Ethical Issues

With Advertising and Marketing

 Why ethics…?
• To protect the image of the organization
• To retain the power granted by society
• Power to influence market and economy
• To reverse declining confidence of public
in marketing
• To avoid increase in govt regulations
• Most regulations are result of failure to meet
ethical regulations
• Consumer well-being
 Reasons…
• Laws protect customer’s basic rights, but
unethical issues are one step less than
being unlawful.
• Competition and market forces
• Few economic motivation for maintaining
high ethical standards
• Prevailing practices forcing one to act in
unethical way
 Dimensions of Ethics in marketing
• Basic ethical Objectives (Marketing mix)
• Product
• Price
• Promotion
• Place
• packing
• Deceptive practices
• ‘New improved’, ‘economy pack’, ‘The proven results’
• Protection of interest of customers
• Incomplete information
• Less power as compared to companies
• Ethical dilemma
• Self well being Vs betterment of customer/society
• On going practices Vs own perception about ethical behavior
 Safety
Product Shoddy goods
Inadequate warranties – insufficient coverage
Pollution
Mislabeled products – flavored sugar water sold as apple juice

Marketing Mix
Development – bribing to get the approval for incompetent programs
Manufacturing – unauthorized substitution after approval
Brand knock-off – selling counterfeit goods as originals

Skimming/Penetration pricing
Price Inflated pricing – to offer discount off inflated prices
Unfair predatory pricing – reducing prices to beat competition
Excessive markup – high price by retailer to connote quality
Price differentiation
Price discrimination

Exaggerated claims
Promotion Inappropriate targeting
Deceptive advertising
Persuasive role models for inappropriate products – liquor, cigarettes
Naïve audience
Telemarketing – offering fabulous prizes

‘Bait and switch’ prices

Distribution Direct marketing – deceptive, misleading product claims
Deceptive quantity – ‘packaging to price’ strategy
 Theories
• Contractual theory
• Seller and buyer are in a contractual relation
• Though not explicit, implicit contract exist between the two
• Responsibility of manufacturer to not to harm customer with
defective products or writing guarantees to their advantage
• Customers to not to cheat on the manufacturers
• Due care theory
• Manufacturers need to exercise due care to avoid the harm
resulting from defective products
• Difficulty is to decide what constitutes ‘due care’
• Social cost / Strict liability theory
• Manufacturers are responsible for any damage even if all the
contracts are observed and due care is taken
• A manufacturer need not be negligent or bounded by any
implied or expressed warranty
 Contractual theory
• Duties of Manufacturer
– Duty to comply
– Reliability
» Product will function as customer is made to expected
– Service life
» Length of time a product can be used
» Information about obsolescence
– Maintainability
» Warranties
– Safety
» Disclose the possible safety hazards and precautions
– Duty to disclose
– T&C’s of sales contract
– Information about product that may influence customer’s decision
– Duty regarding not to misrepresent
– Misrepresentation (lying) or nondisclosure (hiding)
– Could be explicit or implicit
– Duty regarding not to coerce/force
– Undue influence or coercion to take advantage of stress or fear
– Not to exploit gullibility, immaturity or ignorance
 Due care theory
• Assumptions
• the consumer is in disadvantaged position and their interest are
vulnerable to manufacturers and vendors
• Manufacturers have additional duty to exercise additional due
care to prevent interest of customer even if the manufacturer
disclaims such responsibility and customer agrees to it
• Duties
• Due care to ensure that the product is as risk free as possible
• Due care in
» Design, choice of materials & manufacturing process
» Testing and QC
» Labeling the warnings, instructions for safety
• Problems
• Defining ‘due care’
• Nothing is ‘risk free’ so how much cost is to be warranted
• Unforeseeable risks
Social cost/ Strict Liability theory
• Theory
– Over and above the contractual and due care theory
– Manufacturer is responsible even if
– Due care was taken
– Information was disclosed, caution and instruction given
– Follows strict liability under which ‘absence of
negligence’ or lack of knowledge are not excusatory –
only consequences matters
– Forces companies to incorporate the cost due to
unpreventable risks
– Larger distribution of risk cost
– Give a fairer view of the ‘social cost’ of making and using the
product
• Problems
• Unfair as manufacturer needs to compensate for injuries even
for unforeseeable and unpreventable risks
• Consumers may unfairly treat the manufacturer
• Manufacturers are convicted even for the errors at the end of
consumer (safer planes result in more pilot errors)
 Ethical Reasoning Model
Identify the decision options and related consequences

Identify the affected parties and related consequences

Estimating the positive and negative impact of each decision

Ranking the cost and benefits and making a decision

 Advertising
• Issues
• Customer perception about the ethical/unethical
practices
• Cost ultimately borne by the customer
• Deceptive practices
» False and misleading presentation of facts
» Deliberate omitting of required information
» Implying a benefit that hardly exists
» Using unnecessary and unwanted technical jargons
» Creating ambiguity and fear in minds of people
» Open criticism to competitors
• Customer’s bad opinion about advertisement
 Further…
• Can be grouped in three portions
• Social effects
– Degrades people’s taste and culture
– Waste valuable resources
– Vulgar, offensive, intrusive ways to attain attraction
– Reinforcing materialistic conceptions
• Effects on customer desires
– Whether or not the consumption is in customer’s interest
– Exploitative manipulating the desires – creating demand
– Instead of molding the production s per human desires, human
desires are molded as per the production
– Attempt to associate unreal sexual and social fulfillment
– Attempt to use children’s gullibility
• Effects on customer beliefs
– Making audience believe something wrong
– Not to deceive/mislead
– Breeding distrust in general
– Providing unnecessary /incomplete information
Ethical issues - Finance
 Issues
• Deceptive practices
• Explaining information in unclear manner
• Not speaking of hidden charges
• Speaking only about benefits and intentionally omitting
weaknesses
• Concealment/misrepresentation of information
• Creative accounting – ‘cooking the books’ in a manner that
they are legal but morally dubious
• Equity accounting
• Unsuitable advice to clients
• Churning – broker using client’s account excessively to earn
high commission
• Twisting – selling new products unnecessarily to customers
in lieu of older products
• Flipping – repaying old loan with new loan to earn more
revenue
• Investing in unsuitable securities or advising unsuitable
portfolio diversification
 Financial markets and ethical issues
• Financial markets are regulated by the
regulatory framework like SEBI, IRDA, AMFI,
RBI to provide for
– Efficiency
– Fairness or equity
• To ensure the fair treatment of investors and society
• To protect them from
– Frauds and manipulations
» Mandatory disclosures
» Penalties for misleading information given or non
compliance
– Equal information
» Provide everyone with equal and relevant information
 Stock market and ethical issues
• Stock market provides the means to invest investable
funds in different companies while the risk is borne by
the investor
• Issues are
– Speculations
• Means assuming about future prices of shares (bull or bear) for a
purpose of increasing the marketibility
• Hedgers vs speculators
– Insider trading
• Trading in stock of publicly held corporation on the basis of
material, non-public information
• STEALING the non-public information, unfair
– Hostile takeovers
• To see whether the takeover is in best interest of shareholders or
not. If not, duty to fight the offer with all available means
 Hostile Takeover
• The insurgent – often called ‘raider’ makes an offer to buy a
controlling block of stock in target corporation from existing
shareholders – often offering a higher price including
premium
• Then the raiders replace the incumbent management team
and proceed to handle the company.
• Can be defended by
• Crown jewel option – offering most valuable assets to friendly firm
• Golden parachute – additional compensation to top executives as per
employment contract in case of their departure after takeovers
• Greenmail – purchasing the shares from raider at the premium prices
• Lockup – option given to a friendly firm to acquire certain crucial assets
• Pac-man defense – making counter offer
• Poison pill – attempt to reduce the stock price of the target – issuance of
special preferred stocks that the shareholder may redeem at premium
after takeover
• White knight – a friendly firm makes an offer for the target in order to
avoid takeover
• Shark repellents – general term used for different small strategies
 Ethics in tax Planning
• Tax evasion is a big international issue
• One need to say NO to unethical measures
• Income tax, excise, service tax, registration duty
etc
• Value for hundreds of crores
• can be tackled in two ways
• By legislative measures
– Creating necessary laws and penal mechanisms
• Administrative measures
– Proper and strict enforcement of the legislations
– Wide publicity through media about tax evaders
– Creating social conscience and awareness
– Disentitling of tax evaders from getting credits from bank
– Streamlining the dispute resolving process
– Providing proper trainings, infrastructure and security to tax
authorities to boost up their morale
– Voluntary disclosure schemes
Ethics and Financial statements
• May be used to deceive or mislead
• Used by stockholders, creditors, banks,
general public, investors, government,
regulatory bodies, partners, employees to
assess the financial position at a point in
time
• Must be made properly with clear and
correct data and figures – avoid
misrepresentation and mis-interpretations
Ethical Issues - Technology
 Privacy Accuracy
Collection Authenticity
Storage Fidelity
dissemination Accuracy in collection
Accuracy in processing

Ethical Issues

Accessibility Consequences
Property
Right to access Non- harming
Ownership
Payment of fee Prior information
Value of information
to access Human/non human rights
Environmental issues