250-759 Social Responsibility of Business

250-759 Social Responsibility of Business Prepared by W. L. Dougan

Chapter FiveMarketing and Disclosure of Information Ethical Theory and Business, 8th Edition Tom L. Beauchamp & Norman E. Bowie

Overview • Marketing and Disclosure • Advertising and Behavior Control  Arrington • Information Disclosure in Sales  Holley • Marketing to Vulnerable Audiences  Brenkert • Legal Perspectives

Ethics in Marketing • Types of misconduct • Withholding of information • Distortion of information • Bluffing (misrepresentation) • Due to information asymmetry (knowledge gap) • Leads to questions regarding the effects of trust by customer • Issues of autonomy • Issues of harm

Considerations for Determining Misrepresentation • Sophistication of audience • Standard practices/expectations • Intention of informer

Source: Mowen and Minor Deceptive Advertising • An advertisement which is potentially misleading or literally false is deceptive. • Potentially misleading ads are difficult to evaluate because miscomprehension may often occur. • Miscomprehension is a problem for firms because the audience does not understand the message being delivered. • The FTC regulates deceptive advertising, but not miscomprehension.

Tom L. Beauchamp • Advertising should be persuasive, but should be judged to be morally inappropriate when it is manipulative • Three broad categories of influence: • Coercion - When one party deliberately and successfully uses force or a credible threat of unwanted, avoidable, and serious harm in order to compel a particular response from another person.

Tom L. Beauchamp • Persuasion - A successful appeal to reason in order to convince a person to accept freely what is advocated. Does not involve use of deception. • Rational persuasion • Non-rational persuasion • Manipulation - The act of getting people to do what is advocated without resorting to coercion and without appealing to reasoned argument. Involves use of deception.

Tom L. Beauchamp • Central issue of manipulation • How or through what psychological process a person responds to or is affected by an attempt at influence • NOT what is done as a result of influence

Manipulation • BBA - Acceptable versus Unacceptable manipulation • Anheuser-Busch  false implications • Kellogg’s  false implications

Continuum of free will • Persuasion • Manipulation • Coercion • Justified Manipulation • Unjustified Manipulation

Michael J. Phillips • No sharp line between acceptable and unacceptable behavior • Manipulative advertising • Advertising that tries to favorably alter consumers’ perceptions of a product by appeals to factors other than physical attributes or functional performance • Deceptive advertising • False or misleading assertions or omissions that cause reasonable consumers to form erroneous judgments about the nature of a product.

Michael J. Phillips • Associative advertising – Favorably influencing a consumer’s perception of a product by associating the product with a non-market good (e.g. sex, vigor, power, status, etc.) that the product ordinarily cannot supply on its own. One type of deceptive advertising.

Robert L. Arrington • “Advertising and Behavior Control” • “Is advertising information or creation of desire?” • Considers whether or not advertising illegitimately interferes with consumer autonomy via manipulation. • The author argues that • generally it does not. • advertising seldom controls behavior or creates wants that are not rational or truly those of the consumer

Robert Arrington • Puffery • Exaggerated, fanciful or suggestive claims • Some argue that the use of puffery constitutes manipulation • Autonomous Desire • We act autonomously when we act in a manner consistent with our second- order desires (which are desires regarding first-order desires). • Rational Desire and Choice • a) Based on knowledge of relevant information • Control or manipulation • Free Choice (Acting Freely) • a) We act freely when we do things for a reason

Arrington • Four concepts • Autonomous desire • Rational Desire • Free choice • Control

Manipulation • Intention • C intends P to act in a certain way A • Causality • C’s intention is causally effective in bring about A • Guaranteed Control of Outcome • C intends to ensure that all of the necessary conditions of A are satisfied

Persuasive Advertising • Persuasive advertising typically does not undermine autonomy • Such persons act freely (on reasons) • Such persons act on reasons they take to be good ones • Such persons act on their second-order desires • Such persons are not manipulated

David M. Holley • “Information Disclosure in Sales” • Obligations to disclose information on the part of a salesperson • Opposed to professions where service providers are obligated beyond their economic interests • Salesperson’s role is as an advocate, thus the salesperson has an obligation to present a favorable story

Five levels of disclosure: • Minimal Information: Buyer is solely responsible • Modified Minimal Information: Disclose only what is necessary to avoid risk of injury • Fairness Rule: Safety information plus unavailable information • Mutual Benefit Rule: Safety information plus information needed for a “reasonable judgment” • Maximal Information Rule: all relevant information

Defending the Mutual Benefit Rule • Mutual Benefit Rule allows the salesperson to meet his or her ethical obligations • Allows all parties to protect their obligations • Eliminates need to determine specific types of customers • Might be an exception where buyer indicates he/she is uninformed

Vulnerability • Exception in the case of vulnerable customers • Also, salesperson can be vulnerable as well

George G. Brenkert • “Marketing and the Vulnerable” • Some consumers lack “market competency” and such vulnerable individuals should not be targeted by marketers in ways that take advantage of their vulnerability

Three objectives • Explore the notion of vulnerability • Design of marketing campaigns to protect vulnerabilities in some customers • Marketing programs which violate the previous directive or morally unjustified

Vulnerability as a four place relation • Person (P) is vulnerable to another (moral or causal) agent (A) with respect to harm (H) in a particular context (C) • Distinct from susceptible • Distinct from disadvantaged (but may be overlapping) • Not generalized

Vulnerable individuals • Operate with conditions or incapacities that impede their ability as normal market participants • Physical vulnerabilities • Cognitive vulnerabilities • Less able to protect their interests • Possess these vulnerabilities due to factors beyond their control • Often unaware of their vulnerabilities • Vulnerabilities render them susceptible to harm

Source: Mowen and Minor Advertising to Children • Both policy makers and marketing managers have reacted to criticism of advertising directed at children. • Some countries have banned advertising to children under 12.

Source: Mowen and Minor Telemarketing Fraud • The elderly are vulnerable to fraud by telemarketers. • A program to combat this fraud is the Know Fraud Program. • Organizations that fight telemarketing fraud are the AARP, the FBI, the Post Office, and others.

Source: Mowen and Minor Negligent Consumer Behavior • Negligent behavior is composed of actions and inactions that may negatively affect the long-term quality of life of individuals and society. • This type of behavior can occur in two different contexts: • Product Misuse • Consumption of Hazardous Products

Criteria for Determining Market Competency • The knowledge that one should shop around • Ability to determine differences in quality and the best price • Knowledge of legal rights • Knowledge of the products and their characteristics • Appropriate resource

Morally justified market relations • Competition is free • Participants do so voluntarily • Competition is open • Deception or fraud are not used

Morally justified market relations • Morally justified market relations require that all participants be capable of exhibiting market competency. • a) Individuals who are simply lazy should not count as vulnerable. • Not morally acceptable to market goods to especially vulnerable people with the intention of taking advantage of their vulnerability

Vulnerabilities • Four types • Physically vulnerable • Cognitively vulnerable • Motivationally vulnerable • Socially vulnerable • Due to factors beyond their control • Render them susceptible to harm

Implications • Does NOT mean don’t market to vulnerable • When condition is temporary, wait • May not use a campaign that exploits special vulnerabilities • May not rely on vulnerable to bring pressure to bear on non-vulnerable • May not depend on others to prevent vulnerability from causing harm

Irving A. Backman v. Polaroid Corporation • Investors sued Polaroid for failing to disclose unfavorable information about their Polarvision product. • The court sided with Polaroid

Sanfield, Inc. v. Finlay Fine Jewelry Corp. • A local jewelry company (Sanfield) sued a national chain (Fine) for deceptive marketing practices. • The practice in question concerns pretending to offer large discounts on jewelry.

Coca-Cola Company v. Tropicana Products, Inc. • Coke (maker of Minute Made orange juice) sued Tropicana for misleading television commercials. • The court sided with Coke.

Kasky v. Nike, Inc. • Nike was accused of lying about its labor practices. • Nike argued that all statements about labor practices were protected political speech. • The court disagreed and argued that the speech was unprotected commercial speech for which Nike is accountable.

250-759 Social Responsibility of Business