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Steps to conducting an ethical audit

In order to conduct an ethical audit of an organisation, it is important to understand the dynamics behind the industry as well as competition in the sector. It is also necessary to identify the current ethical issues which the organisation faces within its industry. It is important for the organisation to present a marketing analysis for the identification of how the current market is segmented as well as how well the organisation is able to operate within the constraints of the industry.

The position of the organisation is also important with regards to the ethical issues of both the market and the organisation. The marketing mix or 4P’s is an essential guide to the positioning of the organisation as well as allowing those who investigate the marketing mix a picture of the organisation and their marketing strategy. The marketing of an organisation is essential to the understanding of any ethical issues which arise within the organisation or the industry. Marketing, according to Needham et al (1995: p. 4)

‘is the management process responsible for identifying, anticipating and satisfying consumer requirements profitably.’

Meanwhile Kotler et al (2010: p. 29) explains that marketing

‘is a social and managerial process by which individuals and organisations obtain what they need and want through creating and exchanging value with others.’

Ethical trading is an important concept in today’s society. This means that an organisation should take responsibility for the labour as well as the human rights practices within its supply chain. It is essential for an organisation in their own environment to conduct an ethical audit.

Analysis:

According to Harris (2008: p. 109)

‘Organisations might wish to conduct an ethical audit to examine the ethics of their marketing activities and identify areas for improvement.’

Harris (2008: p. 109) cites the work of Murphy et al (2005) suggesting that there are four types of ethical audit, which are philosophical, functional, compliant and cultural.

Tesco is a British supermarket chain which has an estimated turnover of £40 billion. The organisation was founded in 1919 by Jack Cohen when he started selling surplus groceries in London’s East End. From these beginnings Tesco became a name synonymous with quality. The brand of Tesco is an important factor in the industry. Baker (2003: p. 298) believes that brand identification is a key factor for the success of an organisation

‘consumers do not buy just physical attributes, but also the psychological associations associated with a supplier’s offers.’

The group has expanded on a significant scale since its humble beginnings and has stores all over the world as well as an online store. The core value of Tesco’s is to earn lifelong loyalty from its customers by creating value. The organisation believes that their vision is dependent on their employees and customers. Tesco’s believe that if their employees find their role within the organisation fulfilling they are more likely to go the extra mile, and that their customer base are more likely to be loyal and return if they are encouraged by what they are offered by Tesco. Their strategy (Every Little Helps) is based around this vision.

A strategy which Tesco have devised to become what the organisation terms a ‘better neighbour’ is to half the energy use in Tesco buildings by the end of 2010, the introduction of biodegradable bags, use more effective consultation processes with the community about the building of new stores and stocking more local produce. While their strategy on the use of biodegradable bags, recycling and energy preservation is welcome, it is hard to understand how issues like trying to get the produce from their suppliers at the lowest possible price.

Tesco are attempting to use more locally produced goods but they still maintain their ability to go further afield for their goods for the right price. Critics of Tesco claim that the organisation intimidates their suppliers into lowering prices, lowers workers conditions as well as animal welfare standards. The main issues behind the supermarket industry is packaging especially in the form of plastic bags. Another factor which affects the supermarket retail industry is the suppliers. Where does Tesco get its goods and products from? Are they locally produced etc. Tesco believe that it is their responsibility to ensure that ethical trading is part of their business and they recognise the need for this.

According to Harris (2008: p. 38)

‘Marketing research is a means by which organisations gain a better understanding of consumers and competitors and get feedback on their own marketing activities. It informs decision making.’

Through marketing research an organisation can understand the wants and needs of the consumer and attempt to rationalise these needs by providing the customer with the best produce and the best service available. It is important that the customer feels important to the organisation, in order for the customer to remain brand loyal. A number of factors must be taken into consideration when applying marketing and ethical audits. It is important that the organisation understand their target market. It is important for the organisation to address the needs of those who they wish to recruit to their brand. Tesco’s brand is their ability to compete successfully within the market forces and to provide its customer with the goods they want.

The management of marketing is fully committed fully to the practical techniques as well as the management of any organisational marketing activities. The marketing mix is important to any marketing strategy including the ethical audit. It is important to understand the organisation’s strategy on ethics, which needs to be incorporated into the marketing mix. According to Kotler et al (2008: p. 49) the marketing mix

‘is the set of controllable tactical marketing tools that the firm blends to produce the response it wants in its target market.’

The function of the marketing mix has a place within the ethical framework of the organisation, which defines the function of the product, the price, promotion and placing of the product in the market environment. The product market as defined by Lambin (2000: p. 246) is

‘A specific customer group, seeking a specific function or assortment of function based on a single technology.’

Product/ Service:

According to Kotler et al (2008: p. 49) the product is

‘Anything that can be offered to a market for attention, acquisition, use or consumption that might satisfy a want or need. It includes physical objects, services, persons, places, organisations and ideas.’

The product/ service is important to the organisation. The role of marketing within ethics is the ability of the role of the organisation to ensure that the needs of the customer are meet. Harris (2008: p. 55) writes that

‘giving customers what they want can create problems when what the consumers want is not necessarily good for them, for society as a whole or the environment. Kotler identified four classes of product along two dimensions: immediate and satisfaction and long run customer welfare.’

A product becomes deficient when it neither satisfies immediately or has the ability to long run customer welfare. The ethical issues rise in this case when products are pitted against the interests of others. This can be seen in Tesco attempting to apply prices to their suppliers. It also has an impact on locally harvested produce etc. One of the key factors of the product for Tesco is the subject of packaging. While Tesco’s maintain that they are going to implement the use of biodegradable bags, there is a need for them to be seen to do this. Harris (2008: p. 60) writes that

‘Most supermarkets now try to reduce the number of new plastic bags they issue to customers, through offering ‘bags for life’ or ‘points’ for reusing your own bag.’

Price:

Pricing as explained by Kotler et al (2008: p. 49) is

‘The amount of money charged for a product or service, or the sum of the values that customers exchange for the benefits of having or using the product or service.’

The factor of pricing is a complex issue. There are many types of unethical pricing practices. It is essential that an organisation such as Tesco realises how to apply competitive pricing strategies to their products and goods. Kotler et al (2008: p. 651) explain that

‘Good pricing starts with an understanding of how customers’ perceptions of value affect the prices they are willing to pay. Both consumer and industrial buyers balance the price of a product or service against owning it. Thus, before setting the prices, the marketer must understand the relationship between price and the demands for the product.’

Pricing is extremely important, Kotler et al (2008: p. 651) writes that

‘The sellers pricing freedom varies with different types of market, each presenting a different pricing challenge.’

This is especially true in the case of Tesco. Tesco have the ability to help improve on home grown products and to allow the supplier the ability to make some sort of profit. With Tesco’s it is important that they realise the use of products from within the country they are situated. Why pay more when they can source the products from close to the warehouses and distribution centres. This cost cutting exercise could save not only the consumer but also Tesco money.

Distribution/ Place:

Place or distribution strategy is dependent on how the organisation wishes to proceed in the future. An organisation such as Tesco’s needs to understand what the wants and needs of their customers are and how they can satisfy these needs. The distribution activities which Tesco have been criticised for are where they get their products from. There have been reports that those employees of Tesco’s in the developing world are not treated as well as they should be. Tesco’s audit against this practice. This is to ensure compliance as well as supporting their suppliers to help improve and maintain performance.

Suggested Actions:

There are a number of ways in which Tesco can become more ethically aware. Tesco as a company reiterate that they are becoming more ethically aware and that they carry out ethical audits along the supply chain. This should become standard practice across the whole industry to ensure that the organisation, the employee and the customer can all work in harmony to attempt to clarify Tesco’s position as a market leader in the supermarket industry. Tesco needs to take into consideration the effect that their pricing strategy has on the small supplier as well as the local supplier. If they are being priced out of the market, it is the economy which will pay in the long term with suppliers having to close due to the competitiveness of the market and distribution channels from abroad which are often cheaper.

For Tesco to become more energy and environmentally conscience there is a need for the use of biodegradable bags. If plastic bags are offered to the customer they will not refuse them. Paper bags are of no use in an industry like this as many goods are heavy and paper bags are not very durable. The ‘bag for life’ is an excellent campaign but not all customers will be happy with this and may need extra incentives. While Tesco offer customers extra points on their Clubcard if they use their own bags, it may be more suitable to offer something more substantial, e.g. if a certain amount of points are collected for the customer using their own bag, then the customer should be given a free ‘bag for life’.

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