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ETHICAL ISSUES IN MARKETING

EXECUTIVE SUMMARY

This report aims to describe, how ethical issues can affect each component of the marketing mix. The report starts of by introduction to the ethics in an organisation and the importance of business ethics in the society. The report also examines the various factors which have a impact on the ethical nature of the marketing decisions. Two well-known companies have been taken into account for better understanding and demonstration of the discussion.

INTRODUCTION

A rose …. By any other name would smell as sweet.” SHAKESPEARE, Romeo and Juliet

There is an inevitable and universal cycle between consumers and marketers. The main aim of any marketer is to satisfy customer needs and wants. Marketing provides the exchange link between customers and marketers which would eventually help in increasing return on investment for shareholders. (Smith 1995; Dunfee, Smith, and Ross 1999)

Both marketers and the consumers have different mind set while selling or purchasing the products. The sole main of companies is to maximise their profit and consumers is to have a value for money product and services. This difference in thinking leads to conflicts on the basis of ethics. (Smith 1995, 1993)

The basic ethical issues like, justice, rights, fairness and equality can be perceived in a different manner by consumer and the companies. (Dunfee, Smith, and Ross 1999)

In some instances both consumers and the companies may believe on the same ethical grounds for e.g. in principle, providing a unique, value for money product and services. Whereas, research has shown that there is a wide gap between the ethical philosophies of both consumers as well as marketers, (Singhapakdi et al. 1999) which results in unethical behaviour by consumers including boycotts and protests.

(Smith and Cooper-Martin 1997)

IMPORTANCE OF ETHICS

A CONTINGENCY APPROACH-

The ethics era began around early 1980s, when researchers and businesses started giving more attention to the ethical side of the business. (Macchiette and Roy 1994; Smith 1995)

Many theories have been proposed since then in order to draw promote consumers rights and moral values. Including- social contracts theory, moral decision-making theory (Laczniak and Murphy 1991), general theory of marketing ethics (Hunt and Vitell 1986) and social contracts theory (Dunfee, Smith and Ross 1999). These theories are basic and are developed over from the old, classical theories including Kantian ethics and perspectives of rights, duties, and justice.

The main aim of all these marketing ethics theories and even business ethics in modern world is to increase consumer's confidence and develop trust for the companies and thus having customer loyalty. The business ethics also helps companies to gain competitive advantage in the market for instance- Anita Rodick- Body Shop and Richard Branson's Virgin group. REFERENCE NEEDED

ETHICAL ISSUES IN MARKETING

Marketing in any companies starts with the basic step of marketing research which is then followed by segmentation and targeting the market. Thought marketing research is followed to gain knowledge about the market and the competitors but some how- knowingly or un-knowingly, companies tend to invade the privacy of the consumers by following un-ethical method of gathering information. Even while conducting the research, researchers tend to stereotype among people in order to get the desired result which in turn results in wrong information about customer needs and demands.

While s

In terms of targeting the market, companies also aim at the young children, who do not have the right knowledge, thus they choose the market audience of their choice knowing they will benefit the maximum. For instance- a chocolate ad will show a kid playing and eating melted chocolate but it never says, brush your teeth after having it.

Now, to be more specific, we will look at the ethical issues related to the marketing mix- 4P's.

PRODUCT & PRODUCT MIX

There are four major issues with products: deceptive packaging, product safety, brand divisive and planned obsolescence

Product safety

Safety is first. A major impact is being made to make the product safe and secure for the consumers to use. Almost all the products in the market use some or the other form of technology which may or may be harmful for the consumers. It is the duty of the marketers to ensure the safety of the product before placing it in the market.

For instance, according to BBC news, 2007, the biggest toy making company in China - Mattel had recalled 9 million products due to danger from magnet and lead paint. This violates the consumer's ‘right to safety'. BBC news, 2007

Planned obsolescence

Nothing lasts forever but the question is who and how is to decide the time frame for deciding when is the replacement required. Cars rust, clothes fade or go out of fashion. If companies make efforts to increase the quality of the products, there are many customers who would love to keep their cars for a longer period of time than they can. However, for the producers it's a wear-out is positive as it results in increase in demand of their other goods and services/ repeat purchase. Some people argue that if the product has been planned to be obsolete form the market, it violates customers ‘right to choose'. The car manufacturers like Ford have recently come up with their latest cars having their body shells much more resistant to rust proving a 3 years minimum guarantee.

Ford, 2010

Deceptive packaging

This is a very common practice, also known as ‘slack packaging' followed by many companies as they show the product to be over sized by packaging effects giving customers an idea of buying more for the same price than the competitor. Product such as- cereals, crisps or even soap powders are such examples.

Packaging sometimes also includes misleading labelling. In terms of missing information on package about various ingredients or even a sentence which could be useful in consumers decision making process leads to violation of consumers ‘right to information'.

Brands Divisive

Branding is something that is used by companies to differentiate their product than that of the competitors. The well known sports brand NIKE is supposed to be sport-wear of high quality, durability and is also proposed to be in the top segment in the market. Some people argue that Nike is a brand rather than a product, much similar to the Apple ipod from Apple. Nike does not produce anything of its own. The entire production is outsourced to less developed countries like India and Indonesia. The retail price of a Nike today may be £100 on an average but according to a report from 2001, the full time wages for an employee were around the legal minimum of 17,000 Rupiahs (£1.22/) per day.

The problem with branding is that big brands like Nike, Apple have all the power, even though they get their products made in poor countries, wealth is still in few hands only. Working is Nike leads to a disproportion of profits and power on a global level due to which poor countries are left with low margin production units.

PRICE

Price is something of value charged by the producers in exchange of his products or services. The various un-ethical pricing practices are:

Price fixing:

It is a situation where the competitors agree to charge a fixed, raise or maintain price, in simpler terms manipulate price. Price fixing can be done for different reasons- to discriminate against small firms, remove competition by fixing price in specific areas and enjoying monopolistic market. Thus in 1980, the Sherman Act was introduced to ensure fair pricing between both consumers and businesses.

http://bizcovering.com/business-and-society/price-fixing/

Bid rigging

This is a situation or fraud where the commercial contracts are promised to only one party even if there are other bidders present. Price rigging is a form of price fixing itself and is illegal in many countries. Usually occurs in big tenders for governments or private companies for construction. The ill-effects of price rigging fall on the local consumers [tax payers] as well as the agencies who seek to bid and thus effects the overall economy.

Price discrimination

It is often referred to as price differentiation due to the fact that different price are being charged by companies for the same product or service to different customers depending on the market segment and rules set prior to the service, for instance in the travel industry a flight may charge $160 from destination A to B and the same flight may charge $200 to the same destination due travelling on a weekend. Another example can be if u book British Airways from A to B for next day travelling you might end up paying almost double, what you could have paid if you would have booked in 2-3 months in advance.

Price skimming

Many companies follow price skimming strategies in order to gain more revenues before competitors enter the market. Apple iPhone could be the best example to explain the skimming of prices. iPhone was launched with the buzz marketing and unique technology. They made sure that their target market will jump on the products whenever they launch. Having a high introductory price for one year, Apple gain the all the money and confidence of consumer of a superior product and later slashed the price to gain more markets. Price skimming is a temporary form of price discrimination allowing companies to recover their sunk cost.

Dumping:

Dumping or ‘selling lower than the fair value' is a situation/act where companies charge less in the foreign markets compared to that from the home markets for the same products. Dumping according to WTO is condemned but not prohibited

PROMOTION

Promotion plays a very important role in welfare of the company and thus sometimes companies do anything possible to promote their offered product and services even by unscrupulous means. Advertisements tell the consumers what they would want to hear about the product. No company would ever promote or say negative aspects of their products. The Ads thus, lack in honesty and the complete truth about the features of the product.

Some times while promoting certain products, companies need to make sure, they do their homework by knowing about the culture of the country in order to telecast any ad on the television as no person in Saudi Arabia would like to see women advertising about suits and fairness creams. Or no person would like to see promotion of beef burgers by McDonald' in India. Competitive ads sometimes can be misleading and create controversy.

Ads also have a Some

- Taste and controversy

- Negative advertising

* False and misleading advertising

* Creating demand for vice or unwholesome products

§ Tobacco?

§ Alcohol?

§ Fattening foods?

§ Pornography or sexually explicit material?

* Intrusive promotions

PLACE

Slotting allowances: The fee charged to have their products placed on the shelves by the retailers to produce companies or manufacturers is called a slotting fee,slotting allowance, pay-to-stay, orfixed trade. It depends on factors such as the product, market conditions and the manufacturer of products and so varies greatly. For instance while the initial slotting allowance in a regional group of stores for a new product can be approximately$25,000 per item in high demand markets it can go as high as$250,000.

Promotional, stocking and advertising fees are amongst the other fees that can be charged by the retailer. This practise, according to an FTC study, is ‘widespread' in the supermarket industry.

Many grocers even earn more profit from agreeing to carry a manufacturer's product than they do from actually selling the product to retail consumers.

Buyback / stock lift / lift-out

Gray market merchandise: Generally, it is a single importer a manufacturer would work in a particular area to sell and support their products. The importer further has local dealers and distributors to whom he resells the imported products; this results in a “distribution channel”.

Gray Market, on the other hand, refers to use of methods other than these normal channels to sell and import merchandise. Items thus sold may not be meeting mandatory safety and certification codes, and so are not supported by the authorized importer and are not designed to be sold in a particular market. It also follows that as there is not a particular market for these items they may not function properly, or the authorized importer may not be equipped to provide service, support or software. OR the unofficial trading of securities that have not yet been formally issued

Diverted merchandise

Exclusive geographic territories

Exclusive dealing agreements

Tying contracts

Refusal to deal

Ethics and the supply chain

A claim to be an ethical firm would be hypocritical , if a firm turns a blind eye to the unethical practices of suppliers in a supply chain. In particular:

The use of child labour and forced labour

Production in sweatshops

Violation of the basic rights of workers

Ignoring of health, safety and environmental standards

An ethical producer has to be concerned with what is practiced by all firms (upstream and downstream) in the supply chain.

CASE STUDY

On July 4, 1977, a boycott was launched in United States against the Swiss based Nestle corporation over the company's marketing of its infant formula (breast milk substitute) particularly in less economically developed countries. Protesters claimed that the infant formula caused unnecessary death of suffering of babies, largely among the poor. The movement quickly spread throughout United States and expanded into Europe as well in the early 1980s.

ProfessorDerek Jelliffeand his wife Patrice, who had contributed to establish theWorld Alliance for Breastfeeding Action(WABA), were particularly instrumental in helping to coordinate the boycott and giving it ample visibility throughout the world.

Did you know that the most efficient step in fighting infant deaths is breast milk? Breast milk works as natural vaccinations against many diseases. If all mothers in poor countries would breast feed their children for the first 6 months, and partially the next 6 months, millions of children would survive. They would develop a natural resistance against deadly diseases.

Baby bottle disease, according to the finding by WHO, kills more than 1.5 million children every year. The cause of this is that the substitute for breast milk is made with unclean water and in an unhealthy environment. Even mothers with HIV would be better of breast feeding their children. In these countries breast milk substitute is lethal! They are poisoning their own children to death! This is murder! This is child murder!

So why do these poor mothers give their children breast milk substitute?

Nestle told them to

Nestle tells them their own breast milk is unhealthy

Gives away free samples

Buy their way into hospitals to push their product

Against the law uses direct advertise to mothers.

Because companies like Nestlé uses unethical methods to get mothers hooked on their products, World Health Assembly (WHA) made a resolution called theInternational Code of Marketing of Breast-milk Substituteswhich Nestle and other manufacturers have signed. Still Nestle do not follow this code, and is reported every single year for violations.

Primark tops list of unethical clothes shops in poll that shames high-street brands

by Jennifer Whitehead, 08-Dec-05, 15:00

LONDON - Low-price fashion success Primark has been named the least ethical clothes brand in the UK, with Marks & Spencer also scoring poorly, by a new survey highly critical of the way high street brands source their wares.

The survey, whichhas been conducted by Ethical Consumer magazine, found that only five high street brands scored 10 or over out of 20 assessing their ethical standards.

Primark was the worst offender, according to the survey, with a score of 2.5. It is followed by Mk One, at 3 points, with Marks & Spencer, Debenhams and Gap filling out the bottom five.

http://www.brandrepublic.com/News/532319/Primark-tops-list-unethical-clothes-shops-poll-shames-high-street-brands/

Child labour

On 23 June 2008, Panaroma, a BBC show, broadcasted aprogramme that showed unethical manufacturing practices in Primark's supply chain. Child labour practise was exposed by undercover reporters in three of India's garment factories sub-contracted by Primark.The BBC alerted Primark to their findings, to which Primark replied: “Under no circumstances would Primark ever knowingly permit such activities”. Primark has since halted business with the mentioned suppliers, but this action by the company was criticised by child protection groups as being irresponsible and likely to cause additional hardship to the labourers. They argued ensuring better working conditions would have been a better solution.

http://en.wikipedia.org/wiki/Primark#Criticism

CONCLUSION

All in all, it can be seen that in developing countries ethical issues in are highly sensitive to cultural, social and ethnical issues. Thus it is not just an issue of the orient versus the occident. The onus lies on the marketers themselves to not indulge in unethical practices and to respect local values and morals, in order to be a good ethical citizen in the marketing fraternity.

Counterfeiting: imitation, faking, pre-emption, prior registration.

Consumer ethics: warranty deception, mis-redemption of vouchers, returns of merchandise,

recording of music and videos, software copying, false insurance claims

RECOMMENDATIONS

With public attention focused on ethics, there is a need for stricter controls in business practices, right from framing marketing strategies to finally delivering a product to the consumers.

REFERENCES

http://www.allbusiness.com/marketing/market-research/728730-1.html

http://wiki.answers.com/Q/What_are_the_ethical_issues_in_marketing

http://www.msnbc.msn.com/id/20254745/

http://www.ford.co.uk/Fordforbusiness/Warranties/NewCarWarranty