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Marketing was easier when the economy was expanding and consumer disposable income was growing. For three decades after World War II, marketing strategies generally were built around the development of growth markets. Satisfying customers was important, but never as important as it has become in the nineties, with the competitive pressures of largely static markets. Previously, ethical problems were less apparent as well, not so much because people did not care, but because society’s expectations were different and there was a simple rule for evaluating marketing practices: caveat emptor, within the rule of law. If it was legal to sell a product that might be harmful or might not live up to the seller’s promises, then marketing the product was acceptable because the decision to buy was the consumer’s. The consumer was expected to employ the maxim “buyer beware.”
Today there is widespread concern about ethics in public and private life extending to many areas — politics, education, health, as well as business. Indeed, the current period may be called the “ethics era.” For marketers, this has meant that standards of acceptable marketing practice have shifted along a continuum, from a position wherein producer interests are paramount to a position wherein consumer interests are more favored. Society’s expectations have changed so that if caveat emptor ever was truly an adequate basis for evaluating marketing ethics, this is no longer the case.
What constitutes ethical marketing practice in the ethics era? In this article, I provide an answer by first illustrating society’s expectations of marketers today and the challenges to basic marketing assumptions. Second, I propose a tool, the “consumer sovereignty test” (CST), that helps resolve some of the ethical problems marketing managers are currently experiencing.
I briefly review research developments in business and marketing ethics to highlight the difficulties in guiding managers on ethical business conduct. Next, I use three examples of ethical controversy in marketing to illustrate the decline of caveat emptor. This shift in society’s expectations of marketers, which further complicates the task of guiding managers, I cover more formally in a discussion of the marketing ethics continuum. I propose resolving the problems identified by using the consumer sovereignty test. I describe the rationale for CST, discuss how managers can use it (including its application to the foregoing examples), and identify the major ethical issues in marketing to which it applies.
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1. A. Stark, “What’s the Matter with Business Ethics?,” Harvard Business Review, May–June 1993, pp. 38–48.
2. R.C. Baumhart, “How Ethical Are Businessmen?,” Harvard Business Review, July–August 1961, pp. 6–19 and 156–176; and
J. Tsalikis and D.J. Fritzsche, “Business Ethics: A Literature Review with a Focus on Marketing Ethics,” Journal of Business Ethics 8 (1989): 695–743.
3. R.N. Farmer, “Would You Want Your Daughter to Marry a Marketing Man?,” Journal of Marketing, January 1967, pp. 1–3.
4. See P. Murphy and G.R. Laczniak, “Marketing Ethics: A Review with Implications for Managers, Educators, and Researchers,” in B.M. Enis and K.J. Roering, eds., Review of Marketing (Chicago: American Marketing Association, 1981), pp. 251–266; and
A.M. Tybout and G. Zaltman, “Ethics in Marketing Research: Their Practical Relevance,” Journal of Marketing Research 11 (1974): 357–368.
5. S.D. Hunt, L.B. Chonko, and J.B. Wilcox, “Ethical Problems of Marketing Researchers,” Journal of Marketing Research 21 (1984): 309–324.
6. Deontological theories employ rule-based analysis: actions are inherently right or wrong, independent of their consequences, because of the kinds of actions they are or because they conform to a formal principle. Judeo-Christian morality, for example, provides a body of moral rules in the Ten Commandments. Teleological theories hold that an action is right because of the goodness of its consequences. Under utilitarianism, for example, an action is judged as right if it produces the greatest good for the greatest number of people. See also:
S.D. Hunt and S.J. Vitell,” A General Theory of Marketing Ethics,” Journal of Macromarketing 6 (1986): 5–16.
7. O.C. Ferrell and L.G. Gresham, “A Contingency Framework for Understanding Ethical Decision Making in Marketing,” Journal of Marketing, Summer 1985, pp. 87–96.
8. See, for example:
I.P. Akaah and E.A. Riordan, “Judgments of Marketing Professionals about Ethical Issues in Marketing Research: A Replication and Extension,” Journal of Marketing Research 26 (1989): 112–121; and
J.A. Bellizzi and R.E. Hite, “Supervising Unethical Salesforce Behavior,” Journal of Marketing, April 1989, pp. 36–48.
9. Tsalikis and Fritzsche (1989).
10. G.R. Laczniak, “Framework for Analyzing Marketing Ethics,” Journal of Macromarketing 1 (1983): 7–18.
11. D.J. Fritzsche, “Ethical Issues in Multinational Marketing,” in G.R. Lazniak and P.E. Murphy, Marketing Ethics: Guidelines for Managers (Lexington, Massachusetts: Lexington Books, 1985), pp. 85–96. Based on:
G.F. Cavanagh, D.J. Moberg, and M. Velasquez, “The Ethics of Organizational Politics,” Academy of Management Review 6 (1981): 363–374.
12. D.P. Robin and R.E. Reidenbach, “A Framework for Analyzing Issues in Marketing,” Business and Professional Ethics Journal 5 (1986): 3–22.
13. G.R. Laczniak and P.E. Murphy, Ethical Marketing Decisions: The Higher Road (Needham Heights, Massachusetts: Allyn & Bacon, 1993), pp. 49–51.
14. Ibid., p. 51.
15. See D.P. Robin and R.E. Reidenbach, “Searching for a Place to Stand: Toward a Workable Ethical Philosophy for Marketing,” Journal of Public Policy and Marketing 12 (1993): 97–105.
16. The examples come from:
N.C. Smith and J.A. Quelch, Ethics in Marketing (Homewood, Illinois: Irwin, 1993).
17. J.R. Schiffman, “After Uptown, Are Some Niches Out?” Wall Street Journal, 22 January 1990.
18. J.P. Miller, “May Unit Illegally Deceived Customers in Its Advertising Practices, Court Rules,” Wall Street Journal, 28 June 1990, p. B4.
19. P.J. Kaufmann, N.C. Smith, and G.K. Ortmeyer, “Deception in Retailer High-Low Pricing: A ‘Rule of Reason’ Approach,” Journal of Retailing 70 (1994): 115–138.
20. The code was not specific about the proportion of sales that must be made at reference prices. However, the code did allow for circumstances where these criteria were not met and where the retailer had made a good faith offer to sell at the reference price, for example, in the event of merchandising mistakes. This draft code notwithstanding, state prosecutors still maintained the historical view of a sale as representing temporary exceptional value. The industry countered that this attitude reduces price competition, with retailers obliged to maintain reference prices longer than they would wish, to permit comparative price advertising. The consumer is said to suffer as a result.
21. It should be noted that there have been other periods of activist consumer concern (e.g., Ralph Nader’s activities in the 1960s), but not the ethics era’s far-reaching societal concern with ethics in all aspects of our professional lives, including business.
22. See The Poor Pay More . . . For Less, Part 2: Automobile Liability Insurance (New York: City of New York Department of Consumer Affairs, 1992).
23. See I.L. Preston, The Tangled Web They Weave: Truth, Falsity, and Advertisers (Madison: University of Wisconsin Press, 1994).
Problems with the persuasive intent of personal selling may be illustrated by the controversy over infant formula marketing in less developed countries. See:
J.E. Post, “Assessing the Nestlé Boycott: Corporate Accountability and Human Rights,” California Management Review, Winter 1985, pp. 113–131.
24. J.M. Liedtka, “Burroughs Wellcome and the Pricing of AZT” (Charlottesville: University of Virginia, Darden Graduate School of Business Administration, 1991).
25. Based on N.C. Smith, “Ethics and the Marketing Manager,” in Smith and Quelch (1993), pp. 3–34; see, more specifically, pp. 20–29.
26. Most notably in the doctrine of strict liability. See:
Smith (1993), pp. 25–28.
27. Ibid., pp. 21–23.
28. For an insightful discussion of the conflicting pressures to which marketers are subject, see:
E.R. Corey, “Marketing Managers: Caught in the Middle,” in Smith and Quelch (1993), pp. 37–45.
29. For example, advertising is deceptive and therefore illegal when it is judged by the FTC as having the capacity to deceive. Yet it is sometimes difficult to identify when advertising is deceptive, subject to the perhaps inevitably vague FTC standards. See:
30. M. Friedman, Capitalism and Freedom (Chicago: University of Chicago Press, 1962), p. 133. In a Friedmanite conception of the caveat emptor position, the basis for evaluating marketing practice would be profit maximization within the “rules of the game.” Arguably, this is broader than “profit maximization within the law,” because it rules out deception and fraud not only because they are illegal but also because they are wrong, i.e., contrary to the rules of the game.
31. See Smith (1993), p. 24.
32. Consumer advocates often base their arguments on the work of critics of capitalism, such as the economist Galbraith. He suggests that “concealed by the mystique of the market and consumer sovereignty is the power of corporations to set or influence prices and costs, to suborn or subdue politicians and to manipulate consumer response.” See: J.K. Galbraith, The Anatomy of Power (London: Hamish Hamilton, 1984), p. 12.
33. For a detailed discussion of this point, see:
N.C. Smith, Morality and the Market: Consumer Pressure for Corporate Accountability (London and New York: Routledge, 1990), pp. 13–42.
34. G.P. Penz, Consumer Sovereignty and Human Interests (Cambridge: Cambridge University Press, 1986), p. 1.
35. For a review of these theories of moral philosophy, see:
L.C. Becker and C.B. Becker, Encyclopedia of Ethics (New York and London: Garland Publishing, 1992).
36. See T. Donaldson, Corporations and Morality (Englewood Cliffs, New Jersey: Prentice-Hall, 1982), pp. 36–58.
37. Galbraith (1984).
38. Antitrust regulations aim to restrict monopolistic practices but have their limitations. Also, the Doctrine of Unconscionability, laid out in the Uniform Commercial Code, restricts a party to a transaction from imposing unreasonably advantageous terms if there is an absence of meaningful choice for the other party.
39. L.N. Vreeland, “Sorting out a Sale from a Scam, Money, April 1991, pp. 138–140.
40. C. Hymowitz and T.F. O’Boyle, “Two Disparate Firms Find Keys to Success in Troubled Industries,” Wall Street Journal, 29 May 1991, pp. A1 and A7.
41. See Laczniak and Murphy (1993), pp. 303–309.
42. Surveys report widespread adoption of ethics codes by individual firms. See, for example:
L.L. Nash, “American and European Corporate Ethics: A 1991 Survey,” in J. Mahoney and E. Vallance, eds., Business Ethics in a New Europe (Dordrecht, Holland: Kluwer, 1991), pp. 155–176.