Marketing Strategies for the Ethics Era

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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. I conclude with a discussion of the strengths and limitations of the marketing ethics framework.

Developments in Business and Marketing Ethics

While Stark criticized business ethics theorizing as too general, too theoretical, and too impractical, he did not offer many remedies.1 One way to make business ethics more relevant to management decision making is to restate the issue from the manager’s perspective, recognizing that many ethical issues in business can be more precisely specified, most notably as specific to a functional area. A focus on marketing ethics, not business ethics, is more likely to produce theory useful to marketing decision makers. Moreover, there are many instances of unethical conduct in marketing; many view marketing as the worst offender of all the business functions.2 Accordingly, there is a growing literature on marketing ethics.

Some of the earliest marketing writing on the topic emerged in the 1960s; for example, Farmer asked, “Would You Want Your Daughter to Marry a Marketing Man?”3 In the 1970s, there was a shift from broad observations on marketing ethics to a focus on specific issues, such as respondents’ rights in marketing research.4 The shift became more pronounced in the 1980s with an increasingly more rigorous and often empirical treatment, such as Hunt, Chonko, and Wilcox’s survey of the ethical problems of marketing researchers.5 While research on specific issues continued, from the mid-1980s on, marketing writers were influenced by developments in the broader field of business ethics and began to draw more heavily on moral philosophy. For example, Hunt and Vitell proposed a general theory of marketing ethics that describes how an individual might arrive at deontological (rule-based) and teleological (consequentialist) evaluations that, in turn, lead to ethical judgments, intentions, and behaviors.6

Ethical Maxims »

A key distinction in the literature is between descriptive and normative approaches to marketing ethics. Descriptive approaches include attempts to describe or model ethical decision making, such as Hunt and Vitell’s general theory and Ferrell and Gresham’s contingency model.7 Descriptive approaches also include studies of the ethics of different populations, such as marketing researchers or salespeople.8 Normative approaches to ethics are prescriptive, identifying moral principles and methods of moral reasoning that justify rules and judgments of what is right and wrong. Normative marketing ethics is concerned with addressing the question I posed at the outset: What constitutes ethical marketing practice in the ethics era? Within the marketing ethics literature, there has been a substantial number of descriptive contributions, but far fewer normative contributions providing guidelines and frameworks that managers and others can use in evaluating marketing practices.9

Laczniak has highlighted the weaknesses of a number of the ethical maxims that managers use, such as “when in doubt, don’t” and the Golden Rule (see the sidebar).10 To provide more rigor to ethical analysis, Laczniak proposed a framework that includes theories developed by Ross, Garrett, and Rawls, presenting a synthesis of factors. If every question he lists can be answered negatively, then the action is probably ethical. For example: Does action A violate the law? Does action A violate any general moral obligation (such as duties of fidelity, gratitude, or justice)? Are any major evils likely to result from or because of action A? Although an important contribution to the marketing ethics literature, Laczniak’s framework is too broad in scope and his questions too abstract to be useful to marketing managers.

Other frameworks formally incorporate theories of moral philosophy. Fritzsche, developing a decision tree model proposed by business ethicists Cavanagh, Moberg, and Velasquez, identifies three principles or screens through which a decision must pass: the utilitarian principle (assessing benefits to society), the rights principle (effects on individual freedom), and the justice principle (effects on distributive justice).11 Robin and Reidenbach’s framework combines utilitarianism and deontology with a systems view of marketing exchanges that incorporates stakeholders (those affected by or otherwise having a stake in business decisions).12

Laczniak and Murphy revised Laczniak’s framework.13 This more comprehensive framework comprises a series of tests: legal, duties, special obligations, motives, consequences, utilitarian, rights, and justice tests. To this framework for ethical reasoning, Laczniak and Murphy also added the stakeholder concept, recognizing that “weighing the concerns of multiple stakeholder groups . . . becomes the essence of appropriate ethical decision making . . . [and] the root of the complexity of such decision making.”14

These frameworks make a valuable contribution to the marketing ethics literature, but they presuppose a familiarity with moral philosophy that few managers have. Applying the “grand narratives” from moral philosophy has other problems too.15 Unless managers can be philosophers as well as businesspeople, normative marketing ethics frameworks must be more accessible. Accordingly, the framework I suggest — including the consumer sovereignty test — is practical and specifically applicable to marketing decision making. In the next section, I introduce the framework by showing why managers can no longer rely on caveat emptor.

The Decline of Caveat Emptor

To understand the shift in society’s expectations of marketing practice and the marketing ethics framework, it is helpful to consider some examples of ethical controversy in marketing.16 These are not the black-and-white issues of earlier days when firms completely disregarded consumer welfare, often illegally, in the sale of hazardous products (such as a car with a gas tank that explodes in an accident) or through outright deceit or bribery. Today’s more complex issues involve shades of gray:

  • In June 1988, Consumers Union, the leading consumer interest group in the United States, announced that it was classifying the four-wheel-drive Suzuki Samurai as “not acceptable,” the first time in ten years a vehicle had received this rating. The widely respected consumer interest group demanded that the 160,000 Samurais already sold be recalled because of the vehicle’s alleged propensity to roll over when used on the road. The scientific evidence was inconclusive; three months later, the National Highway Traffic Safety Administration decided not to investigate the Samurai. The agency subsequently found greater problems with another four-wheel-drive vehicle, the Ford Bronco II. Meanwhile, Samurai sales plummeted.

While there were various reasons suggested for Consumers Union’s targeting of the Samurai, most notably that it was the leading import (Japanese) sport utility vehicle, a better reason explains consumers’ adverse reaction to the Samurai. Eschewing industry categorization, Suzuki had positioned the Samurai to appeal to buyers of sport utility vehicles, compact trucks, and subcompact cars, rather than any one of these specific categories. “Never a dull moment” was the Samurai’s advertising theme. Its fun and value had appealed especially to young, less experienced drivers. At issue was whether consumers understood the product they were buying. According to the owner’s manual, “Your vehicle is designed primarily for off-road driving.” While all sport utility vehicles differ from passenger cars in their handling characteristics, inevitably their design requires some compromise of highway safety to provide off-road capability. Yet the Samurai was marketed as suitable for highway trips and commuting to work — not one of thirteen different television advertisements, aired between the vehicle’s launch in 1985 and the start of criticism about its safety in 1988, showed its off-road capability. Suzuki had targeted the car-buying public, suggesting that the vehicle was equivalent to a car and thereby understating its different handling characteristics.

The Samurai rollover crisis dashed Suzuki’s hopes of becoming a major player in the U.S. automotive market, although adverse market conditions did not help. Suzuki is again providing badged products to U.S. manufacturers (such as the Geo Metro). Many would argue that Suzuki was unjustly treated, that the Samurai was no less safe than other vehicles in its class, and that consumers could have decided for themselves whether it was suitable for their purposes. Indeed, some would argue that consumers should make these decisions to exercise their economic freedom. It is unlikely that Suzuki would have experienced the same criticism twenty years earlier, in the days of caveat emptor.

  • In January 1990, after at least $2 million in new product development costs, R.J.Reynolds withdrew its Uptown cigarette from test marketing. Product performance was not at issue, unlike the company’s failure with its Premier “smokeless” cigarette. RJR pulled Uptown, the first cigarette explicitly targeted at blacks, in response to protests from the black community and criticism by Health and Human Services Secretary Louis Sullivan, who commented, “Uptown’s message is more disease, more suffering, and more death for a group already bearing more than its share of smoking-related illness and mortality.”17

A decline in smoking had prompted tobacco companies to focus more on groups of actual and potential customers, particularly groups whose smoking rates are declining more slowly, such as blacks and women. Industry analysts had criticized RJR for the insufficient focus of its major brands, Winston and Camel, and suggested that new products be more targeted. In the past, RJR had targeted blacks indirectly with menthol brands. Uptown was RJR’s response to taste problems with Salem, a menthol cigarette that was its most popular brand among blacks. Honesty about the targeting of Uptown exposed RJR to charges of exploitation. Soon after, RJR came under fire for its plans to target young, poorly educated, blue-collar women and dropped its Dakota brand, positioned to appeal to the “virile female.”

RJR is struggling in its home market and looking overseas to Eastern Europe, Asia, and other developing markets. It remains to be seen how effective the anti-smoking lobby in the United States will be in curbing tobacco exports. Although a drug, tobacco is a legal product many people apparently need. RJR attempted to provide that product efficiently and effectively through targeted marketing. Black smokers would have been under no compulsion to buy Uptown. The health hazards of smoking are both widely known and stated on all cigarette packs. Again, under caveat emptor, there seems little argument about the ethics of the targeted marketing of Uptown. The company described the results of pressure from antismoking “zealots” as “a further erosion of the free enterprise system.”

  • In June 1990, the Denver District Court ruled that the Home Store pricing policies of May D&F, a unit of May Department Stores, had violated the Colorado Consumer Protection Act prohibiting false or misleading statements of fact concerning prices. Referring to May D&F’s “high-low pricing” policy, the judge stated, “May D&F’s ‘original’ price for practically all of its merchandise in the Home Store was a fictitious high price established as a reference price for the purpose of subsequently advertising bargain reductions from that price. The clear expectation of May D&F was to sell all or practically all merchandise at its ‘sale price.’”18 The trial judge permanently enjoined May D&F from its (current) practice of advertising a “regular” price as a reference for the discounted price, unless May D&F fully and completely disclosed to consumers how it determined the regular price in the sale advertisement. Examples of suspect pricing cited in the case included a cutlery set advertised and displayed “on sale” for two years and a new style of luggage offered at a special “introductory price” indefinitely. In a sampling of 5,340 household items May D&F sold between January 1989 and March 1990, more than 97 percent were sold at sale prices.

Survey research provided expert testimony on May D&F’s behalf, finding that consumers were skeptical of May D&F “sale” prices; 70 percent of respondents felt that the store’s advertised prices were generally higher than other stores in the area that sold the same items and did not believe that an item advertised by May D&F at 50 percent off would be priced lower than at any other stores in the area selling the same item. A second survey of Denver area consumers found that few (12 percent) placed much reliance on a store’s “original” price when judging a price, as opposed to comparing that price with other stores (47 percent) or using prior experience (31 percent). Attorneys for May D&F concluded that the store’s ads were not misleading and caused no injury and that standards proposed by the Colorado attorney general (as to the amount of time merchandise must be at a regular price or the proportion of sales made at that price) would harm consumers and competition and put May D&F at a competitive disadvantage.

High-low pricing continues to be a major issue for retailers.19 May D&F is not alone in arguing that the highly promotional retail trading environment requires frequent discounting. (In mitigation, May’s attorneys noted that the Home Store had operated at a net loss for three years preceding the trial.)

A group of major retailers, under the auspices of the Council of Better Business Bureaus (CBBB), proposed a code for comparative price advertising. In keeping with Federal Trade Commission guidelines, it identified criteria for establishing that a former price is genuine: reasonably substantial sales at the reference price, or the offer of the product for at least a majority of the time during the relevant selling period.20 The retailers ultimately failed to agree on the code’s provisions; the root of their disagreement was uncertainty about the adequacy of a caveat emptor perspective on high-low pricing.

Few would question the practices in these examples of marketing ethics issues if they were to evaluate them from a caveat emptor perspective: in each, one could argue that the practices are not unacceptable; they merely require a consumer’s heightened degree of vigilance or readiness to accept being duped occasionally. But the controversies that resulted over product safety, targeting disadvantaged groups, and misleading pricing reflect the shift in society’s expectations of business. While it may be that caveat emptor was never an adequate criterion for evaluating marketing practices as ethical, it was, at least, a justification for marketing practices that society hitherto was willing to accept. With consumer rights becoming more important, this is no longer the case.21

Indeed, many basic marketing tenets are challenged by the demise of caveat emptor. In the ethics era, the marketing manager must respect and care about the welfare of those affected by marketing decisions; “let the buyer beware” does not suffice. More fundamentally, when values such as trust, honesty, respect, and fairness become incorporated in marketing decision making, marketing managers need to rethink many assumptions about the appropriateness of their practices. For example:

  • Market selection involves decisions about inclusion and exclusion, raising issues of fairness; for example, actual or de facto redlining by car insurance companies in low-income neighborhoods.22
  • The persuasive intent of advertising and personal selling can be difficult to reconcile with the value of honesty; for example, when does permissible (legal) puffery in advertising become dishonest?23
  • Pricing strategies often are based on the value-in-use of the product to the customer, but lately criticisms of unfairness are common, particularly in situations where ability to pay is limited, such as in pricing the AIDS drug AZT, introduced as the most expensive prescription drug.24

Many managers involved in these decisions typically would not view their actions as unethical. To understand the shift in society’s expectations and different managerial perspectives, it helps to draw a continuum that delineates various positions on marketing ethics.

The Marketing Ethics Continuum

The marketing ethics continuum suggests that there are different positions from which to evaluate marketing decisions (see Figure 1).25 Besides providing a historical time line of the move from caveat emptor, the ethics continuum provides benchmarks against which we can calibrate business conduct and understand individual managers’ perspectives. Society moves on, for better or for worse, but many marketing managers still subscribe to the caveat emptor position, especially in small and medium-size firms (and in many foreign countries). The different positions on the continuum reflect different views of a firm’s obligations to its customers, but this is not to advance ethical relativism. In the ethics era, society’s expectations of marketing practice appear to favor the consumer sovereignty position.

Managers more favorably disposed to caveat emptor find the changes in society’s expectations difficult to accommodate. However, the shift toward consumer sovereignty represents a more complete realization of the marketing concept, with firms more subject to the customer satisfaction imperative. The forces demanding change, not least of which is the increased competitiveness of markets, generally overwhelm firms that attempt to resist. Business’s social role developed as part of the effort to build the Great Society, including the associated legislative changes. The media, interest groups, regulators, and lawyers, as well as many businesspeople, see business as part of society, with obligations and responsibilities. Changes in U.S. product liability law illustrate this (pending legislation on product liability reform notwithstanding).26

The continuum suggests a conflict between producer and consumer interests as the basis for different positions on the ethics of marketing practice. The conflict in turn represents a rejection of the notion that the market game necessarily results in a win-win outcome for consumers and producers. I do not suggest that this is a zero-sum game; rather, I recognize the ideological content of the marketing concept and acknowledge that firms will not always maximize customer satisfaction.

Unethical conduct resulting from difficulties in achieving a customer orientation is to some extent excusable; the intent was probably good. More important, the market is likely to penalize such actions as it acts as a control mechanism to curb unethical behavior. However, when the market is an inadequate control, the firm’s economic interests may be best served by not satisfying the customer. Customer satisfaction is a requisite of competitive markets. Without competition, customers cannot choose to vote with their feet and buy from firms that serve their interests better. It is not surprising that many ethical issues in marketing involve attempts to reduce competition, the very driving force that compels customer orientation.27 Consider, for example, the recent charges of price fixing and predatory pricing in the airline industry and the exclusivity arrangements in soft drink distribution.

Many marketing activities are efforts to reduce competition, in turn, reducing the likelihood of ethical conduct. Perhaps there is an inevitable tension between ethics and economics — ethical conduct and marketing practice. At least it can be said that competition is necessary for a customer orientation. Paradoxically, competition creates a customer orientation, yet, if competitors were defeated, would permit its elimination. Clearly, a monopoly supplier would have less incentive to ensure product safety or set fair prices and would be subject primarily to legal constraints.28

The different positions on the marketing ethics continuum reflect variations in the ideology of marketing that, in practice, amount to different views of a firm’s obligations to its customers.

· Caveat Emptor.

In the caveat emptor position, profit maximization within the law is the basis for evaluating marketing practice. As long as the activity is legal and serves a business purpose (and hence is profitable), it is ethical. Hence, by this standard, the practices of Suzuki, RJR, and (arguably) May D&F, as described above, would be ethical. However, while the caveat emptor position clearly excludes and prohibits unethical marketing practices that are illegal (e.g., bribery), there can be debate about the illegality of many marketing practices.29

The caveat emptor position is grounded in the free market philosophy wherein, as Friedman puts it, “There is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”30 Friedman’s arguments find little current support because they reflect an idealized model of capitalism that does not (and perhaps could and should not) exist.31 Moreover, managers’ fiduciary duty notwithstanding, the law has weakened the caveat emptor position. For example, courts have disallowed stockholder challenges to management decisions that benefit other stakeholders (such as employees); they are also less ready to accept “buyer beware” as a basis for allowing questionable marketing practices (as shown in the May D&F case). There is a perceptible shift from caveat emptor toward caveat venditor.

· Industry Practice.

Despite Friedman’s arguments, it is rare to find a firm that pursues a pure caveat emptor position. Most managers exercise discretion, and, hence, many firms prohibit gift giving or entertainment practices that are legal but can create undue influence on the buyer and are thereby akin to bribery. Hence the first position on the continuum beyond caveat emptor is industry practice — the average position of business in general. As a benchmark, the bases for evaluating marketing practices are business norms.

The industry practice position can be expanded to comprise a range of different positions around the average; one may be a more appropriate basis for evaluation than another. To return to my earlier example, a comparison of Suzuki’s practices with those of other four-wheel-drive vehicle manufacturers reveals that the information on safe driving in the Samurai handbook was more extensive than what some competing manufacturers provided (although a buyer did not see this before purchase). However, Suzuki’s practices do less well when compared with the information that the over-the-counter pharmaceutical industry provides to consumers.

· Ethics Codes.

The ethics codes position also includes a range of different positions around a mean because codes vary in their treatment of customers. Corporate codes of ethics or the codes of industries or professional bodies (such as the American Marketing Association) represent standards by which industries, firms, and individual managers judge their performance or, at least, standards to which they aspire. This position differs from industry practice because even the firms with the strongest controls to ensure conformity with codes of conduct find that practice does not always match the standards specified in the codes.

Frequently cited as a high standard and a testament to the potential influence of codes of conduct is Johnson & Johnson’s Credo, its touchstone when it successfully overcame the Tylenol product-tampering crisis. In the May D&F example, the ill-fated CBBB code offered a far more stringent standard than caveat emptor or, with some exceptions, industry practice. May D&F practices did not conform to the CBBB code. For instance, the code suggested that a “reasonably substantial period of time” for a reference price would be at least the majority of the selling period, not the twenty-eight of ninety days that May D&F adopted after the Colorado attorney general charged it with deceptive pricing.

· Consumer Sovereignty.

Closest to caveat venditor and beyond the position of most ethics codes is consumer sovereignty. Marketing ethics are determined by the three criteria of the consumer sovereignty test: consumer capability, information, and choice. This position is recommended to the marketing manager who wishes to pursue ethical marketing. It is distinct from caveat venditor because it places a measure of responsibility on the consumer.

· Caveat Venditor.

In direct contrast to caveat emptor and at the other end of the continuum is the caveat venditor position. In caveat venditor, it is seller beware; maximizing consumer satisfaction (or well-being) is the criterion for evaluating marketing practices. However, despite the many proponents of this position, such as consumer advocates, protecting the consumer to such an extent may be economically dysfunctional as well as paternalistic.32 For example, caveat venditor may diminish a consumer’s incentive to search for and determine the best deal and the firm’s incentive to innovate and offer this.

Consumers Union recognizes that producers cannot be entirely relied on to satisfy customers and thus provides information to consumers and lobbies government and industry on consumers’ behalf. In the Suzuki example, Consumers Union demanded the recall of the Samurai, presumably knowing that the vehicle could not be retrofitted to remedy its alleged propensity to roll over. This suggests that it expected Suzuki to compensate Samurai owners with a replacement vehicle or cash (amounting to at least $1 billion if 160,000 vehicles were recalled).

The Consumer Sovereignty Test

The decline of caveat emptor and the shift in favor of the consumer’s interest over the producer’s point to the ascendancy of consumer sovereignty, if not caveat venditor. Consumer sovereignty is not a new concept. Traditional economic theory holds that the consumer is sovereign under conditions of perfect competition. However, few markets come close to fulfilling the requirements of perfect competition (indeed, if they did, caveat emptor might be more palatable). Hence there are two factors that indicate that consumer sovereignty should be the basis for evaluating marketing ethics. First are the limitations on consumer sovereignty in the real world of what economists refer to as “mixed” markets. Second is the desirability of consumer sovereignty as the criterion for the normative evaluation of economic systems as well as individual transactions. While the first factor is well established, the latter requires some discussion before I explain the application of the CST.

The most fundamental argument for consumer sovereignty lies in the recognition that it is the principal rationale for capitalism.33 Capitalism, as a system for the allocation of scarce resources, is favored not only because of its efficiencies, but also because of the accompanying equity and freedoms. The benefits of capitalism are both realized through and expressed in consumer sovereignty, i.e., consumers exercising informed choice. Hence the economist Penz, in describing consumer sovereignty as the “central normative principle in contemporary assessments of economic policies and systems,” is not overstating his case in noting that it has been referred to as the “Archimedian point of reference” in economic evaluation.34

Many theories of moral philosophy also support the appropriateness of consumer sovereignty as the basis for evaluating marketing ethics. The argument may be grounded in utilitarianism, as initially espoused by Jeremy Bentham, in John Stuart Mill’s later conceptions of individualism, in Immanuel Kant’s conception of the autonomy of moral agents, or in the more recent work on consent and autonomy of philosophers such as Gerald Dworkin and Joel Feinberg.35 Most persuasive, perhaps, is social contracts theory, in which a company’s obligations to the consumer are conceived as fulfilling a social contract.36 A notion of consumer sovereignty can even be found in Marcus Tullius Cicero’s discourses on the duties of merchants.

Consumer sovereignty as consumers exercising informed choice gives rise to the three dimensions of the consumer sovereignty test: capability, information, and choice. However, not only is consumer sovereignty a familiar concept in economics; it is also more widely known and understood when expressed in terms of consumer choice. Galbraith observed (though not without reservations): “The young are taught that . . . in a free enterprise system, all authority rests with the sovereign consumer operating through the impersonal mechanism of the market.”37 President Kennedy’s Consumer Bill of Rights included the consumer’s right to choose and be informed (as well as the right to safety and to be heard). Accordingly, not only is consumer sovereignty an appropriate criterion for evaluating marketing practices, it closely aligns with society’s expectations of business as well. Of course, consumer choice is also a familiar concept to marketers, making the CST a readily applicable tool for marketing decision making.

Elements of the Consumer Sovereignty Test

Marketing managers find that using the consumer sovereignty test is relatively straightforward. Essentially, the CST requires marketing managers to fulfill the promise of marketing ideology, i.e., promoting the consumer’s interests. In the CST, marketers assess and enhance consumer sovereignty, even without market pressure to do so. More specifically, the CST creates an obligation for marketers to ensure that the consumers whom their marketing programs target have capability, information, and choice (see Table 1).

  • Capability. What is the consumers’ actual or potential vulnerability and its impact on their decision making? It is widely accepted that children are more vulnerable than adults, so some marketing activities are restricted by law, such as the sale of alcohol or cigarettes to minors. Adults’ vulnerability is more controversial. However, legislation already protects certain classes of vulnerable adult consumers (for example, the vulnerability of recently bereaved consumers was a major basis for the 1983 FTC trade regulation rule for funeral homes). More generally, factors to consider in evaluating capability include age (elderly consumers as well as children), education, and income.
  • Information. What information does a consumer need to make a purchasing or related decision? I do not suggest that the marketer should ensure that consumers have “perfect information” (as assumed under the hypothetical conception of perfect competition), which could amount to furnishing company costs or competitors’ prices. Nor do I suggest that the consumer should not have to make price comparisons or consult Consumer Reports. However, in supplying information, a marketer clearly must avoid deceptive or misleading practices and has a duty to disclose information that could influence a consumer’s purchase decision, such as an impending new model of the product. This duty applies especially to information unavailable from other sources. Generally, consumers should have sufficient information to judge whether their expectations at the time of purchase will be fulfilled.
  • Choice. Can consumers switch to another supplier? Sovereign consumers can vote with their feet if, knowingly or otherwise, the company leaves them dissatisfied. And they need not enter into a transaction with a given supplier if there are other more trustworthy, fair, respectful, or honest suppliers. Choice suggests that, despite the intent of many marketing activities, the marketing manager should not seek to monopolize a market.38 More generally, the adequacy of choice is a function of the level of competition (or company market share) in the relevant market (which may best be geographically defined) and, particularly in a repeat purchase, any “switching costs” associated with changing suppliers.

Applying the CST

To understand how to use the consumer sovereignty test, let’s consider the three earlier examples of ethical controversy. The test shows their problems and suggests remedial management actions.

  • In the Suzuki example, the marketing of the Samurai is problematic under the CST’s capability and information dimensions. In conforming to a consumer sovereignty position, a marketing manager should establish, for example, whether the target market is fully capable of understanding the risks of a particular product, going beyond legal requirements and perhaps excluding potential consumers. In the case of the Samurai, Suzuki apparently made little attempt to establish whether young drivers buying the vehicle understood warnings about its different handling characteristics and were capable of driving it safely. Moreover, a consumer judging benefits of a product may ignore or understate product safety, resulting in potential harm to the consumer or others; perhaps the “fun” aspects of Samurai marketing obscured safety considerations. According to the CST, the manufacturer is required to assume some responsibility for a consumer who misunderstands the handling characteristics of a four-wheel-drive vehicle positioned as equivalent to a car, particularly when the consumer is a young, inexperienced driver.

What could Suzuki have done differently? The CST indicates that more clearly positioning the Samurai as a sport utility vehicle might have been the optimal solution. In addition — especially if Suzuki continued to position the vehicle as equivalent to a car — Suzuki could have undertaken a program that would have reduced the likelihood of misunderstanding the Samurai’s handling characteristics and prevented less capable drivers from driving the vehicle. A dealer-based program could have better qualified prospective drivers, requiring that they read and sign a brief document of product safety information before a test drive and certainly before ordering. Creating the perception of a vehicle that was difficult to drive could have led to enhanced appeal with consumers who considered themselves excellent drivers. The program could have included driver training videos and dealer driving schools for consumers less confident of their driving skills. A “try before you buy” promotion could also have improved consumer awareness of the vehicle’s different handling characteristics, in addition to more detailed, explicit safety messages in advertising.

  • In the Uptown example, the CST highlights the perceived vulnerability of the target segment. In considering remedies to this issue and the broader problem of tobacco marketing, let us assume that tobacco marketing is legitimate. Fear of litigation discourages the tobacco industry from an open discussion of its prospects and fosters ingenuous arguments about the causality of the relationship between smoking and ill health and between tobacco advertising and smoking. The rights of the one in four adults who smoke will ensure the continued availability of the product. However, society is clearly unwilling to tolerate aggressive marketing.

Certainly, targeting potential smokers is unacceptable according to the CST, and more care could be exercised in targeting “vulnerable” segments of smokers if the practice is unavoidable. While this policy is paternalistic, it is necessary in the case of a harmful, addictive product. If the industry could be more open, an industry association could establish and regularly update a code of marketing practice to reflect society’s expectations. A code could not only ensure a level playing field for competitors, but could also smooth the transition as tobacco companies diversify into food and other products to avoid their likely ultimate demise.

In this approach, tobacco marketing could become minimal, requiring a sumptuary model similar to that adopted by some states for liquor marketing. A sumptuary approach would reduce problems in the CST’s information dimension, giving tobacco marketers less opportunity to send the message that smoking is glamorous, youthful, or associated with social success. It would also substantially reduce targeted marketing, addressing the issues raised by the capability dimension. However, with tobacco products still freely available, the remedy envisaged would not be in conflict with the choice dimension.

  • In the May D&F example, the pricing practices come into question in the CST’s information dimension. A greater concern for consumer welfare would encourage retailers to ensure that consumers are more adequately informed, which involves an end to high-low pricing and requires regular prices with real meaning to both the retailer and the consumer. In discussing the practice of reference price markdowns, a senior vice president of Bloomingdale’s commented, “You’re talking about educating the consumer about markdowns. For us, that would be self-defeating.”39 This attitude is a sad contrast to that of William Dillard, founder of Dillard’s Department Stores, who eschews high mark-ups and frequent sales, noting, “If I sell you a suit for $500 one week and you see it on sale for $350 the next week, you’re not going to trust me.”40 Dillard’s successfully converted to stable everyday pricing, an important factor in its current strong financial performance.

The CST is not applicable to all marketing ethics issues; its use is largely restricted to consumer issues. More specifically, it is applicable to issues arising in exchange relationships, primarily in consumer markets (although it can be applied to many business-to-business market transactions). The CST is particularly appropriate when there is a power imbalance between the buyer and the seller (more typical of consumer markets) and where caveat emptor has historically been offered to justify a suspect practice. Table 2 identifies major ethical issues for which a marketer can use the CST to evaluate the marketing practice and where it may suggest alternative approaches.

Limitations of the Framework

The marketing ethics framework I propose is intended to have practical, specific application to marketing decision making; it helps answer the question: “What constitutes ethical marketing practice in the ethics era?” Increasingly, CEOs and others, including critics of business, are interested in the answer.

I have presented the framework in the context of society’s changing expectations of marketing. The competitive world of marketing managers today is made more complex and ambiguous as new values enter their decision making. While the framework offers guidance to marketers in an uncertain world, it also has limitations.

One limitation is that the framework’s domain is restricted to corporate impacts on customers; it conforms with the view that ethical issues in marketing largely involve company-customer relationships and conflicts. The framework does not, therefore, directly address marketing impacts on other stakeholders. So, for example, it does not cover employment practices within the marketing function (e.g., hiring or evaluating marketing personnel) and broader social issues (e.g., the environment). Yet many of these issues are not unique to the marketing function; for example, a product’s environmental harm is the concern of manufacturing as well as marketing. Accordingly, marketing needs to work with other functions when marketing activities have impacts on stakeholders other than consumers.

There are also limitations specific to the CST. Its use assumes the ethical sensitivity or moral impulse of the marketer who is then prompted to apply the test. However, organizations may formally include an “ethics audit,” including the CST, in their marketing planning.41 Also, there may be uncertainty about adequacy of performance or the level of sovereignty, such as whether sufficient information is provided. Management judgment plays a role here and should include consideration of industry and social norms.

Another limitation is that the CST has paternalistic consequences, for example, protecting consumers perceived as vulnerable. However, a marketer determining what is best for consumers may be preferable to consumers acting in ignorance and harming themselves or others. Moreover, a marketer’s knowledge of what is best may rely on research and will not reduce consumer choice but augment it, if supplied to the consumer as additional information. For example, the CST might indicate a greater need for information on the health effects of alcohol for heavy drinkers. Equally, research may improve a marketer’s understanding of consumer expectations and choice.

Finally, enhancing consumer sovereignty may be difficult to advocate in an organization when there is no market pressure to do so or when it may even be to the firm’s economic disadvantage. However, the increased emphasis on ethics in many organizations — especially in the form of ethics training and the development of codes of conduct — should facilitate marketing decision makers’ use of the CST.42 These limitations notwithstanding, the framework is at least a starting point for evaluating marketing decisions.

Conclusion

The marketing ethics continuum provides benchmarks for evaluating marketing practices. Along this continuum, a marketer may determine his or her own position (and that of others, such as colleagues or critics of the firm), based on an appropriate balance of consumers’ and producers’ rights and interests. Increasingly — and appropriately — firms are expected to conform to the consumer sovereignty position. While marketers can employ the continuum to determine their own position on marketing ethics, public policymakers, litigation attorneys, academics, and senior management can use it to evaluate and understand marketers’ perspectives as well as their actions. In addition, it may be used to review marketing practices over time, as marketing ethics increasingly favors the consumer sovereignty position. This has significant consequences for marketers, because this shift in society’s expectations of marketing practices challenges some of marketing’s most basic assumptions.

Enhancing consumer sovereignty requires a moral impulse. Moreover, in using the consumer sovereignty test, marketing decision makers must still exercise judgment, based on their values and interpretation of the facts, asking in particular: “How much sovereignty is enough?” The answer is likely to change as society’s expectations of business continue to evolve. However, the consumer sovereignty test and, more broadly, the overall marketing ethics framework focus managers’ attention on the appropriate concerns and provide some assessment criteria. When conscience signals that something is not right about a marketing decision, managers have some basis for exploring its ethical dimensions.

Topics

References

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:

Preston (1994).

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.

Acknowledgments

The author wishes to thank Alan R. Andreasen, Thomas W. Dunfee, Johan Wempe, and Geraldine E. Willigan, as well as two anonymous reviewers and the editor for their helpful comments on earlier drafts of this paper.

Reprint #:

3647

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