ISL452U-BUSINESS ETHICS
Chapter 5: Marketing and Ethics
Marketing Ethics
Ethics in marketing is an important concern for both marketing decision-makers and end-users. Marketing decisions and practices can present many ethical problems or dilemmas in terms of product, price, distribution and promotion.
Businesses’ compliance with marketing ethics may contribute to consumer satisfaction as well as affect their long-term profitability positively. Hence, businesses have developed ethical codes in recent years and started to evaluate their marketing efforts and operational outcomes within the framework of such codes.
Marketing ethics has been defined by various authors but the main focus of these definitions is that marketing decisions and practices should comply with generally accepted moral judgment, standards, and rules.
Different factors are influential in the formation of marketing ethics, as decision makers and practitioners. Above all, the personal characteristics that make up the personalities of decision-makers and practitioners affect ethically their marketing decisions and behavior. The characteristics, objectives, vision, mission, strategy and policies of the organization and the administrative mentality constitute the organizational factors that affect marketing ethics. Social values that encompass all of these and affect personal and organizational factors should also be considered as a third factor.
Theories and Models Related to Marketing Ethics
There are different theories and models proposed to explain marketing ethics related subjects. These theories and models are:
The General Theory of Marketing Ethics was first introduced by Hunt and Vitell (1986) and revised by the same authors in 1993. The main contribution of the theory is that it explains the individual decision-making process in situations involving ethical issues. This decision process consists of both deontological and teleological dimensions.
The Social and Personal Ethics Model, proposed by Bartels (1967) suggests a framework based on two fundamental questions: “How are ethical standards set?” and “How are ethical decisions made?”.
The Moral Development Theory, as initially defined by Jean Piaget, then refined by educational psychologist Lawrence Kohlberg, represents the transformations that take place in an individual’s way of thinking.
The Model of Corporate Moral Development, inspired by Kohlberg’s Theory of Moral Development, has five stages and each stage refers to the main characteristics of organizations. “Winning at any cost” is the expression that best reflects the culture of amoral organizations.
Contingency Model, introduced by Ferrel and Gresham (1985), offers a framework for ethical decision making in a marketing organization. According to the model, there are three important premises for individual decision making: Individual factors (knowledge, values, attitudes, intentions), opportunity (professional codes, corporate policy, reward/punishment) and significant others (differential association, role set configuration).
The Reasoned Action Model is inspired by The Theory of Reasoned Action which has been used as a model to mainly predict behavior since it was first introduced by Fishbein and Ajzen (1975). According to the theory, what determines the behavior is behavioral intention which is determined by attitude and subjective norms.
Socio-Psychological Analysis Model, inspired by Fishbein and Ajzen’s Theory of Reasoned Action, then reconsidered by Dubinsky and Loken (1989), asserts that an ethical or unethical behavior is the intention of an individual to perform behavior. Intention is influenced by the individual’s attitude or subjective norms.
Integrative Social Contracts Theory, based on the social contract theory which has its origins in seventeenth- and eighteenth-century Europe, provides a framework for solutions to ethical issues that may arise among different groups and is therefore appropriate for the marketing domain as marketers often engage in cross-cultural activities. The theory mainly focuses on social roles, priorities and the stress of superior norms in the decision process in terms of marketing ethics.
Marketing Ethics in the Context of Anatolian Approach offers a new perspective on marketing ethics. Anatolian Approach, dated back to Akhi organizations which are ancient Turkish culture, offers a unique perspective for today’s business and consumer relationships. Akhi organization has its roots in Fütüvvetname, rules and regulations of Turkish-Islamic guilds, and has undertaken both auditing duties for its members and some regulatory duties for the whole economic structure. It fulfills these duties by “promoting good, truth and justice and checking evil and injustice”.
Criticisms of Marketing
Kotler and Armstrong (2012) list the criticism brought to marketing under three main topics:
Marketing’s Impact on Individual Consumers:
• High prices due to the high costs of distribution, high advertising and promotion costs, and excessive markups. • Deceptive practices in pricing, promotion, and packaging. • High-pressure selling drives consumers to purchase products that they have no thought of purchasing. • Shoddy, harmful, or unsafe products that may harm the consumers.
• Replacement of the products that customers can still use through planned obsolescence. • Poor goods and services to disadvantaged consumers.
Marketing’s Impact on Society as a Whole:
• False wants and too much materialism drive consumers to possess as much as they can rather than what they really need. • Increase in private goods requires more public services and results in social costs. • Cultural pollution created through various media channels which distort people’s senses with messages of materialism, consumerism, power or status.
Marketing’s Impact on Other Businesses:
• Acquisitions of competitors harm the firms and reduce the competition. • Bars created by marketing activities prevent newcomers to enter the industry. • Predatory competition by using unfair competitive marketing activities such as setting prices below costs, price deals, discrediting competitor’s products.
Eagle et. al. addresses the major generic criticism of marketing as follows:
Fostering materialism and unsustainable consumption; Materialism promotes symbolic features rather than pure functional features of products, such as prestige or status. Material people tend to be less satisfied with their perceived standard of living as they desire to possess even more things constantly.
Deception and manipulation; Deception is often associated with marketing communication, particularly advertising. However, the difference between deliberate deception and puffery should be distinguished. The former is prevented in many countries via legislative regulations the latter is recognized as the exaggeration of product features and benefits.
Manipulation is considered as a tool that diverts people to act in a way that they do not normally. Besides, another claim about manipulation is its relation to subliminal advertising which means “a technique of exposing consumers to product pictures, brand names, or other marketing stimuli without the consumers having conscious awareness”.
Wasteful strategies; The first criticism here relates to claims of product proliferation. For example, there are many variants of brands that offer products to consumers with a barely meaningful difference. The second criticism is the expense of advertising. For instance, advertisement
investments have reached ¨2.210 million as of 2019 in Turkeywhere the sectors that increased their advertising
investments the most are retailing, household cleaners and cosmetics.
Criticism of corporate social responsibility (CSR): CSR efforts have been criticized for allegedly engaged in
insincere activities to increase the firm’s value in the eyes of the customer and to create a positive image of the firm or to cover up the firm’s negative activities by diverting attentions away. Moreover, while environmentally friendly marketing efforts are praised, insincere CSR may end up with greenwashing. Greenwashing means “a range of communications that mislead people into adopting overly positive beliefs about an organization’s environmental performance, practices, or products”.
Ethical Issues in Product, Promotion, Price and Distribution
As marketing actions and tactics differ according to the marketing mix elements, ethical issues related to marketing are discussed based on the marketing mix elements (product, promotion, price and distribution).
Ethics in Product
Ethics related to the product and product management are considered in many aspects. Product-related warranties; problems arising during or after use; legal regulations on these issues; imitation of goods, services, packaging, and brands are the main marketing ethics issues related to the products.
Moreover, there are ethical issues related to the product itself or its add-ons such as failure of a firm to meet the warranty terms, not to replace the defective product, imitating a firm’s brand or packaging with minor changes. Those related to product management mainly stem from marketing management mentality and strategies. For example, socially controversial products such as cigarettes and alcoholic beverages, not-so-eco-friendly products, planned obsolescence policy, poorly designed products and goods and services that are not produced in accordance with commitments.
Ethics in Promotion
Promotion is a tool used by companies to build customer relationships and communicate with customers. However, some ethical problems arise in companies’ communication efforts with customers regarding their goods and services. Ethics in advertising, public relations (PR), and personal selling are the major ethical issues in terms of promotion.
Advertising is a marketing communication that employs an openly sponsored, non-personal message to promote or sell a product, service or idea. Advertising, which is perhaps the most visible element of marketing activities, is also subject to the most criticism. Most of the criticisms are related to ethical issues. Deceptive advertising, excessive and irrelevant use of sex appeal in advertising, advertising to children are among the most criticized topics.
Deceptive advertising is defined as “one that creates a false or incorrect belief about the product”. It is also defined as “advertising that is deliberately aimed at misleading consumers through either a false representation of product features, an omission of information on the product’s flaws, or deceitful practices used to influence consumers’ decisions to buy or use the product”.
Excessive and irrelevant use of sex appeal in advertising is one of the widely used techniques. This technique has been on the agenda of advertisers in almost every period of time. Sexuality, where women or men are used as sexual objects in almost every sector, has been widely used in advertising. Commercially, while promoting sexuality in advertising, the messages intended to be given regarding the product are also tried to be delivered to the target audience.
Sexuality is used in different densities in different media channels to draw attention. When the product is a sexual product inherently, the use of sexuality is considered to be somewhat reasonable. However, in this case, issues such as the target audience and timing of the media channels in which the advertisement is published become important. When sexually contented advertising appears in a media channel (e.g., TV, radio, newspaper, internet) that is followed by whole family members together, the annoyance of sexuality used in advertisements increases. In some cases, while using sexuality in advertising, there are some images, scenes and verbal elements that are not related to the product and that push the limits of morality.
Advertising to children is another volatile ethical issue. As the kids have gained more power to influence and trigger a considerable amount of economy, advertisers target them more desirously to grab their attention.
The International Public Relations Association defines public relations as “a decision-making management practice tasked with building relationships and interests between organizations and their publics based on the delivery of information through trusted and ethical communication methods”. However, there are many ethical problems in public relations practices such as bribery, hiding information that is in the public interest, spreading proprietary information without permission, information distortion. There are also ethical problems regarding the media, such as creating an artificial agenda against the competitor or forcing public relations specialists in media relations to act in the interests of the institution he or she works with.
Another important issue that should be emphasized in ethics in public relations is greenwashing. Greenwashing is a broadly accepted and recognized phenomenon since the mid-1980s. The term is used to describe the practice of making groundless or exaggerated claims about sustainability and environmental friendliness in an effort to gain market share. The use of greenwashing has
escalated dramatically in recent years as consumer’s demand for green products and services escalates.
Personal selling is a marketing instrument that is used even in times when there is no money and goes back to the periods when the exchange relationship between individuals started. It evolved from when individuals start to produce more than they need and to search for other producers to exchange the surplus commodity with other products. Personal selling, one of the oldest professions, is defined as “the interpersonal arm of marketing communications, in which the sales force interacts with customers and prospects to build relationships and make sales”. Among the issues that concern business ethics in terms of personal selling are bribery, the inability to deliver goods in accordance with the sample shown, and pressure, monopolistic position, and collusion of the vendors.
Ethics in Pricing
Ethics in pricing is addressed in two main categories; anticompetitive pricing and consumer pricing.
Anticompetitive pricing which depends on the legal and economic literature, this being a result of the discordance between price decisions and antitrust law. There are two main objectives of antitrust law. The first is protecting “fair competition” and, specifically, protecting the small businesses from larger competitors who aim to run them out of business. The second objective is protecting the buyer from sellers conspiring to fix prices.
Price-fixing is the strategy of businesses operating in the same or different sectors in any market that they maintain to prevent other competitors from entering the market, to expel some competitors from the market, not to allow new distribution channels to be created, to put pressure on intermediaries, not to compromise excessive profits.
There are two types of price fixing. The first one is vertical price-fixing or resale price maintenance which refers to the minimum and the maximum prices specified by the manufacturer that the retailer or wholesaler, or both, may charge. The second one is horizontal price- fixing which refers to the collusion among direct competitors that charge a single price.
Predatory pricing involves one organization’s reducing prices often below the profitable level to drive competition out of the markets in which competition exists. In the first place, the price cutters accept the loss but expect that they will move into profit in the long run. The ultimate goal here is to secure a monopoly position in the marketplace.
The second category is consumer pricing. The focus of this category is the effects of pricing actions on the end consumers. Pricing tactics that affect and mislead customers’ ability to compare and interpret prices are ethically problematic. Nonprice price increases, price discounting, price advertising, unit pricing, and misleading
pricing are the pricing actions that can be seen under the consumer pricing category.
Ethics in Distribution
The main concern in distribution decisions is how to deliver the products to the end consumers. Ethical issues regarding distribution may arise as different intermediaries have differing or even conflicting needs and goals. Power relationships also may create ethical problems in case of abuse of that power. Ethical issues that draw the most attention in distribution are direct marketing, trade promotions, and gray marketing.
Direct marketing efforts such as telemarketing, new electronic direct-response channels, and database marketing have been notable areas related to distribution ethics.
Trade promotions, in particular, the application of paying “slotting allowances” is the practice of claiming additional compensations from the manufacturer by distributors and retailers to carry the new product. The terms ransom, bribery, and extortion have been used by critics to describe slotting allowances.
Gray marketing refers to “the selling of trademarked products through channels of distribution that are not authorized by the trademark holder”. Unauthorized distribution of products can be either within a market or across markets. When gray marketing occurs within a market, it is called “channel flow diversion”.
Large retailers, which have generated important chains in distribution channels with their flourishing business volumes, have become a serious force. As a result of the power they gained, many unethical practices are also observed. Because while retailers develop multiple relationships with vendors such as manufacturers and wholesalers, they also increase their relations with consumers. Even if certain behaviors of retailers are not prohibited by law, they may not be considered ethical by society.
Consumer Ethics
Consumer ethics are “the moral principles and standards that guide behavior of individuals or groups as they obtain, use, and dispose of goods and services”. Consumers who make purchasing decisions under the influence of marketing practices need to be protected from products that contradict marketing ethics and responsibilities. At the same time, consumers themselves also need to act within the framework of social and ethical responsibility in consumption practices.
Dimensions of Consumer Ethics
There are four distinct dimensions related to consumer ethics:
• Actively benefiting from illegal activities: Actions that consumer benefits at the expense of the seller.
• Passively benefiting from questionable activities: Actions that consumers passively benefit from sellers’ mistakes. Possibly, consumers find the actions in this second dimension more acceptable than the first. • Actively benefiting from legal but questionable practices: Actions that consumers actively involve in disputable practices that are not necessarily perceived as illegal. • No harm/No foul activities: Actions that are not perceived to cause harm to anyone directly.
Formation of Consumer Ethics
The factors affecting the formation of consumer ethics are examined under three dimensions that are consumer personal traits and values, consumption consciousness, and environmental consciousness.
In terms of personal traits and values, it seems possible to gather consumers under two groups, relativism and idealism. Relativists reject universal ethical rules when making ethical judgments and act taking into account the desired results. On the other hand, idealists accept ethical absolutes and assume that desirable consequences can be obtained with the ‘right’ action.
Consumption consciousness is a vital matter for sustainable production, consumption or environment. Therefore, in order to have a sustainable consumption, the level of consciousness of consumers should be raised. The more information the consumers have on products and services’ processes from pre-production to post- consumption, policies of companies, market conditions, labors’ conditions, etc., the more conscious the consumption decisions will be.
Environmental consciousness is another important issue in the consumption sphere because it is widely accepted that our consumption patterns are not sustainable in the long term, especially given the many environmental problems arising from production and consumption. Society needs to move towards a more sustainable development path to overcome threats to the environment, public health, and the economy.
Consumer Boycotts
Boycott is defined as “occurring when a number of people abstain from purchase of a product, at the same time, as a result of the same egregious act or behavior, but not necessarily for the same reasons”. There might be various variables that influence boycott participation such as consumer characteristics, issue characteristics, product characteristics, availability of substitutes, social pressure, guilt, cleansing, moral self-expression, seeking widespread social change, sacrifice, express uniqueness, attitudes towards consumers’ social responsibility, credibility of boycott leader, participant values or costs of boycotting.