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AN INTRODUCTION TO BUSINESS ETHICS CHAPTER NINE: MARKETING ETHICS: ADVERTISING AND TARGET MARKETING Copyright © 2014 by McGraw -Hill Education. All rights reserved. THIS CHAPTER SEEKS TO  Examine the ethics of manipulation and deception in marketing and sales  Explain and examine the regulatory standards governing advertising  Examine the arguments concerning marketing that violates consumer autonomy  Explore the ethics of target marketing  Analyze the ethics of marketing to vulnerable people and populations 9-2 Copyright © 2014 by McGraw -Hill Education. All rights reserved. DISCUSSION CASE: PREDATORY LENDING:

SUBPRIME MORTGAGES AND CREDIT CARDS  Subprime lending involves loans that are riskier than traditional loans  Subprime loans are risky because they carry a higher probability of default  Consumers with low credit ratings have fewer financial choices and particularly vulnerable to exploitation 9-3 Copyright © 2014 by McGraw -Hill Education. All rights reserved. DISCUSSION CASE: PREDATORY LENDING:

SUBPRIME MORTGAGES AND CREDIT CARDS  When lenders knowingly withhold information and mislead or deceive borrowers, predatory lending crosses the line and becomes fraud 9-4 Copyright © 2014 by McGraw -Hill Education. All rights reserved. DISCUSSION CASE: PREDATORY LENDING:

SUBPRIME MORTGAGES AND CREDIT CARDS  Adjustable rate mortgages (ARMs) were one means that lenders used to entice borrowers.  ARMs are almost a certain bet to require higher payments in the future 9-5 Copyright © 2014 by McGraw -Hill Education. All rights reserved. DISCUSSION CASE: PREDATORY LENDING:

SUBPRIME MORTGAGES AND CREDIT CARDS  Are there any ethical issues involved in marketing credit cards to college students?

Are college students particularly vulnerable to credit card marketing? 9-6 Copyright © 2014 by McGraw -Hill Education. All rights reserved. ETHICS OF SALES  The goal of all marketing is the sale.  A major element of marketing is sales promotion – the attempt to influence the buyer to complete a purchase.  Target marketing  Marketing research 9-7 Copyright © 2014 by McGraw -Hill Education. All rights reserved. ETHICS OF SALES  Market exchanges that respect individual autonomy and individual liberty are ethically responsible practices  Market exchanges that violate autonomy are unethical practices 9-8 Copyright © 2014 by McGraw -Hill Education. All rights reserved. ETHICS OF SALES  Means for influencing others that respect autonomy  Persuading  Asking  Informing  Advising 9-9 Copyright © 2014 by McGraw -Hill Education. All rights reserved. ETHICS OF SALES  Means for influencing others that violate autonomy  Threats  Coercion  Deception  Manipulation  Lying Think about what happens in auto sales. 9-10 Copyright © 2014 by McGraw -Hill Education. All rights reserved. ETHICS OF SALES  Manipulation means to guide or direct someone or something’s behavior…total control need not be involved  Implies working behind the scenes  Deception means to manipulate through false or misleading information  Implies understanding what motivates emotionally 9-11 Copyright © 2014 by McGraw -Hill Education. All rights reserved. ETHICS OF SALES  Do I manipulate someone when I appeal to their motivations?  What are the boundaries of manipulation?  When and under what circumstances is manipulation unethical?  What is the difference between persuasion and manipulation? 9-12 Copyright © 2014 by McGraw -Hill Education. All rights reserved. ETHICS OF SALES Kantians: When I manipulate someone I treat him or her as a means to an end I want 9-13 Copyright © 2014 by McGraw -Hill Education. All rights reserved. ETHICS OF SALES Utilitarians: manipulation is unethical depending on the consequences  Erodes bonds of trust  Erodes respect between people  Erodes self -confidence Utilitarians would be inclined to believe that manipulation lessens overall happiness. 9-14 Copyright © 2014 by McGraw -Hill Education. All rights reserved. ETHICS OF SALES Particularly despicable forms of manipulation occur when vulnerable people are targeted for abuse - Children - The elderly Anyone else? 9-15 Copyright © 2014 by McGraw -Hill Education. All rights reserved. ETHICS OF SALES Marketing research seeks to learn something about the psychology of potential customers - intellectual capacity - emotional states - desires 9-16 Copyright © 2014 by McGraw -Hill Education. All rights reserved. REGULATING DECEPTIVE & UNFAIR SALES AND ADVERTISING Deception can occur when things are left unsaid. - What is not said about Tylenol in advertisements? - The role of the FTC - The effectiveness of drug advertising 9-17 Copyright © 2014 by McGraw -Hill Education. All rights reserved. REGULATING DECEPTIVE & UNFAIR SALES AND ADVERTISING Consumers get harmed when they buy a product they would not have otherwise purchased, especially when that product is priced higher than consumers would have otherwise paid. 9-18 Copyright © 2014 by McGraw -Hill Education. All rights reserved. REGULATING DECEPTIVE & UNFAIR SALES AND ADVERTISING Approaches to regulating deceptive marketing practices - Target practices intending to deceive (need to determine state of mind): J&J and Tylenol - Target practices that actually deceive (an ambiguous standard): Old Frothingslosh 9-19 Copyright © 2014 by McGraw -Hill Education. All rights reserved. REGULATING DECEPTIVE & UNFAIR SALES AND ADVERTISING Can we assume that consumers are reasonable or should we assume that consumers are relatively ignorant? 9-20 Copyright © 2014 by McGraw -Hill Education. All rights reserved. REGULATING DECEPTIVE & UNFAIR SALES AND ADVERTISING Adopting a reasonable consumer standard comes at a cost: it does abandon protection to those consumers who may well deserve the greatest protection. 9-21 Copyright © 2014 by McGraw -Hill Education. All rights reserved. REGULATING DECEPTIVE & UNFAIR SALES AND ADVERTISING It might be reasonable to apply different standards to different products or different marketing practices or different targeted markets. 9-22 Copyright © 2014 by McGraw -Hill Education. All rights reserved. CONSUMER AUTONOMY What does advertising or marketing do to people? - Dependence effect (John Kenneth Galbraith, 1958) a. the creation of wants stands supply & demand on its head b. the creation of trivial consumer wants distorts the economy c. the creation of consumer wants violates consumer autonomy 9-23 Copyright © 2014 by McGraw -Hill Education. All rights reserved. CONSUMER AUTONOMY The dependence effect - results in only the appearance of satisfaction - results in the reversal of democratic markets - results in dangerous consolidation of wealth in the hands of a few 9-24 Copyright © 2014 by McGraw -Hill Education. All rights reserved. CONSUMER AUTONOMY Does advertising control consumer behavior? - Psychologists say “yes” Really? Maybe behavior is not controlled as much as our autonomous desires are. 9-25 Copyright © 2014 by McGraw -Hill Education. All rights reserved. CONSUMER AUTONOMY After certain basic needs are met, why do people consume the way they do? We must distinguish between first -order and second -order desires…in other words, do we really want what we think we want? 9-26 Copyright © 2014 by McGraw -Hill Education. All rights reserved. CONSUMER AUTONOMY Autonomous desires are those that upon reflection are not rejected or repudiated. Does advertising create non -autonomous desires? 9-27 Copyright © 2014 by McGraw -Hill Education. All rights reserved. CONSUMER AUTONOMY Gerald Dworkin suggests two conditions for autonomy (in terms of desires) 1. authenticity: a desire is not renounced or rejected by the person who has it 2. independence: the desire must also be independently accepted by the individual. 9-28 Copyright © 2014 by McGraw -Hill Education. All rights reserved. CONSUMER AUTONOMY Consider therapeutic shopping - people shop to feel good - the desire to feel good is autonomous as long as the consumer does not come to regret the purchase and repudiate it - a fully autonomous consumer would ask: why do I feel good shopping? 9-29 Copyright © 2014 by McGraw -Hill Education. All rights reserved. CONSUMER AUTONOMY Some consumers do not act in a self -conscious and reflective way So what? - Marketing may be responsible for this. - Marketing exploits those with diminished capacity to reflect. 9-30 Copyright © 2014 by McGraw -Hill Education. All rights reserved. CONSUMER AUTONOMY Richard Lippke points out that autonomy is a long term capacity, more a matter of degree than something that characterizes any specific act or desire. Therefore certain conditions are necessary to support the development of autonomous capacities and dispositions. 9-31 Copyright © 2014 by McGraw -Hill Education. All rights reserved. CONSUMER AUTONOMY Autonomy requires a variety of intellectual skills, discipline, attitudes, and motivations. The cumulative effect of mass advertising impedes the development of those intellectual capacities necessary for leading an autonomous life. 9-32 Copyright © 2014 by McGraw -Hill Education. All rights reserved. CONSUMER AUTONOMY If advertising subverts the social conditions of autonomy… Does this mean that we are all the slaves of marketers? Are we unable to determine for ourselves what we need and what we want? 9-33 Copyright © 2014 by McGraw -Hill Education. All rights reserved. TARGETING THE VULNERABLE  Consider two target marketing examples  An automobile dealer targets advertising and direct mailings to simple women, under 35 years old, college educated with an annual income between $30,000 – 40,000  A marketing campaign depicts an elderly woman lying at the foot of a stairs crying out, “I’ve fallen and I can’t get up!” Are these campaigns on equal footing? 9-34 Copyright © 2014 by McGraw -Hill Education. All rights reserved. TARGETING THE VULNERABLE  In the first campaign no one is being exploited.  In the second campaign the vulnerability of the elderly creates greater responsibility. Do marketers have a responsibility to the vulnerable? 9-35 Copyright © 2014 by McGraw -Hill Education. All rights reserved. TARGETING THE VULNERABLE  What do we mean by vulnerable?  A person is vulnerable as a consumer by being in some way unable to participate as a fully informed and voluntary participant in the market exchange.  General vulnerability occurs when someone is susceptible to come specific physical, psychological, or financial harm. 9-36 Copyright © 2014 by McGraw -Hill Education. All rights reserved. TARGETING THE VULNERABLE A portion of marketing does target people who are vulnerable as consumers, e.g. children. But there are difficulties in determining who else is vulnerable. 9-37 Copyright © 2014 by McGraw -Hill Education. All rights reserved. TARGETING THE VULNERABLE Often a person can become vulnerable as a consumer because they are vulnerable in some more general sense: - the elderly - a family member grieving over the death of a loved one - a person with a medical condition 9-38 Copyright © 2014 by McGraw -Hill Education. All rights reserved. TARGETING THE VULNERABLE Some marketing campaigns fit this model: - ambulance -chasing attorney seeking client - ads targeting elderly for supplemental medical insurance 9-39 Copyright © 2014 by McGraw -Hill Education. All rights reserved. TARGETING THE VULNERABLE But just as there are people who are made vulnerable as consumers because they are vulnerable to other harms, there are also cases in which people become vulnerable to other harms because they are vulnerable as consumers: - tobacco & alcohol products 9-40 Copyright © 2014 by McGraw -Hill Education. All rights reserved. TARGETING THE VULNERABLE There may be some truth to the claim that marketers cannot be liable for individual choices that consumers make because they never target any individual consumer… …but sales can not make that claim because sales people deal with individuals. 9-41 Copyright © 2014 by McGraw -Hill Education. All rights reserved. TARGETING THE VULNERABLE The point of this is that the defense against unethical manipulation that might be used in marketing is unavailable in sales. Salespersons have a choice to stop the sales pitch if they reasonably believe that the customer is not fully autonomous in decision making. 9-42 Copyright © 2014 by McGraw -Hill Education. All rights reserved.