GROUP 2 BUS ETHICS REPORT PPT

some ethical issues in consumer relations

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The Prayer

In the name of the Father, and the Son, and the Holy Spirit, Amen. Dear Father in Heaven, we are here before Thee. Help us study well. Help us to be obedient and honest. Help us to love one another. Bless our Teacher, Bless our school, Bless our country, and bring us all to Heaven. Amen.

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Learning Objectives

Ethics of Consumer Protection

The Market Approach

The Contract Approach

Due Care Theory

Social Cost View

C0nsumer Act of the Philippines

Ethics of Advertising

Marketing to Children

Ethical Issues on Pricing

In this chapter, the learners are expected to:

• Discuss some of the ethical issues in relation to consumer relations.
• Describe the different approaches to consumer protection
• Explain the significant on the issue at advertising ethics
• Analyze the ethical arguments for and against marketing to children
• Explain the arguments on the ethics of pricing

learning objectives:

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ETHICS OF CONSUMER PROTECTION

Business ethics consider four approaches to consumer protection: • The Market Approach •The Contract View Approach • The Due Care Approach • The Social Cost Approach

REPORTER

Fabia, Micah B.

for example:

THE MARKET APPROACH

○ If a toy manufacturer produces toys that endanger the children who will buy them, then the manufacturer will have a bad reputation. Toy buyers will look for another toy seller that assures the quality, safety and reasonable price. ○ If one pharmaceutical company raises its price unreasonably, then consumers will opt to buy another brand or medicine that assures the same effectiveness but a reasonable price.

• If a free market economic system, buyers and seller are free to interact. Sellers are free to produce the goods and services that buyers need and wants. On the other hand, consumers are free to choose from the products offered by various sellers. Buyer are assured of product safety, quality and reasonable price because of this complete freedom to choose their seller.

THE MARKET APPROACH

• This is how the market approach to consumer protection works. It is assumed that the free market will ensure the protection of the buyers from unreasonably high prices and low quality and hazardous product. • This approach also assumes that there is less need for government intervention to assure product safety and quality. The natural laws of the market would be sufficient], and the demands of the consumers would become the guiding principle for the seller.

According to Velasquez

Manuel G. Velasquez

one of the main weaknesses of this approach is that it assumes that there is perfect competition in the market economy. But this is wrong assumption. We highlight two important reasons that prove that there is really no perfect competition.

for example:

First, many times the buyers lack information regarding the details of the products due to their complexity, the inaccessibility of information regarding the product, and the high cost of accessing the relevant information regarding the product.

Do you have to be an expert in electronics in order to buy a cellphone? If you are not an expert, do you have to hire one? If you cannot hire one, do you need to read first all the details about the particular cellphone? It goes to show that there is always an “information asymmetry” between the seller and the buyer.

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Second, many consumer markets are usually monopolies and oligopolies. Monopoly happens when a “single firm produces the entire market supply of a good service”, For example, when a pharmaceutical company holds the patents for a particular drug, other drug manufacturers are not allowed to produce the said medicine. During the life of the patent, there is a monopoly in selling the said product. And during this time, the consumer is usually at the mercy of the manufacturer. Oligopoly happens when “only a few sellers control most or all of the market and sell similar or identical products”. For example, some critics used to question the oligopolistic nature of the telecommunication industry in the Philippines. Similarly, a consumer advocate claims that the oil industry in the Philippines is still an oligopoly.

It is clear therefore that the market approach to the protection of consumers will not be beneficial for the latter. There is a need for approaches that would clearly define the duties of both the seller and the buyer when it comes to protection from the potential harms that products can cause. Business ethicist had developed three approaches: the contract approach, the ethics of due care, and the social costs approach.

THE CONTRACT APPROACH

REPORTER

Tamayo, Desiree D.

THE CONTRACT APPROACH

• This view claims that sellers and buyers always enter into a contractual agreement. Even no written contract, the agreement is implied. The seller is duty-bound to deliver safe and value-for-money products and services by virtue of this contractual agreement. In other words, the buyer is protected because the seller makes a promise. If the promise is broken, then there are consequences for the seller.

FOR EXAMPLE:

By buying a cell phone from a seller, you also enter into a contract with him or her. You were informed about the details of the cell phone. You agreed to buy it after relevant information was revealed to you. Now, the seller has the duty to deliver what has been promised.

In this contractual agreement, four important conditions must be considered. First, the buyer and the seller have full knowledge of the nature of the contract. Second, the buyer and the seller do not misinterpret relevant facts. Third, the buyer and the seller are not force to enter the contract. Fourth, the buyer and the seller have adequate information about the product.

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Owing to the contractual nature of a buying-and-selling relationship, Velasquez discussed the four important duties of business. These duties are: The duty to comply with express and implied claims of reliability, service life, maintainability, and safety; duty of disclosure; duty to not misrepresent; and duty not to coerce.

four important duties of business

according to velasquez

for example:

Duty to comply

As a cell phone manufacturer, if you make a claim that your cell phone is reliable it means that it will function in a particular manner that the buyer is led to believe. As regards its service life, you may imply that it will be used effectively for a particular period of time. If the cell phone malfunctions after one week under normal circumstances the buyer has a right to ask for reparation. Maintainability pertains to the comfort of repairing the product and maintaining it in a proper condition. Safety refers to the duty of the seller to make the product as safe as possible.

The “ duty to comply “ pertains to the seller’s moral obligation to deliver what it claims to be the product’s features.

four important duties of business

according to velasquez

for example:

Duty to disclosure

It is ethically questionable for a seller of second hand cars not to tell the buyer that the car being sold was originally right hand drive or that the car was left in a flooded area.

The “ duty to disclosure “ pertains to the seller's moral obligation to reveal the relevant facts about the products and the terms and conditions of the sale. It is because the buyer can only freely choose to buy the product if he or she knows what he or she is buying. Velasquez says that “ freedom depends on knowledge “

four important duties of business

according to velasquez

Duty not to misrepresent

Michael Barscz, a defective product lawyer, said:

“ It typically involves an advertiser luring customers into the store by offering a product at an unrealistically low price ( the bait ). The customer is then told that the advertised goods are (1) not available or (2) inferior quality and/ or not suitable for the customer’s needs. The goal is to “switch” the customer to another more expensive product or one that has a higher profit margin. “

The “ duty not to misrepresent “ pertains to the seller's deliberate attempt to deceive and mislead the buyer just to sell the product. Again, misrepresentation suppresses truth. Thus, the buyer does not really have complete freedom when he or she buys a product through misrepresentation. One of the most common forms of this representation is called the “ bait-and-switch “ tactic.

“ Pharmaceutical products and medical devices are among the most commonly misrepresented products by manufacturers. Often the companies producing these products will rely on incomplete data or flood testing methods to generate a false sense of security regarding products safety. Many of these products also make it to market before long term safety data has been compiled the end result is often catastrophic injuries for consumers. “

Ethicist agree that it is an ethical because it involves deception or fraudulence and insincerity on the part of the seller. There are other common examples of misrepresentation.

FOUR IMPORTANT DUTIES IN BUSINESS

according to velasquez

For example:

Duty not to coerce

It would be ethically objectionable for a hospital to increase the price of a particular vaccine just because many people start to fear contracting a disease. Or as a seller of blood, you should not capitalize on the emotional stress of a buyer who is in desperate need of blood for his or her relative.

co·erce /kōˈərs/

The “ duty not to coerce “ pertains to the moral obligation of the seller not to take advantage to the buyer's fear, emotional stress, immaturity and ignorance that may hinder the buyer's ability to choose freely whether to buy or not to buy.

persuade (an unwilling person) to do something by using force or threats.

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Although the contract view of protecting the consumers is better than the market approach, it also confronted with some problems. One of the problem is “ the assumption that buyer and seller meet each other as equal in the sales agreement .” Again, the problem of information asymmetry persists. Consumers do not have the luxury of time energy and resources to be always on guard with regard to product safety. The manufacturer will always be in an advantage. Thus equality which is the foundation of contract view is called into question “The equality is assumed in contract theory is more an exception rather than the rule.”

Due Care Theory

As products become more complex- such as cell phones, appliances, computers and modern gadgets - buyers gain less and less information about them. Thus, the greater burden of products safety shifts heavily on the manufacturer and seller. Today caveat emptor gives way to the principle of the caveat vendor (let the seller beware). Now it is the duty of the seller to assure that the product is safe and not defective.

In the olden times when a seller sells products such as animals, crops, and land. The buyer has more responsibility to assess first whether he or she has entered a fair transaction. Caveat emptor (let the buyer beware) is the general rule and an acceptable practice in the marketplace it is the duty of the buyer two check the product if it is of good quality.

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SOCIAL COST VIEW

REPORTER

Tulud, Pauline Grace p.

Social Cost View

Even if the manufacturer uses great care and precaution in the production of the goods, and even if the damage was not expected, the manufacturer is still responsible to the customer. In this scenario, manufacturers would go to great lengths to produce a high-quality, dependable, and safe product.

One of the critics of the due care theory is business ethicist George Brenkert. For him, the manufacturer takes full responsibility for any damage caused by the product to the consumer. He refers to this as strict products liability, or the "doctrine that the seller has legal obligations to compensate the customer for injuries due to a faulty component of the product, even though the seller was not reckless in allowing the defect to occur."

Some limitations to the solution offered by the social costs approach according to Velasquez:

1. It is a form of injustice to the manufacturer, since one only has a moral obligation if the negative result is expected unless the manufacturer did nothing to prevent it. 2. It will not assure that accidents will not happen. In reality, since customers still believe they will get back to the manufacturer, this could make them irresponsible; therefore, it is prone to customer violence. 3. It involves huge costs for insurance providers, resulting in higher insurance rates. As a result, small companies will be unable to afford such high insurance costs.

Social Costs Approach

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Consumer Act of the Philippines

In the Philippines, the fundamental law that protects the rights of the consumers is Republic Act 7394, otherwise known as "The Consumer Act of the Philippines" Its main objectives include the following:

1. Protection against hazards to health and safety 2. Protection against deceptive, unfair, and unconscionable sales acts and practices 3. Provision of the information and education to facilitate sound choice and the proper exercise of rights by the consumer 4. Provision of adequate rights and means of redress 5. Involvement of consumer representatives in the formulation of social and economic policies

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Ethics of advertising

REPORTER

Suarez, Mary Ruth M.

Sameon, Jovann Mae H.

ADVERTISING

is a “techniques and practices used to bring products, services, opinions, or causes to public notice for the purpose of persuading the public to respond in a certain way.”

Political Advertising

Commercial Advertising

• is “an organized method of communicating information about a product or service which a company or individual wants to sell to the people.

• For example, when politicians and government officials informs and persuade the public to respond in specific way (solicitation of votes, support for advocates, and so on).

“ADVERTISEMENTS ARE EVERYWHERE”

In the Philippines advertising has become a multibillion-peso industry.

Twin Purposes of Advertising

Main Purpose of Advertising is to inform the public on at least 3 things;

• To inform (informational advertising)
• To persuade (persuasive advertising)

• 2010 Annual survey, the advertising industry ranked 2nd (Professional, Scientific, and Technical Activities category) in terms of highest number of establishments• advertising industry contributes total revenue as high as P8.7 billion just for the year 2010.

1. New products being introduced.2. Alternative products that the public can choose from. 3. The features, uses, and benefits of the products.

Velasquez notes that the purpose of informing is significantly overwhelmed by the purpose of persuading.

Is advertising ethically and legally objectionable? Our standard answer should be “It is both legal and ethical”

• First, it is violation of fundamental of human rights if we will ban advertisements.
• Second, there are many benefits that the society can get from advertising. What are some of those benefits? Advertising is a source of income for many people and a source of revenue for the government. It is also the lifeblood of the media institution.
• In addition, advertisements remain the public’s source of information about the wide arrays of products that they can choose from.

Despite the advertising’s many benefits, it is not difficult to see that advertising also raises serious ethical issues. These issues arise from the businessperson’s primary purpose to persuade the public to buy the product to gain more profit for the business. Velasquez says that there are 3 important factors to consider in determining the ethical implications of an advertisement: Its social effects, its effects on desire, and its effects on belief.

• As the French philosopher, Gabriel Marcel would say, being is simply equated with having. • Critics argue that advertising has become a means to promote and fuel a culture of consumerism and materialism. • Andrew Crane says that the critics have identified “marketing [which includes advertising] as the ringmaster of over increasing consumption, and thus firmly implicating it in the attendant problems of resource depletion, pollution, species destruction, and climate change.

Gabriel Marcel

Andrew Crane

The main issue of advertising's effects on consumer desire is the deliberate attempts of advertisers to manipulate the viewers' minds to desire, buy, and consume the product being advertised. The issue of manipulation links the advertising process with some psychological theories and findings. For example, In the early years of the 20th century, the Russian phycologist Ivan Pavlov found out that the dogs' reaction to food can be manipulated through the process of what is now known as classical conditioning.

Ivan Pavlov

Advertisements like TV commercials use devices and techniques to persuade the viewers even it portrays unethical presentations in some instances.

Edward Louis Bernays

Edward Louis Bernays (1891-1995)

• Nephew of the psychologist Sigmund Freud • Considered as the father of Public Relations • Hailed the act a “Torches of Freedom” for instructing women models (not really smokers) to light Lucky Strike Cigarettes while marching in a parade to support freedom and equal rights.

Why do we have strong reasons to suspect that advertisers would resort to manipulation? Advertising significantly helps consumers to consider that a want could be a real need and this may take the form of manipulation.

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John K. Galbraith

John K. Galbraith

• “Dependence effect” means that the consumer’s needs and desires are not totally autonomous but have dependent on the advertiser. That advertising has reverse the “necessity is the mother of invention” to “invention is the mother of necessity” with the use of persuasive advertising.

Subliminal Advertising

Subliminal Advertising - operates by including text or images. The word subliminal comes from two Latin words “sub” meaning “below” and “limen” meaning “threshold”. So if something is subliminal then it is something “below the threshold”. It operates below the limits of the consciousness of its audience and sometimes referred as “hidden” or “embedded” messages.

Dylan Love’s article in Business Insider shows images of print and television ads that contain subliminal images. For some examples: A sexy outline of a women on top of a can of coke, a phallic pattern in abdominal muscles, a male model hugging a lady who is holding a male sex organ, and Heineken bottles that look like female thigh when flipped and many more.

James Vicary invented the term “Subliminal advertising” in his famous experiment. He flashed the words “Hungry? Eat popcorn” and “Drink Coca Cola” at a very fast speed. He claimed that there was an increase in the sales of popcorn and Coke after the experiment.

Friedrich Bon Hayek -A economist that argues against Galbraith. “The efforts of all producers will certainly be directed toward that end; but how far any individual producer will succeed will depend not only when on what he does but also on what the others do and on a great many other influences operating upon the customer.”

deceptive Advertising

2. Kaletra advertisement - Drug known as “Kaletra” in the case of Abbott Laboratories’ as an effective drug for managing HIV. It was advertised by Earvin “Magic “Johnson, a famous basketball player who was suspected to be positive for HIV but in 2009 the United States FDA declared that it was not effective and it has potential side effects that may include as pancreatitis, diabetes, and skin hemorrhage that was not mentioned in the advertisement.

Deceptive Advertising – the main issue regarding advertising’s effects on belief. Velasquez says the two questions must be considered about this: • Is the content of the advertisement truthful? • Does the advertisement tend to mislead those to whom it is directed?

Examples:

1. Volvo Advertisement - When the truck rolled over the Volvo car, it was not damaged at all and it appears to the viewers that Volvo is many times more heavy-duty than other cars not knowing that the other cars were made to be easily crushed.

8 fundamental rights of consumers:

Consumer’s Bill of Rights – significant effects of the efforts of these consumer right movements due to the rise in issues regarding unfair treatment coming from the business sector, consumer movements and consumer protest against to increase in Western countries during the 1960’s.

1. Right to safety 2. Right to a choice 3. Right to know 4. Right to be heard 5. Right to recourse and redress 6. Right to full value 7. Right to education 8. Right to representation and participation

Consumer’s Bill of Rights

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Code of Ethics for Advertising - One of the laws and codes to regulate the advertising industry in the Philippines to avoid questionable practices such as false and deceptive advertising. First published in 1975 and last revised in March 2000 by the Advertising Board of the Philippines (AdBoard).

MARKETING TO CHILDREN

REPORTER

Pocon, Daniel A.

Strictly speaking, children do not have their own money to buy products that they want, However, what children possess can be more powerful than money—their ability to persuade their parents to buy and spend on the toys, foods, entertainment, gadgets, and vacation trips that they wish for. Daniel Palmer, writing on the ethics of marketing to children, said: “There is, thus, no doubt that children represent an important element in the modern consumer economy.” Consequently, marketers and advertisers target the young consumers.

Unlike adult, children are more vulnerable to persuasive techniques Furthermore, children are not yet capable of judging whether the products that they want is impractical, hazardous, or have no long-term benefit. As a general principle, we can probably adopt this thought from Palmer. “At a minimum, if a product has been deemed to be inappropriate for persons under age by law or regulation, marketers have a moral and legal responsibility not to target younger persons in their advertising campaigns.”

For example, in their effort to extend the market alcoholic beverages and cigarettes, advertisers and markets must not deliberately involve youth by appealing to their likes and dislikes, habits and wishes. In the Code of Ethics promulgated by the Advertising Board of the Philippines (Adboard), the following provisions directly speak about the said issue:

2. Advertisements shall not exploit the youth younger than 18 years of age who are especially vulnerable, whether on account of their youth or immaturity, or as a result of any physical, mental, or social handicap in any form of cigarette advertising

1. Advertisements for cigarettes and tobacco products will not be aimed at or directed to minors as the target audience.

3. Models and talents who are minors or appear to be minors and those who portray authority figures or roles meant to appeal, especially to minors (e.g., folk or comic books heroes, war or national heroes, law enforcers) will not appear in such advertisements.

4. No advertisements on cigarettes shall appear in any children’s programs, or in children’s magazines, or publications directed specifically to children and minors

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Advertisers of products like toy guns, robots and other action figures, uses the manipulative technique to be able to sell their Items. Not only on TV and media, internet even in schools were children become advertisers in some sponsored event. Parents showed guide, and watch their children on what product to be bought.

ethical issues on pricing

REPORTER

Dayawon, Jamaila Lee S.

What is the pricing? How can we say that a price is just? What role must the government play in ensuring just pricing? Naturally, the product price cannot be lower or equal to the cost of producing it. If this would be the case, then sellers would not gain profit. However, the product price cannot also be high.

Another important consideration is the value of the product being sold. A just price must essentially “correspond to the value of the good sold” What, then, is a just price for a product? Drawing from the thoughts of Aristotle, Thomas Aquinas, and the ancient Roman legal system Robert G. Kennedy, came up with three conditions to determine whether a product’s price is fair and just.

This may have at least two results: First, buyers will not be willing to buy the product anymore. Second, they will buy the product but not from a seller who asks for an unreasonably high price. Rather, buyers will look for another seller who offers it for a lower price.

Second, the price is just if both the buyer and the seller are absolutely free to negotiate about the price and if one is not satisfied with what is proposed by the other, then either of them is free not to close the buying deal. In free market system, it is assuming that there are numerous buyers and sellers. The buyer who is not satisfied with the price can go to another seller. The seller who is not satisfied with the price that the buyer wants can wait for another buyer.

First, there must be a sufficient information about the product both on the side of the seller and the buyer. The seller cannot assign the price if he or she lacks relevant information about what he or she is selling. The buyer cannot decide freely to buy the product for a certain price if he or she is not aware of its defects.

Third, the price is just if there are no extraordinary circumstances that put pressure on the buyer or the seller. These three conditions do not tell us an exact computation to determine a just price. And this must be so. In a free market system, a just price aims not for mathematical computations that produce exactitude but for the avoidance of economic inequality and exploitation.

In an article, Claus Dirksmeier said: “the just price serves not as quantitative fixtures (i.e., a distinct mathematical price point) but as a qualitative regulative (i.e., a realm of fair prices). The just price is then not an automatic resultant of abstract market forces geared to a predetermined equilibrium but the concrete outcome of human arbitration procedures oriented at equality and inequality. Its object would be the avoidance of economic exploitation through parties intended to respect the common good. The “universal” of the just price has consequently to be located neither “before” or “after” the market price but “through” it, that is, through fair transactions in a morally well-ordered market.”

Claus Dirksmeier

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