The Role of Ethics in Marketing Mix Decisions

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  1. The Role of Ethics in Marketing Mix Decisions

Marketing leaders encounter a barrage of ethical problems with regard to the overall aspects of any job on a day-to-day basis. As has been seen, different regulations, together with various cultures, complicate ethical dilemmas, especially in the international arena. In an attempt to address these dilemmas, ethical questions regarding the essential elements of the marketing mix—product, price, distribution, and promotion policies—will be discussed in detail in the following sections.

Each element of the marketing mix will be discussed as it relates to international business, with the goal of understanding the role of ethical – or unethical, as the case may be – behavior. Theory behind the element and specific cases will be presented in an attempt to analyse the role that ethics play in international marketing decisions.

  1. Ethical issues in Product Policy Decisions

The decisions a corporation makes with regard to its product design implicitly impact all aspects of the marketing mix. Due to the fact that a growing number of companies are focusing on expanding their sales in an increasingly globalised world, the diversity of ethical standards further leads to difficulty within the decision-making process. As seen previously, what one state perceives as 'ethical' may not be seen in a similar manner in another state. Because of these differences, most corporations use the "least common denominator" approach - product decision-making according to the strictest legal requirements of the states where they do business. However, some scholars argue that this is not equitable and that marketing leaders should handle ethical issues according to virtue ethics (Hursthouse, 1998). That being said, according to the principles of virtue ethics it is important to do what is 'right', instead of doing just what is requested by law.

There are various points of view regarding the responsibility that multinational corporations have for their clients. Pros and cons will be more apparent in the foregoing, where four elements of product policy that highlight key ethical issues for international marketing leaders will be analysed, namely: product safety, product positioning, product packaging and labelling, and counterfeiting.

2.5.1. Product safety and design

2.5.1.1. Theoretical aspects

Product safety represents an inherently subjective concept, and is “like beauty, in the eye of the beholder” (Hasnas 2010, p. 31). Three distinct perspectives of a manufacturer's responsibility to protect the safety of the consumers have been identified, namely “the contract view, the ‘due care’ view, and the social costs view” (Velaquez 1998, p. 325). However, little attention has been paid to these concepts, resulting lately.in numerous lawsuits regarding product liability. These product liability complaints occur due to “expansive, comprising liability for manufacturing defect, design defect, and failure to warn” (Polinsky, A. Mitchell and Shavell, 2009, p. 2). As a result, marketers need to carefully consider the issue. Table 3 below presents typologies and legal bases for some product liability cases.

Table 3. Product liability ethical issues

Source: Majtán andDubcová, (2008) pp. 4-5

It is increasingly being recognized on an international scale that corporations should assume responsibility for the safety of their products. Indeed, the liability of manufacturers of products that harm consumers - product safety - has gained prominence the world over. Many product liability cases are filed every year in various courts, including class action suits that include many people as plaintiffs. Generally, the legal foundations for product liability suits tend to be expansive, comprising liability for manufacturing defects, design defects, and failure to warn. Such cases of product liability receive major attention from the mass-media, especially if they are high-profile, world-renowned products and harm many customers (Polinsky and Shavell, 2010, p. 1439). This recent increase in liability suits is of major importance as clients desire and expect safe products.

However, the reality is that consumers depend on governments to guarantee that manufacturers and retailers are not going to sell unsafe products. Because of the current legal environment and because of the volatility of a corporation's reputation, decisions regarding product safety should not be difficult to make. Still, companies sometimes face an interesting challenge: while safer products tend to cost more, clients do not desire to pay the increased cost. To make matters worse, there are countries where the highlighting of safety issues could make some clients question what they previously had assumed was a safe product. There is an inherent agreement to assume some risk on the part of the buy, however, as:

“Implied and expressed claims of product safety refer to the degree of risk associated with using of product. Since the use of virtually any product involves some degree of risk, question of safety is essentially question of acceptable known levels of risks. That is - a product is safe if its attendant risks are known and judged to be “acceptable” or “reasonable” by the buyer in view of benefits the buyer expects to derive from using the product. This implies that the seller complies with his or her part of free agreement if the seller provides a product that involves only those risks he or she says it involves and the buyer purchases it with that understanding.” (Majtán & Dubcová 2008, p. 2)

It is generally accepted that the product or service seller has a moral duty to offer a product whose use implies no greater risk than that which the seller expressly communicates to the buyer or that which the seller implicitly communicates through implicit claims made when marketing the product or service for a use whose normal risk level is widely known. There are other questions which emerge, however. For example, is a manufacturer responsible to do the right thing for clients, in spite of the fact that customers may not want it? Take, for instance, the example of seat belts, which represent standard safety equipment in automobiles. Many people are against wearing safety belts. Additionally, what happens in cases where clients request features which the corporation perceives to be bad for the client (for instance, too much sugar in children’s cereals)?

Another important matter regarding product safety and marketers concerns varieties in safety legislation in different states. On an international level, this is an issue which is currently taken care of by the European Union. However, if we consider examples of product safety (or lack thereof), the most recent international product safety scandal was the horsemeat affair that took place in most European countries, but also in the United States of America.

  1. Product safety and design cases

In order to understand the key issues regarding the ethids of product safety and design on an international level, the following table presents two examples of cases which deal with this issue.

Table 4. Product safety and design cases

Examples of Product Safety and Design Cases

Product safety

The Swedish furniture giant, IKEA was drawn into Europe's growing food-safety scandal after food inspectors in the Czech Republic found traces of horse meat in a batch of IKEA's signature food item. While the scandal raged in Europe for weeks, many of the tainted products were relatively obscure. Not so for the IKEA meatball, an estimated 150 million of which are consumed around the world. The store in Stockholm, for instance, features several cafeterias that typically have meatballs on the menu. Shortly after the scandal broke, however, signs that traditionally advertise those dishes had been removed and the main menu item was a beef dish with cream sauce and potatoes. Swedish corporate integrity was questioned. The scandal first erupted after Irish authorities tested suspiciously cheap frozen beef patties and discovered they contained horse DNA. It swept quickly across Europe, prompting supermarkets in numerous countries to pull processed meat products from their shelves.

Product design

In the late 1960s, Nestle was criticized by social activists for its marketing of powdered milk formula for infants in less developed countries. The case became well-known as Nestle became the target of a well-organized boycott campaign. It was directed at Nestle as an evil collective corporate entity rather than at specific named managers as particular villains within Nestle, individually responsible for Nestle’s corporate actions. Even if there had been individual identifiable villains within Nestle’s senior management, it was considered unlikely that their unethical behavior would continue after the boycott.

2.5.2.Product positioning

2.5.2.1. Theoretical aspects

Positioning a product correctly is of major importance in reaching the targeted market as well as in gaining a competitive advantage. This is widely important on the international scene, where competition tends to be stiff and positioning could differ by country. Indeed, product positioning as well as target marketing could become unethical, even in cases where the product itself is perfectly ethical. This could occur in the case when the target market is not able to consider in a rational manner the data and will thus make uninformed or poor choices. There are plenty of examples, but we will only focus on a narrow segment, those that highlight the relationship between the retailer, producers and clients starting from the shelf fee. This context raises some questions, among which the most important are: Is it ethical for retailers to take advantage of their position in such a manner to charge the producers for the shelf positioning of their products? and To what extent is this procedure correct, from the competition perspective?

2.5.2.2. Product positioning cases

Table 5. Product positioning cases

Examples of Product Positioning Cases

Weak positioning

Companies sometimes do not express strongly enough what they stand for. For instance, many people don’t really know what IBM does. Many people would say computers… Yeah, a few years ago that would have been true. But at the moment IBM sells software.

Strong Competition

When Pringle's "new-fangled" potato chips were introduced, they quickly gained market share. However, Wise potato chips successfully repositioned Pringle's in the mind of consumers by listing some of Pringle's non-natural ingredients that sounded like harsh chemicals, even though they were not. Wise potato chips, of course, contain only "Potatoes. Vegetable oil. Salt." As a result of this advertising, Pringle's quickly lost market share, with consumers complaining that Pringle's tasted like cardboard, most likely as a consequence of their thinking about all those unnatural ingredients.

2.5.3. Labelling and Packaging

2.5.3.1. Theoretical aspects

Corporations which sell their products in international markets are forced to achieve, as much as possible, economies of scale in order to cut costs. Corporations, thus, make efforts to standardise of products and promotions, and at the same time try to achieve standardization regarding packaging and labelling. It is true that labels are important to a product’s success, simply because they capture consumer attention and communicate details concerning the product and its usage to the client. In cases where markets are alike, economies of scale can be easily touched. For years now, for example, English has been thought of as the "international" language for commercial issues, and thus plenty of European and American manufacturers use it. Therefore, English became the 'international' language for commerce, and this is the reason why many European and American manufacturers have a tendency to use English labels on their products. Many products from Europe (for instance Johnson's Baby Shampoo), utilise a 'Eurobottle' label to reach the client. But what about clients who buy the product without being able to read one of the languages on the label (eight in total) and consequently misuse the product? (Jeannet and Hennessy 1995, p. 75) Additionally, the migration of people in today's world further augments the dilemma. Is Johnson & Johnson responsible for any problems caused by consumer misunderstanding?

Another example could be “food processors” that use “deceptive packaging of numerous products” (Hooker, 2003, p. 5). In such cases, when a food processor puts false labels on packaging (horsemeat scandal, for instance), it is unclear whether clients are “in on the game” and expect this sort of thing. The ethical problem of untruthful packaging includes issues like tampering with packages or slack fill (that is, clients being cheated because packages are only partially full) (Smith and Quelch, 1993, p. 142). Therefore, misleading or unclear labelling continues to be a concern to the extent that “if consumers are not able to understand the information presented to them correctly, they may make poor choices that are beneficial to the retailer” (Schlegelmilch and Öberseder 2007, p. 17)

Not only does a label communicate quality – or lack thereof -- in an explicit manner, country-of-origin labels may communicate quality as well. That is, through the identification of the product’s origin, the marketer hopes to invoke some quality attributes that could help sell the product on the international market (Samli, 1995, p. 62). There are also cases where the country-of-origin label is deceiving. Another major issue is warning labels (also addressed in the product safety section). Warning labels are being increasingly used by companies in order to diminish their exposure to product liability suits. Still, as already seen, there are many lawsuits on product liabilities involving warning labels.

2.5.3.2. Labelling and Packaging cases

Table 6. Labelling and Packaging cases

Examples of Labelling and Packaging Cases

Deceiving country-of-origin label

A manufacturer who produces in (let’s say) Russia and later ships the product to Germany, where the product is packaged in order to be exported to Japan with the 'Made in Germany' label could be accused of deceptive labeling. In this case, one can not help but wonder if the manufacturer takes advantage of the perception clients have of quality products produced in Germany. However, the situation could be that "finishing touches" are actually made in Germany. Thus, would such a country of origin label also be deceptive to clients?

Safety product

Between 2009-2011, Toyota had to recall several products from the global market after reports that several vehicles experienced unintended acceleration. The recall problem can be looked at from three perspectives. First there is the high amount of recalled cars. Second, there is the investigation of the cause of the malfunctions. Third is the clarification of causes that led to both the recall and the malfunction. (see the table below)

Table 7. Recalls by Major Japanese and US automakers after October 2009

Name of manufacturer

Number of target vehicles

Reason(s) for recall

Toyota Motors

8.5 million

Gas pedal height, Gas pedal return, brake control of hybrid cars

Nissan Motors

860,000

Brake pedal, fuel system

Honda

1.5 million

Air bag, brake-related problem

GM

1.3 million

Power steering-related problem

Ford

4.5 million

Vehicle speed control system, brake-related problem of hybrid cars

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