Ethical aspects of marketing



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Ethical aspects of marketing
Ethical behaviour implies conforming to a standard of behaviour that is acceptable in relation to the standards of the community, the group or the organisation. The implication is that in carrying out their activities, an ethical person would do nothing that would cause harm and distress to individuals and the community as a whole, and would do nothing to gain an advantage at the expense of others.
Marketing is the aspect of business that is most visible, so it generates a large number of complaints about unethical and irresponsible social behaviour.

Truth, accuracy and good taste in advertising

Marketing ethics are the marketer’s standards of conduct and moral values. If organisations demonstrate an ethical approach towards marketing then the objectives of generating a profit, satisfying customers and contributing to the wellbeing of the society can be met. However, some organisations respond to the competitive nature of the market by behaving unethically. Such responses may include adopting misleading and deceptive pricing, placement, promotion and product management strategies in order to persuade customers to purchase the product.


Unethical product management might include selling drinks in bottles with concave bases that give the impression of holding more than they do, and producing ‘copycat’ products that trade on characteristics established by competitors. Unethical practices relating to pricing strategies include charging customers more just because they live in remote areas or failing to inform customers in advance of price increases. The failure of an organisation to distribute a product in a marginally profitable area that will have little or no alternative supply is an example of an unethical approach taken by an organisation in regard to place/distribution. The use of fear-based selling implying that social rejection will be the result if a product is not used is an example of an unethical practice in the promotion of a product. The use of sexist images, such as women in submissive, mundane roles, is another example of questionable ethics in promotion.
The following all contribute to reducing the problem of unethical marketing:

  • ethical codes and self-regulatory policies by industry, such as the advertising industry’s code of ethics

  • Trades Practices Act 1974 (Commonwealth), which controls fraudulent and misleading representations in advertising

  • labelling laws that give the customer greater information, such as disclosure of contents

  • education programs by organisations to inform their members of the ethics of marketing and to develop guidelines in relation to truth in advertising

  • the Australian Competition and Consumer Commission (ACCC).

Business Focus
She don’t like cocaine, but marketers get go-ahead to unleash scandalous brands
A slew of ‘scandalous’ brands is set to hit the streets after marketers got the green light to use shock tactics to sell everything from clothing and coffee to energy drinks and condoms.

The government body that oversees trademarks has approved Knut clothings. Hallelujah, Jesus and Mecca were rejected because religion is ‘often surrounded by strong feelings’, according to judgments made by the Trade Marks Registrar.

It comes as a Sydney-based company began advertising a controversial American energy drink called Cocaine on a billboard straddling Parramatta Road at Strathfield. It has already drawn complaints to the advertising watchdog, which said the ad might breach its code on health and safety grounds.

The billboard is likely to draw yet more heat to an industry already under pressure. Earlier this week a government-appointed health taskforce recommended bans on junk food advertising on television before 9 p.m. and the promotion of alcohol in live sports.

A spokeswoman for the company behind Cocaine, Wize Guys, said it had not received any complaints. The chief executive of the Advertising Standards Bureau, Fiona Jolly, said the ad would be considered at the next board meeting later this month.

At present, trademarks examiners must decide if a name is likely to ‘scandalise’ a significant proportion of the target market, which could be wide for general products such as clothing or soft drinks. If it does, then the application is rejected. But a partner at the law business Freehills, Frances Drummond, said the current system was flawed and a clearer definition of shocking or scandalous was needed. ‘We are asking [examiners] to be objective about something that is very subjective. What constitutes shocking changes every year’.

The target market of the Cocaine energy drink—18 to 25-year-olds—was unlikely to be as easily offended by the billboard as an older person, she said. ‘Look at what the government is doing to highlight the dangers of speeding, alcohol and smoking … it’s clear that shock levels are rising.’

Source: Julian Lee, The Sydney Morning Herald, 5 September 2009



Business Focus activities

1 Explain why the marketing strategies for products such as the Cocaine energy drink

might be considered unethical.



2 Examine the role of the Advertising Standards Bureau in regulating the advertising

industry.



Health considerations

An area of equal importance to ethics as it relates to marketing is the issue of social responsibility. Social responsibility refers to the collective issues and values that impact on the social culture of an organisation.

The contemporary view is that an organisation must be socially aware and responsible to the society in which it operates.

Major issues of social concern include:



  • product safety

  • gambling

  • alcohol and tobacco marketing

  • advertising to children

  • the ecological sustainability of production

  • high levels of debt

Figure 1 Major criticisms of marketing activities

Issue

Criticism

Comment

Marketing costs too much.


On average, 50 per cent of the final price that consumers pay will go to cover marketing costs.


Marketing is designed to match demand with output and therefore will reduce waste (unwanted products) and unsatisfied demand. A great deal of marketing is education and it helps to maintain media outlets.

Marketing creates an artificial need and encourages materialism.


Marketing exhorts people to buy products they may not really need or cannot really afford, for example travel, insurance, expensive clothing, cosmetic surgery, excessive entertainment and gambling activities, tobacco and alcoholic products.

Much of the spending on these items highlights social and personal problems. The cause of the problem and not just the symptom needs to be addressed through education. Self-regulation and government controls are strongly supported by most producers.

Marketers use practices that many people consider unethical.

Many people view marketers with suspicion because they believe that many will do anything to make a sale.

Unethical people exist in every profession. Voluntary codes of ethics strongly supported by state and federal legislation, together with consumer education and publicity, reduce these practices to very low levels.

Marketing methods have radically changed our society.

An example includes the growth of huge shopping centres that have changed shopping habits and have had a negative impact on businesses in main streets, corner convenience stores and home-delivery businesses.


Large retail complexes provide many advantages to the consumer and can reduce traffic congestion in main streets. It is hard to stop market forces if it is obvious that the bulk of consumers support such methods of marketing.

Figure 2.2.05 Major criticisms of marketing activities

Issue Criticism Comment



Anti-competitive conduct

Part IV of the Competition and Consumer Act 2010 (the Act) prohibits various anti-competitive practices that limit or prevent competition. It aims to foster the competitive environment necessary to give consumers diversity of choice in price, quality and service for goods and services. For example, Part IV prohibits specified cartel conduct and other forms of conduct among competitors that substantially lessens competition in a market. A reduction in competition that may occur as a result of collusion might allow some traders to push prices up and lower the quality of the goods and services they offer to consumers.

Some anti-competitive conduct is prohibited on the basis that it has particular anti-competitive purposes or effects (i.e. cartel conduct such as price fixing or bid rigging), while other conduct is prohibited if it substantially lessens competition. A substantial lessening of competition may occur, for instance, when the ability of buyers to shop around for a deal that suits them is significantly diminished by an anticompetitive agreement among suppliers.

There are some circumstances in which an individual decision by a supplier to refuse supply is unlawful under the Act. These include a misuse of market power, third line forcing, boycotts, resale price maintenance and placing limitations on buyers and resellers that substantially lessen competition.


Cartel conduct

The Act sets out a civil cartel prohibition and a criminal cartel offence. Both are based upon the existence of a ‘cartel provision’ in a contract, arrangement or understanding between competitors.



Price fixing

Agreements between competitors that have the purpose or effect of fixing, controlling or maintaining prices are prohibited.


Anti-competitive agreements

Section 45 of the Act prohibits contracts, arrangements or understandings that would be likely to substantially lessen competition in a market.



Misuse of market power

The Act has specific provisions prohibiting powerful players from abusing their market power. These are contained in s.46, which prohibits the misuse of market power.


Predatory pricing

Predatory pricing occurs when a company sets its prices at a sufficiently low level with the purpose of damaging or forcing a competitor to withdraw from the market.


Exclusive dealing and third line forcing

Exclusive dealing involves one person trading with another and imposing restrictions on the other’s freedom to choose with whom, or in what, it deals. Third line forcing and full line forcing are two types of exclusive dealing.



Resale price maintenance

Suppliers may try to impose a resale price on resellers to maintain brand positioning or to give resellers attractive profit margins.

Source: ACCC website, ‘Anti-competitive conduct’, as at 25 January 2011Figure 2.2.06 Checklist for ethical analysis

Sugging

Sugging involves a business trying to sell under the guise of conducting market research.

It intentionally misrepresents findings and use information gained to generate potential

sales leads. In an attempt to regulate this practice, an Australian Marketing Research

Code of Professional Behaviour has been established, which is wide-ranging but lacks

enforcement. In addition, there is a range of laws to protect the privacy of individuals.

Unit 2.2 review

Review
Key terms and concepts

bait and switch deceptive ecological sustainability

economic factors ethics government factors

implied conditions marketing misleading

price discrimination psychological factors socio-cultural factors

sugging warranty
Business literacy


  1. Using examples, explain the following concepts and how they influence consumer choice:

  • psychological factors

  • sociocultural factors

  • economic factors

  • government factors.

Business creativity and extension




  1. Identify the types of competitive advantage that can be achieved by embracing more environmentally responsible products.

  2. Assess the impact of consumer laws on marketing. Consider deceptive and misleading advertising, price discrimination, implied conditions and warranties. Use examples to support your response.

  3. Define ethics, ethical behaviour, ethical codes, the Trade Practices Act and the ACCC.

  4. Examine the checklist for ethical analysis (see figure 2.2.06). Using this checklist, pick two advertisements and analyse them.




  1. Browse the Australian Association of National Advertisers site and download the Advertising Code of Ethics. Read it carefully and try to understand the reasons behind this code.


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