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Textbook Media Press 2 Chapter 3
Chapter Objectives
• Identify ethical issues in marketing.
• Discuss legislation and regulatory agencies that impact
marketing.
• Describe the role of the Federal Trade Commission.
• Discuss the role of the Better Business Bureau.
• Discuss the social responsibility of business firms.
Textbook Media Press 3 Chapter 3
3-1 Chapter Overview
• To fulfill the goal of marketing, marketers must persuade
consumers to buy a firm’s products.
• Ethical issues will inevitably arise about the material that is
being transmitted and the medium of transmission.
• As a result, laws have been passed that protect the consumer.
• Firms have also come to be expected to act in a socially
responsible manner.
Textbook Media Press 4 Chapter 3
3-2 Ethical Issues in Marketing
• Questions Marketing Practitioners Should Ask:
What are the materials used in developing the product?
- e.g., Are materials hazardous?
How is marketing material is transmitted?
- e.g., Is sex an appropriate promotional appeal?
To whom is it transmitted?
- e.g., Is it okay to market to children?
Textbook Media Press 5 Chapter 3
Marketing to Youth
Pros Cons
Huge market (over $170 billion a year)
Potential creation of brand loyalty
Youth are adventurous.
Youth can change tastes over night
What are the ethical issues involved when marketing to youth?
3-2 Ethical Issues in Marketing
Textbook Media Press 6 Chapter 3
3-2 Ethical Issues In Marketing
Ethics Concepts
• Morals: Personal beliefs or standards used to guide an
individual’s actions.
Morals direct people as they make decisions.
• Ethics: Philosophical principles that serve as operational
guidelines for both individuals and organizations concerning
what is right and wrong.
Morals and ethics establish boundaries regarding
acceptable and unacceptable conduct.
Textbook Media Press 7 Chapter 3
…Business Ethics Violations
Enron
WorldCom
Arthur Andersen
3-2 Ethical Issues In Marketing
These companies have spurred the need for a higher level of ethical behavior within companies.
Textbook Media Press 8 Chapter 3
3-2a Marketing Causes People to Buy More
Than They Can Afford
• Marketing persuasion induces people to buy goods that
they do not need and cannot afford.
Consumers seek instant gratification, and fewer consumers are
willing to save money
• Ethical questions to consider?
Should consumers be able to overspend?
Does easy credit contribute to overspending?
Is marketing responding to desires of consumers or promoting
overspending?
Textbook Media Press 9 Chapter 3
3-2b Marketing Overemphasizes Materialism
• Questions to consider:
Does marketing create materialism
or does marketing respond to materialistic desires?
Is materialism good or bad?
• Materialism is consistent with free enterprise.
• It is easy to show how materialism has had a positive impact
and has increased the standard of living.
Textbook Media Press 10 Chapter 3
3-2c Marketing Increases the Prices
of Goods and Services
• Marketing creates intangible benefits.
Value of brand name.
• Marketing allows consumers to become better informed.
Marketing spreads information about products that consumers
would otherwise know nothing about.
• Companies cannot reduce marketing expenditures unless
competitors do the same.
Marketing is necessary to remain competitive
• Marketing contributes to GDP.
Marketing accounts for 2.4% of GDP in the United States.
Yes, but ….
Textbook Media Press 11 Chapter 3
3-2d Marketing Capitalizes
on Human Weaknesses
• Does marketing capitalize on human weakness
or does it respond to human desires?
• Promoting goods or services of a personal nature during times
of human vulnerability.
• Examples:
Marketing with a patriotic theme following the September 11
attacks.
Marketing that promotes the idea that happiness is dependent on
physical attractiveness.
Is this good marketing or unethical behavior?
Textbook Media Press 12 Chapter 3
3-2e Marketing Shapes Inappropriate Cultural Values
• Companies aggressively market their products,
even if they are harmful to individuals and/or society.
Alcohol and tobacco are believed to have
a negative impact on society, but are widely marketed.
• Advertisements are becoming more offensive, particularly by
capitalizing on sex and nudity.
• Questions to consider:
Would restrictions violate free speech and free enterprise?
Does marketing shape values or does marketing respond to
current values?
Textbook Media Press 13 Chapter 3
• $12 billion a year is spent on marketing products to children
ages 4 to 12.
• Market managers hire child psychologists to determine how to
best target children.
• Are children a fair target?
They have not reached maturity.
They don’t have adult reasoning.
It is difficult for them to differentiate between
fact and fiction.
They can be easily manipulated.
Advertising to Children
3-2e Marketing Shapes
Inappropriate Cultural Values (contd.)
Textbook Media Press 14 Chapter 3
Sex Sells!
• Does sexual appeal sell products?
• Is sex in advertising overdone?
• Is marketing promoting inappropriate sexual behavior?
• Is marketing responding to sexual attitudes in society?
• Should sex in advertising be regulated?
If so, how? If not, why not?
3-2e Marketing Shapes
Inappropriate Cultural Values (contd.)
Textbook Media Press 15 Chapter 3
3-2f Marketing Uses Deceptive
and Misleading Techniques
Is Bribery Acceptable?
• Can salespeople be trusted?
The buyer-seller relationship can become adversarial, pitting
buyers against sellers.
• In the business sector it is acceptable to ‘bribe’ with gifts to
sell a product.
• In many cultures gifts and bribery are acceptable and
expected.
• Should marketers be able to bribe in the United States and in
their global operations if their competitors can do it?
Textbook Media Press 16 Chapter 3
3-2f Marketing Uses Deceptive
and Misleading Techniques (contd.)
• One misleading technique is the bait and switch
marketers lure a consumer in with a deal than try to sell them a higher priced product.
- Illegal if the seller intentionally does not stock enough of the sale item or if they use excessive pressure to ‘switch’ the consumer to the higher priced product.
• Many ads are legally not deceptive or misleading but do have a clear bias.
When does an advertisement become misleading or deceptive?
Textbook Media Press 17 Chapter 3
3-2g Marketing Violates Consumer Rights to Privacy
• The more information marketers can gain about you, the more
efficiently they can market to you.
• This information can be gathered in a number of different
places:
• Marketers use this information to create groups that become
their target market.
Magazines selling subscription lists. Warranties and surveys that are filled out with personal
information. Credit card companies, banks, and schools. The Internet
It is not efficient for them to market to you as an individual.
Textbook Media Press 18 Chapter 3
3-2h Marketing’s Role in Society
• Many marketing tactics may be legal, but they are perceived
by many people as unethical.
• Marketers must keep individual and group concerns in mind
when making marketing decisions
• The American Marketing Association (AMA) has adopted a
code of ethics to help marketers make the right decisions.
Textbook Media Press 19 Chapter 3
• One should ask the following questions when evaluating
whether a marketing decision is unethical:
• Company beliefs or policy may influence the individual in
making marketing decisions.
3-2i Individual Roles in Marketing Ethics
Is it only viewed as unethical by a few because it does not have a serious impact on the rest of society?
Is it viewed as unethical by most people because it can have long-lasting negative effects on society?
Textbook Media Press 20 Chapter 3
3.2i Individual Roles in Marketing Ethics (contd.)
A Framework for Ethical/Unethical Decisions
Textbook Media Press 21 Chapter 3
3-3 Marketing Regulations
• Federal and state governments of the United States have
passed a number of laws dealing with the ethical issues just
raised.
• These laws typically pertain to:
• Overriding principles:
Focus on
- ensuring free trade and open competition between firms.
- need to protect consumers form unscrupulous businesses.
Price fixing
Free enterprise
Food quality
Fair interest rates
Product safety
Protection of children
Deceptive advertising
Textbook Media Press 22 Chapter 3
3-3 Marketing Regulations (contd.)
Legislation Description1890 Sherman Antitrust Act Prohibits trusts, monopolies, and activities designed to restrict free trade.
1906 Federal Food and Drug Act Created the Food and Drug Administration and prohibits the manufacture and sale of falsely labeled
foods and drugs.
1914 Clayton Act Prohibits price discrimination to different buyers, tying contracts that require buyers of one product to
also purchase another item, and combining two or more competing firms by pooling ownership of stock.
1914 Federal Trade Commission Act Created the Federal Trade Commission (FTC) to address antitrust matters and investigate unfair methods of
competition.
1936 Robinson-Patman Act Prohibits charging different prices to different buyers of the same merchandise and requires sellers that
offer a service to one buyer to make the same service available to all buyers.
1938 Wheeler-Lea Amendment Expanded the power of the FTC to investigate and prohibit false and misleading advertising and practices
that could injure the public.
1946 Lanham Act Established protection of trademarks.
1966 Fair Packaging and Labeling Act Requires that manufacturers provide a label containing contents, who made the product, and how much
of each item it contains.
1972 Consumer Product Safety Act Established the Consumer Product Safety Commission (CPSC), which sets safety standards for products
and ensures that manufacturers follow safety standard regulations.
1976 Hart-Scott-Rodino Act Requires corporations wanting to merge to notify and seek approval of the government before any action
is taken.
1990 Children’s Television Act Limits the number and times advertisements can be aired during children’s programs.
Textbook Media Press 23 Chapter 3
Federal Agencies Regulating Marketing Practice
3-3 Marketing Regulations (contd.)
Agency ResponsibilityFood and Drug Administration (FDA) Regulates and oversees the manufacturing, distribution, and labeling of
food and drugs.
Federal Communications Commission (FCC) Regulates the television, radio, and telephone industries.
U.S. Postal Service (USPS) Responsible for mail delivery and investigating mail fraud schemes and
any other illegal marketing activities using
Bureau of Alcohol, Tobacco, and Firearms (ATF)Oversees the manufacture, sale, and distribution of tobacco and alcohol.
Federal Trade Commission (FTC) Primary agency responsible for ensuring free trade among businesses
and investigating false, deceptive, or misleading claims in advertising and
other types of marketing communications.
Consumer Product Safety Commission (CPSC) Sets safety standards for products used by consumers in or around their
home.
Textbook Media Press 24 Chapter 3
3-3a The Food and Drug Administration
• Oversees the sale of all food and drug products.
• All drugs must be FDA approved before they can be sold to
the public
• Ensures that all food is safely processed, packaged, and
labeled.
Requires nutrition facts placed on all food containers
Textbook Media Press 25 Chapter 3
3-3b The Federal Trade Commission
Deceptive and Misleading Communication
• The FTC has a high impact on marketing, ensuring free trade among businesses and investigating claims of false or deceptive advertising.
• A firm can commit false advertising if:
A substantial number of consumers are left with false impressions or if the
communication involves misrepresentation and if this misrepresentation
induces people to make a purchase.
Note: When a firm engages in puffery or makes an exaggeration without making an overt attempt to mislead, it is not considered deceptive or misleading.
Textbook Media Press 26 Chapter 3
3-3b The Federal Trade Commission (contd.)
Complaint Procedure
• Complaint is filed with the FTC by consumers, businesses,
Congress, the media, and the FTC itself. Investigation is
confidential initially.
• Consent order: Agreement by involved parties.
• Administrative complaint: Formal proceeding to court.
• Cease and desist order if a violation of the law has occurred.
• Court of Appeals: If the company is not satisfied with the
decision, it can appeal the case.
Textbook Media Press 27 Chapter 3
3-3b The Federal Trade Commission (contd.)
Procedures
• Corrective advertising
Issued in the most severe cases of deceptive advertising.
Only used if the FTC concludes that consumers believed the deceptive ad and that it is necessary to bring them back to a neutral state like that which existed prior to the misinformation.
• Substantiation of claims
FTC requires companies to substantiate any claims made in their advertisements and the inability to do so could result in FTC action.
• Trade regulation rulings:
Industry-wide FTC rulings.
Any decision made in a trade regulation ruling would apply to every firm in the industry.
Textbook Media Press 28 Chapter 3
3-3c Industry Regulations
Various industry regulatory agencies can reduce the work of the FTC. Although they have no legal power, they can apply pressure and settle disputes within the advertising and business industry.
• Better Business Bureau (BBB): Keeps records and summaries of complaints filed against individual
companies for potential customers who want to learn about the company.
• BBB National Advertising Division (NAD) Hears complaints and investigates, then negotiates with the business in
question, keeping the case from escalating.
• National Advertising Review Board (NARB) Takes unresolved cases from NAD and issues orders similar to those of the
FTC; while not legally binding, it keeps the case out of the courts. If the firm in question refuses compliance, the case is turned over to the FTC.
Textbook Media Press 29 Chapter 3
3-4 Social Responsibility
• 83% of Americans believe that it is important for companies
to support the needs of society.
• This can be done by:
Producing environmentally safe products
Controlling emissions and wastes
Becoming involved in meeting societal needs, e.g., donations,
community sponsoring, etc.
Philanthropy (cause-related marketing)
Textbook Media Press 30 Chapter 3
3-4a Cause-Related Marketing
• Involves a long-term partnership between a company and a non-profit organization.
• This relationship must be integrated into the corporation’s marketing plan.
• Both parties must benefit. The company will support the non-profit if the campaign increases sales.
• Companies need to follow through and show a genuine effort.
Textbook Media Press 31 Chapter 3
3-4b Green Marketing
• Development and promotion of products that are
environmentally safe.
• Demonstrates social responsibility.
• Keys to successful green marketing:
Develop a strong brand name and association with green
products.
Reduce costs of producing green products.
Make green products attractive to the public.