Ch1-7:Ethics in Marketing Study Set

Foundations of Ethics in Marketing

• Definition of Ethics: Ethics represent the specific moral standards expected by a society. These standards serve as the foundation for conduct in both personal and professional spheres.

• Role in Marketing: Ethical decision making is a critical pillar of a successful marketing approach, alongside other modern components like social media, globalization, and marketing analytics. Marketers are expected to understand the norms and values of their environment to ensure their actions reflect positively on their company, their profession, and themselves.

• The American Marketing Association (AMA): The AMA provides a comprehensive Code of Ethics designed to serve as a guide for marketers at all levels, including practitioners, academics, and students.

The American Marketing Association Code of Ethics

• Preamble and Definitions:

  • Norms: These are established standards of conduct that are expected and maintained by society or professional organizations.
  • Values: These represent the collective conception of what communities find desirable, important, and morally proper. They serve as criteria for evaluating personal and collective actions.
  • Stewardship: Marketers serve as stewards of society. They facilitate transactions that are integral to the greater economy and hold a responsibility toward multiple stakeholders, including customers, employees, investors, peers, channel members, regulators, and the host community.

• Ethical Norms:

  • Do no harm: Marketers must consciously avoid harmful actions or omissions. This involves embodying high ethical standards and strictly adhering to all applicable laws and regulations.
  • Foster trust in the marketing system: Marketers strive for good faith and fair dealing. This execution contributes to the efficacy of the exchange process and requires avoiding deception in product design, pricing, communication, and distribution delivery.
  • Embrace ethical values: Marketers must build relationships and enhance consumer confidence by affirming core values: honesty, responsibility, fairness, respect, transparency, and citizenship.

Core Ethical Values of the AMA

• Honesty: Being forthright in all dealings with customers and stakeholders.

  • Marketers must strive for truthfulness in every situation and at all times.
  • Products must be offered at a value that matches the claims made in communications.
  • Firms must stand behind products if they fail to deliver claimed benefits.
  • Explicit and implicit commitments and promises must be honored.

• Responsibility: Accepting the consequences of marketing decisions and strategies.

  • Efforts must be made to serve customer needs while avoiding coercion with stakeholders.
  • Marketers must acknowledge social obligations that accompany increased economic and marketing power.
  • Special commitments must be recognized for vulnerable market segments, including children, seniors, the economically impoverished, and the market illiterate (those who are substantially disadvantaged).
  • Environmental stewardship must be a consideration in decision-making processes.

• Fairness: Justly balancing the needs of the buyer with the interests of the seller.

  • Products must be represented clearly in selling, advertising, and all communications, avoiding false, misleading, or deceptive promotions.
  • Manipulations and sales tactics that harm customer trust must be rejected.
  • Marketers must refuse to engage in price fixing, predatory pricing, price gouging, or "bait-and-switch" tactics.
  • Knowing participation in conflicts of interest must be avoided.
  • The private information of customers, employees, and partners must be protected.

• Respect: Acknowledging the basic human dignity of all stakeholders.

  • Individual differences must be valued; marketers must avoid stereotyping or depicting demographic groups (gender, race, sexual orientation) in negative or dehumanizing ways.
  • Marketers must listen to customer needs and monitor/improve satisfaction on an ongoing basis.
  • Efforts must be made to understand and treat buyers, suppliers, and distributors from all cultures with respect.
  • The contributions of others, including consultants, employees, and coworkers, must be acknowledged.
  • All parties, including competitors, should be treated with the same respect one wishes to receive.

• Transparency: Creating a spirit of openness in marketing operations.

  • Communication with all constituencies must be clear.
  • Constructive criticism from customers and stakeholders should be accepted.
  • Firms must explain and take action regarding significant product/service risks, component substitutions, or foreseeable eventualities affecting customer perception.
  • List prices, terms of financing, and available price deals/adjustments must be fully disclosed.

• Citizenship: Fulfilling economic, legal, philanthropic, and societal responsibilities.

  • The ecological environment must be protected during the execution of marketing campaigns.
  • Giving back to the community is encouraged through volunteerism and charitable donations.
  • Marketers should contribute to the betterment of the profession's reputation.
  • Supply chain members should be urged to ensure fair trade for all participants, particularly producers in developing countries.

Implementation and Subsidiarity

• Leading with Courage: The AMA expects members to be proactive in leading their organizations toward fulfilling promises to stakeholders.

• Discipline-Specific Codes: While the general AMA code provides guidance, specific ethical issues exist within sub-disciplines such as marketing research, e-commerce, direct marketing, and advertising.

• Principle of Subsidiarity: This principle suggests solving issues at the level where the expertise resides. Groups within specific marketing niches are encouraged to develop their own codes to supplement the guiding norms and values of the AMA.

The Impact of Ethics on Business Success

• Consequences of Ethical Failure:

  • Wells Fargo ($2016$): Employees created millions of unauthorized bank and credit card accounts for customers. This resulted in a fine of $185$ million and the loss of thousands of jobs.
  • Destroyed Corporations: Over the past $25$ years, ethical lapses have led to the total collapse of major global firms, including:
    • Enron: Formerly No. $18$ on the Fortune $500$ in $2000$.
    • WorldCom: A telecommunications giant.
    • Arthur Andersen: The largest accounting firm in the U.S. in $2000$ and a major recruiter of college graduates until its demise.
    • AIG: The largest insurance company in the world in $2008$.
    • Bear Stearns: Another victim of ethical lapses that led to closure.

• The Job Market and Ethics: Unethical behavior limits opportunities for new graduates. When large firms like Arthur Andersen or Enron close due to ethical scandals, they cease to provide employment, harming society as a whole.

• Profitability and the WME Index: Making ethical decisions generates profits even during economic recessions. The WME Index (World’s Most Ethical Company Index) tracks stock returns for ethical honorees and shows that these firms consistently outperform a comparable index of global companies across various political, regulatory, and economic climates.

Ethical Decision-Making Framework

1. Determine the facts in an unbiased manner: Identify factual elements without letting environmental background, history, or personal experiences bias the interpretation.

2. Identify the ethical issue at hand: Clearly define the specific ethical problem to ensure the rest of the framework is applicable.

3. Identify the stakeholders affected by the decision: Consider both internal (current and retired employees, shareholders) and external stakeholders (customers, suppliers, the community).

4. Consider all available alternatives: Use group brainstorming to find creative solutions through different perspectives.

5. Consider how the decision will affect the stakeholders: "See through the problem to the other side" by anticipating long-term impacts. For example, subprime lenders leading up to $2008$ failed to consider the long-term effects of lax standards on foreclosures.

6. Discuss the pending decision with the stakeholders: Seek feedback from those who will be impacted to understand the full dynamics of the situation.

7. Make the decision: Arrive at a final decision based on thorough evidence and discussion.

8. Monitor and assess the quality of the decision: Recognize that ethics evolve (e.g., changes in the perception of smoking in offices). Continuous assessment is required for issues like online privacy, environmental sustainability, and childhood obesity.

Ethical Questions in the Marketing Mix

• Product:

  • Determining default privacy settings for websites.
  • Evaluating safety risks for children and older populations.
  • Deciding whether to use expensive environmentally friendly packaging.

• Place:

  • Deciding if jobs should be outsourced within the supply chain.
  • Assessing if relationships between wholesalers and retailers are inappropriate.
  • Identifying potential temptations for personal gain among suppliers.

• Price:

  • Determining if prices should vary based on a customer's ability to pay.
  • Deciding if prices should be increased when local competition is absent.
  • Evaluating whether to lower prices on soft drinks or fast food to increase volume, despite health risks.

• Promotion:

  • Ensuring advertising messages represent benefits honestly.
  • Assessing if promotional strategies involve inappropriate content like violence, sex, or profanity.
  • Determining if ads should attack competitors rather than highlighting a firm's own product benefits.