of the nineties will differ from those of the seventies or eighties Change and adaptation are not new to him

However, the ethical problems of the marketer can be painful Swept by the rising tide

of consumerism, business leaders who perceive themselves as acting with commendable moral diligence are pilloried by consumerists whose moral percepts are quite different For example, the controversy over television advertising to children Until nineteen sixty, there were virtually no guide lines or disapprobation Some questionable marketing practices were not unknown Over the years these have changed to depict product features and benefits more accurately Some interest groups and individuals remain adamantly against any children's advertising on principle Such fundamental differences are clearly difficult, to resolve on logical or empirical grounds

Many managers regard adherence to legal standards as sufficient guarantee of ethical acceptability But in most cases, the law represents the only available written embodiment of ethical standards However, at least in part, because of the nature of political and legislative processes, adherence to legal standards provides no guarantee

45 Ethics in Marketing and Consumer Protection

of freedom from ethical criticism The concern of consumerists focuses on the

inadequacy of existing law

5.3 UNETHICAL PRACTICES - THE CAUSE

The major cause is undoubtedly the pressure of competition Unless a firm can turn

ethical restraint to competitive advantage, it has little economic motivation to

maintain higher ethical standards With more widespread activism and concern on the

part of the consumers, the chances that economic benefits will accrue to the more

ethical market are definitely enhanced

Although ethics and profits are not necessarily mutually inconsistent, there is quite

often little likelihood or immediate economic benefit to the more ethical competitor

Legal standards represent the only set of rules which the competition may be expected

to obey; the astute manager will also adopt them If a given firm or manager wished to

employ more stringent standards, it could not without risking possible loss or profits!

Another factor bearing on ethical conduct is the prevailing practice in a department,

firm or industry The influence of such practices may cause a manager to act in a way

that he would otherwise consider unethical Prevailing practice becomes the dominant

influence

The time span within which decisions are made also favors the expedient over the

conscientious decision Even though the marketer may believe that ethical conduct

will produce more profit in the long-run, emphasis On immediate profits and the

short-run focus of managerial objectives and evaluation systems often tend to prohibit

a long-run view

Mitigating against the various pressures towards unethical behaviour are opposing

forces including in many cases, the values of the manager Consumer and religious

groups and the publicity they generate also have an inhibitory effect, as do

investigative report by the media

Government agencies, by no means insulated from the pressures of public opinion are

frequently in a position to exert direct influence on marketers to change their

behaviour

The attempts by various business leaders, companies, associations, and professional

bodies to establish and maintain ethical standards of behaviour undoubtedly

countervail some of the tendencies to unethical behaviour

5.4 ESTABLISHING ETHICAL STANDARDS

The considerable concern over ethics is reflected in the large number of organisations

that have attempted to codify ethical standards Such codes are usually based upon

legal standards, industry practice, religious ethical ideals, and the values professed by

their developers etc Standards must be communicated before they can be effective It

can certainly be argued that there are merits to an explicit statement of ethical ideals

The exercise seems futile, however, unless employees or members comply with those

standards Ensuring compliance is a weakness of most codes For the manager who

wishes to secure subordinate's adherence to a set of ethical standards, there is no

practicable alternative to making those standards part of the system of performance

evaluation, and control

For maintaining ethical standards in marketing, the firm itself must provide the

standards and the control system, should it not be satisfied with existing performance

Implications

These are Ethical attacks on marketing will continue, as long as there is heterogeneity

of opinion over what are the 'right' moral values, there will be conflict There is also

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Global Business Ethics an inherent danger of the competitive system inducing downward spiraling of ethical

standards, to a lower bound set by legal standards

A good case can be made that it is unfair to expect firms in competitive industries to

do other than stay within the law Critics must look to the law, rather than spontaneous action of companies for setting new ethical standards for marketing practice Only then consistent standards may be obtained

Many marketing managers do not view the regulatory incursions of government dispassionately The onus on those who feel the way is to provide a non-governmental remedy, through establishing and maintaining by management control, effective ethical standards for company decisions A first step toward such a system is to open

up lines of communication to those who criticize marketing ethics

5.5 ETHICS AND MARKETING

Ethics are standards of moral conduct To act in an ethical fashion is to conform to an accepted standard of moral behaviour Undoubtedly, virtually all people prefer to act ethically It is easy to be ethical when no hardship is involved i.e., when a person is winning and life is going well The problem comes when it is the other way-Pressures build These pressures arise in all walks of life; marketing is no exception Marketing executives face the challenge of balancing their own interests in the form of recognition, pay, and promotion, with the best interests of consumers, their organisations and society into a workable guide for their daily activities In any situation, they must be able to distinguish what is ethical with unethical and act accordingly, regardless of the possible consequences Many organisations have formal codes of ethics that identify specific acts (bribery, accepting gifts etc.) as unethical and describe the standards employees are expected to live up to these guidelines lessen the chance that an employee will knowingly or unknowingly violate a company's standards Codes of ethics strengthen a company's hand in dealing with customers or prospects that encourage unethical behaviour For young or inexperienced executives, these codes can be valuable guides, helping them to resist pressure to compromise personal ethics in order to move up in the firm

Every decision cannot be taken out of the hands of the manager Determining what is right and what is wrong can be extremely difficult It is not possible to construct in an organisations to construct a two column list of all possible practices under the headings 'ethical' and 'unethical.' A marketer also finds it difficult to evaluate a situation and formulate a response

Arthur Anderson and company has developed an ethical reasoning model that can be taught to current and future managers

The procedure consists of:

Step 1: Identifying the decision options and the likely consequences of each

Step 2: Identifying all individuals and organisations that will be positively or

negatively affected by the consequences of each option

Step 3: Estimating the negative impact (costs) and positive impact (benefits) of each

option from the point of view of each affected party, taking into consideration their particular interests and needs

Step 4: Ranking the costs and the benefits of each option and making a decision

This approach is an attempt to be systematic and logical in ethical decisions It works only if the decision maker can be objective and impartial Ethical situations are freely charged with emotion An alternative approach that attempts to personalise the situation may be more effective Faced with ah ethical problem, one should be honest

in answering the following questions which indicates the route to follow:

47 Ethics in Marketing and Consumer Protection

z Would I do this to a friend?

z Would I be willing to have this done to myself?

z Would I be embarrassed if this action were publicized nationally?

Check Your Progress 1

1 What is ethics?

………

………

2 What is the major cause of unethical practices in marketing?

………

………

5.6 CONSUMER PROTECTION ACT

Changes, the good and the Unnecessary

Recently the Consumer Protection Act, 1986 was further amended Let us look at a

few amendments and their relevance

Act not for commercial purpose

What does this mean’ An answer must be preceded by looking at how the old Act was

used to expand the scope of the Consumer Protection Act of 1986.The old Act

allowed small business person-for example, a tailor-to seek redress for free repair or

replacement of the tools/machinery used in their business But lawyers have the ability

to expand the scope of any law, and with District Forum and the State Commission

lax in their approach, large companies began to benefit by this law A main advantage

was that they did not have to pay the heavy stamp fee to the courts Thus, for example,

a large textile mill, which bought a few genets, approached the consumer forum

seeking replacement of a defective one

Soon the Consumer Forum and the State Commissions were loaded with litigations

which could have been handled by civil and criminal courts The latest amendment

shuts the door for any commercial activity Not even a tailor can approach the

consumer forum fir redress,

While this is welcome, the amendment could have been such that the spirit of the

primary Act was retained For instance, the amendment could have allowed only

individual, who are defined as consumers, and those who practice a trade or run

single-person enterprises to seek redress under the CPA

5.6.1 Pecuniary Jurisdiction of the Redress Tiers Raised

A new amendment allows the District Consumer Forum to entertain complaints up to

Rs 20 lakh But how many articles bought by individual cost so much? Why, then

raise the pecuniary jurisdiction? Consumer Forum and the State Commissions award

little compensation for loss of income, mental agony and anguish, etc Compensation

rarely exceeds a few lakh rupees

Continuing this to allow original complaints at the National Commission of pecuniary

jurisdiction beyond Rs.1 crore, to my mind, is simply ridiculous; District Forum or the

State Commission can pass the interim order This is a good amendment With the

application of other provisions in the Consumer Protection Act, and including the

clauses taken out from the MRTP Act on unfair trade practices, this amendment

becomes very useful The use of this provision will be available in many other

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Global Business Ethics instances also For instance, an insurance company receives an accident claim, say for

Rs.50,000 The insurance company wants to settle for Rs.10,000 But the consumer is not satisfied and therefore petitions the District Forum The District Forum can order

an interim payment, if convinced with the consumer’s case, and asks the insurance company to pay a minimum sum

This provision will also help, say, if large-scale adulteration is detected While the District Forum or the State Commission can take up this matter on a petition, they can immediately on receipt of the petition, order the alleged defaulters to stop selling the product This amendment can be very useful in restraining unscrupulous traders, manufacturers and service provider from taking advantage of consumers

5.6.2 State Commission to have Multiple Benches

This is an important amendment, especially as thousands of cases remain pending for years With little support from the Department of Consumer Affairs, and Consumer Welfare Fund, it is possible to set aside some money to create multiple benches for all State Commissions

5.6.3 District Forum Empowered to Give Punitive Awards

Again, this is important, as the District Forum can now be a little more generous in awarding damages The District Forum should be able to award punitive damages when a registered appointment letter is not delivered in time and a person fails to secure a job Of course, the consumer must be able to prove that an appointment order fixing a date of joining duty was not received on time and, therefore, a career opportunity was lost

Similarly, the loss of a limp or disability due to negligence leading to loss of income for a period must also considered for punitive damages This should also be followed

in certain cases of insurance claims While the amendment offers considerable scope, the problem might be in proving a petitioner’s point if view

5.6.4 Review of Orders by National Commission

It is possible that the petitioner/consumer dose not agree with an order of the National Commission Instead of going for an appeal to the Supreme Court, it is now possible

to ask a review of the order

5.6.5 Power for the District Forum to Attach Property

A survey of how effective were the orders of the District Forum and the State Commissions revealed that in many a case though the consumer got a favorable order, the final outcome was zero as the order could not be enforced A new amendment to the Act allows the Consumer Forum and State Commission to ask the District Collector to recover the amount due to the consumer by attachment and sale of property This is an important and useful amendment

While all these change are useful for the Consumer Protection Act to be consumer friendly, further amendments are necessary But the most important thing to remember

is that the consumer protection law intended to be quick, simple, effective and inexpensive One hopes that the Consumer Protection Act will be implemented with its original spirit and zeal

Check Your Progress 2

What is the new amendment in the Consumer Protection Act, 1986 regarding review of orders by National Commission?

………

………

49 Ethics in Marketing and Consumer Protection

5.7 CULTURE

Culture can be defined as all the ways of life including arts, beliefs and institutions of

a population that are passed down from generation to generation Culture has been

called "the way of life for an entire society." As such, it includes codes of manners,

dress, language, religion, rituals, norms of behavior such as law and morality, and

systems of belief as well as the art

5.7.1 Cultural Impact

Cultural Impact is the effect the culture has on a particular region, habit, place, events

etc cultural impact has a varied effect It may be high, low or even negligible level of

effect Some examples of Cultural Impact are the effect on super bowl on purchases,

Impact of I-Way on Internet Behaviour etc

5.7.2 Cultural Diversification

Cultures can be born from centuries of input; they can also be erected in a matter of

days if not hours! Individual streets, towns and countries have their own cultures!

Office workers and coal miners have their own workplace style or environment!

Seafarers have a culture, not only as a collective but onboard their individual vessels!

Even pubs, restaurants and camper van parks have their very own ways, ones that

belongs solely to that particular establishment or group

Cultures can be changed and adapted, destroyed or made monumental! They might be

set down on paper, unbreakable through finite detail and with strenuous clauses that

will last through the centuries They could also be a product of word of mouth or even

less a result of silent acquiescence that might adapt or change as situations or people

demand!

Cultural diversification makes this world an extremely interesting to live in To be

different and to find out that 'my way is not the only way' is ultimately exciting

Cultural diversification should be embraced and grasped by everybody, not shunned

or demeaned through lack of understanding as it so often is To be different, to be an

individual is worthy of existence, whilst to be all the same would ultimately result in a

total lack of identity, not to mention the fact that if everybody was the same life would

be very boring indeed

Understanding the Cultural Diversification Process

The cultural diversification process also deals with one of the most volatile,

challenging, and demanding issues in the last 6,000 years of history and the last 500

years of modern history Human relations will be one of the central, and determining

factors for the 21st Century Either we will learn to live together in peace, with mutual

tolerance acceptance and appreciation as our social protocols, or we will be faced with

increasing conflict in a futile effort at resisting irreversible global environmental,

demographic, and economic forces that are changing the reality of life on planet earth

The challenge today is for each tribe to find its place in the global/super-tribal society

Check Your Progress 3

Fill in the blanks:

1 Consumer Protection Act, _

2 _ makes this world an extremely interesting to live in

3 _ will be one of the central, and determining factors for the 21st

Century

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Global Business Ethics 5.8 LET US SUM UP

Mahatma Gandhiji, The Father of our Nation, has said “The customer is not an interference in our Business He is the very purpose of our Business’’ Markets do not exist in vacuum People are the markets Products and services are meant to enhance the comfort and welfare of the consumers If marketing takes care of the welfare of the consumers, sales revenue would automatically multiply

5.9 LESSON END ACTIVITY

List down unethical marketing behaviours found in various marketing areas Explain each of them

5.10 KEYWORDS

Marketing: Flow of goods and services from producer/manufacturer to consumer or

user

Culture: The ways of life passed down from generation to generation

5.11 QUESTIONS FOR DISCUSSION

1 Enumerate the role of ethics in marketing

2 Explain cultural impact on cultural diversification

3 What is healthy competition? Give examples to substantiate your answer

4 Elucidate the laws protecting consumer’s interests

5 Explain ethical and social issues in advertising?

Check Your Progress: Model Answers

1 Ethics necessarily implies some set of criteria by which to judge the merits

of a given act These criteria are moral value, or the rules of conduct deemed acceptable by society at a given time

2 The major cause is undoubtedly the pressure of competition Unless a firm can turn ethical restraint to competitive advantage, it has little economic motivation to maintain higher ethical standards

It is possible that the petitioner/consumer dose not agree with an order of the National Commission Instead of going for an appeal to the Supreme Court, it is now possible to ask a review of the order

1 1986

2 Cultural diversification

3 Human relations