Ethical Issues in Marketing

What are Ethical Issues in Marketing?

Marketing is a crucial aspect of any business, but it can also raise several ethical concerns. Deceptive advertising, targeting vulnerable populations, invasion of privacy, exploitation of cultural stereotypes, exploitation of social issues, price gouging, and the promotion of harmful or unhealthy products are some of the key ethical issues in marketing.

Companies need to be mindful of these issues and take steps to ensure that their marketing practices are ethical and do not harm consumers or society as a whole. Ethical marketing practices can help build trust with consumers and contribute to a company’s long-term success.

Ethical Issues in Marketing

The term ‘marketing’ refers to a process carried out by a seller to communicate the value of products and services to a customer with an aim to sell those products and services. Carrying out ethical marketing practices is of utmost importance for an organisation. This is because any unethical action on an organisation’s part may damage the image of the organisation in the market.

Ethical issues in marketing include moral and ethical principles and problems arising in the marketing environment (which involves various factors and forces affecting an organisation’s capability to develop successful relationships with customers).

These issues are usually concerned with negative aspects such as false claiming of product features (puffery) and unfair competitive strategies. For example, in 2000, Pizza Hut filed a case against Papa John’s on the subject of its advertising that stated “Better ingredients. Better Pizza.”

The court concluded that the statement did not deliver a verifiable fact that could be trusted upon by consumers, thus being a case of puffery. Here, better pizza is not a quantitative measure that can be compared with other brands.

Today, it has become important for marketing organisations to perform ethical marketing practices. This is because with increasing awareness and easy access to correct information, customers can easily differentiate between honest and deceptive marketing practices. For example, an advertisement showing that a knife of a particular brand can cut through a stone would be false advertising. Everybody knows that no knife could be too sharp to cut a stone.

Even if a marketing organisation uses such statements to promote its product, the advertisement would be considered deceptive and factually inaccurate. This kind of unethical behaviour can quickly lead organisations to failure. Therefore, an organisation that wants to improve the brand image of its products and develop long-term relationship with customers should try to avoid such unethical practices.

Organisations that follow an ethical code of conduct in marketing practices win the trust of customers. If a product lives up to the claims made by an organisation, it creates a positive image of the organisation in consumers’ minds.

Apart from applying an ethical code of conduct in marketing communication practices, an organisation needs to make several decisions related to marketing a product. To apply ethics in such decisions, an organisation needs to carry out a systematic process, which involves a number of steps.

These steps are:

Clarify

• Define the basis for taking any marketing decision.
  
  
• Formulate and bring various alternatives for making decisions.
  
  
• Determine ethical principles and values involved in each alternative.
  
  
• Eliminate undesirable and impracticable alternatives.
  
  
• Select the alternative that appears as ethically justifiable.

Evaluate

• Assess the options if they do not stand on ethical principles.
  
  
• Differentiate reliable facts from assumptions, beliefs, desires, superstitions and opinions.
  
  
• Determine the credibility of the option.
  
  
• Consider benefits, problems and risks associated with stakeholders.

Decide

• Determine the most possible consequences based on facts.
  
  
• Give ranking to values to determine their priority.
  
  
• Ensure ethical aspects have been followed by answering the following questions:
  
  
  • Are you comfortable with the way you are treating others if you are treated in the same manner?
    
    
  • Would you feel relaxed if your decisions go public?
    
    
  • 9 Would you feel easy if your family is observing you?

Implement

• Develop a plan for the implementation of a decision.
• Maximise benefits and minimise costs and risks associated.

Observe and Modify

• Detect the effect of decisions and modify them if required.
• Adjust according to new changes.

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Competition Practices as Per Different Acts in India

Competition Act, 2002

The Parliament of India passed The Competition Act in 2002. The Act is aimed at governing Indian competition law that prevents activities having an adverse effect on competition in India. The Competition Act forbids anti-competitive agreements and misuse of leading positions by companies.

In addition, it controls various business practices, such as acquisition, acquiring of control and merger and acquisition, which may affect competition within India. Thus, the Act focuses on preventing such activities that might cause adverse effect on competition in India.

The Competition Act basically aims at achieving the following objectives:

• To prepare the market for the benefit and welfare of consumers
  
  
• To ensure fair and healthy competition in the market
  
  
• To sustain economic development in the country for faster and inclusive growth
  
  
• To implement competition policies that could help in efficient utilisation of economic resources
  
  
• To ensure alignment of sectoral regulatory laws with the competition law

Consumer Protection Act, 1986

To protect the interests of consumers in India, the Parliament of India enacted The Consumer Protection Act in 1986. The Act has been amended in the year 2002. The Act provides provisions for establishing consumer councils and other authorities to settle consumers’ disputes and related matters.

Two such councils are:

• The Central Consumer Protection Council: This council is established by the Central Government with the Minister of Consumer affairs as chairman.
  
  
• State Consumer Protection Council: This council is established by the State Government with the Minister of Consumer affairs in State Government as chairman.

The Consumer Protection Act basically aims at promoting and protecting the rights of the consumers. In addition, it aims at achieving the following objectives:

• To protected consumers against the unfair trade practices, unsafe to life and property
  
  
• To make consumers aware of their rights to know the quality, quantity, potency, purity, standard and price of product/services.
  
  
• To make consumers aware of their rights to access to a variety of product/services at competitive prices.
  
  
• To assure consumers that their interests will receive due consideration at appropriate forums.
  
  
• To make consumers aware of their rights to fight against unfair trade practices.
  
  
• To make consumers aware of their rights against consumer exploitation.

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Major Marketing Decisions and Related Ethical Issues

If marketing decisions are taken after considering all the aspects of ethical practices, organisations can generate higher revenues, improve brand recognition, boost employee motivation and attract investors. Let us now discuss major marketing decisions and related ethical issues as follows:

Product-related Ethical Issues

These issues occur when marketers fail to provide its customers with information related to products, such as features, value, usage and associated risks. Such a failure on part of an organisation is regarded as a dishonest practice.

For example, organisations selling weight management products can claim that the product can make them slim within a specific period of time. Such organisations may make exaggerated and manipulative claims to trick customers to purchase products. Product related ethical issues may also relate to:

Packaging and Labelling Practices

Packaging is an important element in the marketing of any product. When a customer goes to a store to buy a product, packaging is the first thing that they observe about the product. Therefore, the packaging should be appropriate to not only attract the customers, but also protect the product from being destroyed.

However, ethics play a major role in packaging and labelling practices. There are several ethical issues that relate to sustainable practices, labels, graphics, and safety. In addition, depending on the type of product, packaging needs to provide certain information to the customers.

For example, all edible items require providing information to customers about the nutritional content in the product. Thus, lack of information or misleading information may result into unethical packaging practices.

Selling different product from what is shown in the packaging and using unsafe packaging materials also comes under unethical packaging practices. Similarly, marketers sometimes use ambiguous label information to mislead the customers. For example, ‘100 per cent pure neem soap’, ‘low fat cooking oil’, etc. are some examples of labels that may display misleading information.

Maintaining Quality Standards for Products

Many a times organisations neglect adhering to quality standards while manufacturing a product. They use inferior materials or components to reduce cost. This is a highly unethical practice that leads to sell poor quality of products to customers.

In addition, ethical issues arise when marketers hide any quality related information, such as existing conditions of the product or changing product quality, from customers. Failing to explain the nature of product is a form of dishonesty and comes under unethical practices.

Product Safety

It is important for organisations to ensure that the products do not put any harm or hazards to consumers. Using harmful elements or components while manufacturing the products may impose health risks to the buyers. Therefore, it is very important to follow product safety standards irrespective of product type, industry or sector.

Promotion-related Ethical Issues

Due to the fast growth of communication mediums, mass media has power to effectively promote the image of a brand or an organisation if properly used. It helps in promoting products and other offerings, which are produced and distributed to a large audience. It is therefore important not to overlook social, ethical and legal aspects of promoting a product or service through mass media.

An extensive body of laws has been developed by governments to govern unethical practices used in promotional techniques. For instance, the Indian law prohibits the advertisements that promote the usage of cigarettes and alcoholic drinks.

Any advertisement that shows magical or supernatural ways to cure any illness or disease is not permitted either. In addition, all advertisements that hurt morality, decency or religion in a direct or indirect way are strictly prohibited as per the Indian law.

Wrong and misleading information on any product or service that can cause loss or injury to consumers are considered to be unfair trade practices. Let us discuss the major unethical practices followed at product/service promotional level:

Deceptive Advertising

Advertising creates a bond between the seller and the buyer. This connection is strengthened if the buyer finds that the product is of same slandered as, promised by the seller. However, if the buyer finds that the product is not as advertised, he/she might feel cheated.

Sales Promotion Gimmick

Sales promotion is used as a tool to increase the product sales. However, some organisations use promotion tools in various unethical ways. For example, in order to sell a large number of products, marketers make several false and misleading promises and commitments to customers.

Similarly, in order to close deal with prospective customer, the sales personnel often misrepresent the product’s features. Sometimes the sales personnel enforce the customer to buy a product, before the customer had ample time to try-out a product. All these are sales promotion gimmicks that come under unethical practices and must not be followed.

There are a number of consumer protection organisations, such as All India Consumer Protection Organisation, Consumer Guidance Society of India and Consumers Eye India, which play an important role in ensuring that advertisements do not claim any false or misleading concepts.

Price-related Ethical Issues

Every customer wants to pay a fair price for the product purchased by him/her. If marketers indulge in unethical marketing practices, they may lose customers forever. There are various unethical pricing policies followed by various organisations.

Some of them are as follows:

Price Fixing

It is an unethical way of fixing the price of a product or manipulating the economic market conditions. Usually, price fixing can be of two types:

• Vertical price-fixing: It is an illegal arrangement where parties at different levels of a production and distribution system act to fix the market price of a product.
  
  
• Horizontal price-fixing: It is also an illegal arrangement where several competitors pre-decide to sell a product at the same price.

Bid Rigging

It is a kind of fraud where competitors decide in advance about one party that will submit the winning bid on a commercial contract. Here, other parties present their bids just for the sake of making presence. This practice raises the price of goods and services in cases where product procurement is done through bidding.

Price War

It benefits customers, but not marketers. As one competitor lowers the price, the other follows the same strategy. It is followed by a series of price reductions.

Deceptive Pricing

It is an act of pricing products/services to intentionally mislead the customers while price promotion. It is counted as illegal pricing practice under Federal Trade Commission Act, 1914 and Wheeler-Lea Act, 1938.

Superficial discounting is one form of deceptive pricing, where an organisation advertises discounted price however, the product is always sold at the same price. Similarly, some organisations set pricing in a manner that it psychologically seems a lesser amount to customers.

For example, if a customer needs to select between two products where one product costs Rs. 30 and the other costs Rs. 29.99; the customer may prefer product that prices Rs. 29.99 as it appears less expensive. However, there is only a difference of 1 paisa.

Unfair Pricing

It is an unethical pricing strategy which is usually followed by the monopolist sellers. If the number of buyers is more than the number of sellers, the sellers usually follow this pricing strategy for their product/services.

They charge high prices for their products/services even if it comes with basic features. In unfair pricing condition a buyer usually stops purchasing products/services from the monopolistic vendor as they feel the price is too high. In other words, unfair prices may lead a customer to not to make purchases.

Price Discrimination

It is another unethical pricing strategy, where organisations charge different prices from different customers. It is a common pricing practice in consumer market, such as cable companies usually offer lower prices to new customers, or fast food restaurants offer low priced meals to children.

However, in general, price discrimination is an unethical and illegal practice. Following are the two major types of price discrimination strategies:

• Price skimming: It is an unethical discrimination pricing strategy, where the organisations charge the maximum price for a product at first, and then lower the price over time. Under this practice, the marketers first try to capture the market segment of customers who could pay premium price for the product.
  
  After a period of time, as the demand of the first customers starts declining, the marketers lower the prices to attract the next, more price-sensitive segment of customers.
  
  This type of pricing helps the marketer to know what the customer is willing to pay for a product and generate the profit for both the short and long terms. Sony and Apple are some examples of companies that have been using this pricing strategy for years.
  
  
• Dumping: It is an international price discrimination strategy that is generally used in the context of international trade. In dumping, an exporter organisation sells its products in a foreign market at a low price, however, sells the same product at a high price in the home market.
  
  According to Haberler, dumping is the sale of goods abroad at a price which is lower than the selling price of the same goods at the same time and in the same circumstances at home, taking account of differences in transport costs. Thus, dumping is a price discrimination practice between two markets.

Most organisations employ a wide range of pricing tactics to deceive customers deliberately. These pricing tactics are mentioned as follows:

• Promoting a simple product as a luxury product
  
  
• Discounting prices to eliminate competitors from the industry and then hiking prices when competitors exit the industry
  
  
• Increasing prices when there is a shortage of a product
  
  
• Increasing the price of a product and introducing ‘buy one, get one free’ schemes where the second product is free or offered at discount
  
  
• Importing products from other countries at a lower price and selling them at a higher price

Distribution-related Ethical Issues

Ethical issues in distribution can occur between suppliers, producers and distributers on account of manipulating product’s availability, selling surplus inventory to wholesalers and retailers at higher rates, forcing other intermediaries to behave in a specific manner, etc.

These issues may result into increased prices, misled investors and fluctuations in demand. Distribution-related ethical issues often appear in the following forms:

Creating Artificial Scarcity

It is a form of scarcity that is not natural, but human made and often results from greed and human selfishness. Distributers create artificial scarcity by amassing resources or products to get abnormal profit in the market.

They do not release products in the market till the demand reaches to the peak. In this way, demand goes higher than supply, and the distributers get the chance to charge premium prices for their stored products. For example, in India many traders get involved in the practice of hoarding onions to create artificial scarcity and raise the price to earn exorbitant profit.

Creating Monopoly Market

Marketers can use their distribution channel to establish complete dominance in a market, which forces competitors out of the business.

For example, a large manufacturer with significant economy of scale can deploy the strategy of aggressive distribution, even by selling products at a very low price to capture the market, weed out the competitors, and thereafter raise price once the competitors are out of business. Such practices may be against the spirit of the free market and lead to market failure.

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Principles of Ethical Marketing

Some of the basic principles of ethical marketing are as follows:

• All marketing communications should exhibit truth.
  
  
• Marketing professionals should focus on following the highest standard of personal ethics.
  
  
• Even though the focus should be on non-representation of false information, the advertising should be done in a manner that could clearly distinguish it from news and entertainment content
  
  
• Advertisements should exhibit the real nature of the product.
  
  
• Marketing practices should not compromise on the privacy of the consumer at any cost.
  
  
• Marketers must comply with regulations and standards.
  
  
• During all marketing decisions, ethics should be discoursed openly and honestly.