Ethical, Social, and Legal Responsibility in Marketing Introduction to Marketing

What is Business? Business is all of the activities involved in producing and marketing goods and services. Organizations that produce and market goods and services are called businesses.

Types of Businesses Businesses can be classified in different ways: 1.By size: large or small? 2.By profit orientation: profit or nonprofit? 3.By market served: consumers or industries? 4.By product produced: goods, services, or something else? 5.Domestic v. global 6.Public v. private

U.S. Economy Market Economy – Consumers decide what is produced; businesses decide how Command Economy - government decides what is produced and how Mixed Economy – government owns / controls some major businesses / industries

Government regulation Anyone can start a business in the U.S., but the government may “regulate” businesses. Businesses are required to comply with federal, state, and local laws and regulations.

Government regulation The federal government regulates through its government agencies (IRS, DOL, FCC) State and local governments also regulate businesses through their agencies / departments (e.g., licensing, zoning requirements; health inspections) Failure to comply may result in legal liability and / or closure of the business

Government regulates business The government regulates business to protect people’s safety, health, and welfare The government regulations protect stakeholders. Who are the stakeholders?

Stakeholders: (Government regulation protects) Consumers / customers Employees / workers Shareholders / investors Public / environment

Government regulation The government protects the safety, health, and welfare of individuals. Laws / regulations are carried out by government agencies.

Consumers State and local level regulate /license professions (manicurists, hair stylists, lawyers, accountants, nurses, doctors, etc.) Zoning laws – protect investments in real estate and quality of life Health department inspects restaurants

Federal level Food and Drug Administration (“FDA”) regulates labeling and safety of food, drugs, and cosmetics sold in the U.S. Approves new products and reviews existing products E.g., dietary supplements banned (ephedra) Thalidomide

Consumer Product Safety Commission Regulates the safety of products sold to consumers in the U.S., including toys, electronics, household furniture, etc. Does not include food, drugs, cosmetics, medical devices, firearms, motor vehicles, etc. Sets standards for products – e.g., no lead paint in toys; children’s pajamas are flame retardant, etc. Labeling requirements / safety warnings

Protecting employees / workers “at will” employment Equal Employment Opportunity Commission (“EEOC”) helps enforce civil rights laws (e.g., discrimination and harassment issues) Occupational Safety and Health Administration (“OSHA”) protects employees’ health – safety standards (e.g., hardhats) Family and Medical Leave Act (“FMLA”) --- only for yourself, a spouse, child, or parent --- only unpaid leave is required

Protecting workers (continued) Fair Labor Standards Act (“FLSA”) – minimum wage and overtime laws Equal Pay Act – (prohibits discrimination in pay based on gender) Other Civil Rights laws (Title VII, Age Discrimination in Employment Act, Americans with Disabilities Act) U.S. Department of Labor

Protecting investors Securities and Exchange Commission (“SEC”) regulates securities, i.e., stocks and bonds Also regulates certain interactions between corporations (e.g., mergers) that may affect the value of stocks Prohibits deceptive practices in selling stock – all information given to investors must be truthful; some disclosures are required

Federal Trade Commission Enforces the principles of free enterprise, and protects consumers from unfair or deceptive practices.

Bureau of Consumer Protection Enforces consumer protection laws and trade regulation rules Investigates companies and industries Will sue companies that violate the law Advertising division enforces truth-in- advertising laws

Bureau of Competition Prevents “anti-competitive” mergers, i.e., mergers that would reduce competition and negatively affect consumers (Comcast & Time Warner) Regulates other anti-competitive acts (e.g., price-fixing, price discrimination, predatory pricing) Regulates distribution of products

Bureau of Economics Studies impact on consumer of government actions

Federal Reserve System The “Fed” Regulates banks / banking system Monitors economy and controls monetary supply through the Federal Reserve System

Protecting the environment Environmental Protection Agency (“EPA”) monitors and regulates air and water pollution, hazardous waste disposal, and recycling Emissions limits on cars Mercury, pesticides, even littering (prohibits advertising leaflets on cars / trucks)

Government Regulation: A good thing or a bad thing?

Beyond Legal Compliance Do businesses have any other responsibilities, besides following the law?

Social Responsibility In the workplace, employers have adopted various policies to respond to employees’ needs: Flextime Telecommuting On-site child care Health care benefits Time off (vacation, sick leave)

Social Responsibility Customers and Consumers Provide public service information (e.g., nutrition, proper use of over-the-counter medication, addiction programs, safety) The Ad Council – nonprofit organization that helps produce public service advertising campaigns Companies respond to consumers’ concerns (e.g., recyclable materials, low-fat foods, eliminating trans-fats

Social Responsibility – Public / Environment Cleaner fuels / electric vehicles Green marketing – companies make an effort to produce and promote environmentally safe products. (e.g., ozone-safe, biodegradable)

“Whistleblower” Someone who reports an illegal action by an employer May be protected from retaliation by the employer under the Whistleblower’s Protection Act

Supporting community causes Small companies – support local teams, donate to schools, charities; employees may work at food banks or donate canned goods Large companies – may donate part of the profits to charity -Ben & Jerry’s -(Paul) Newman’s Own

Sustainability Meeting the needs of the present, without compromising the ability of future generations to meet their own needs

Sustainability Practices Managing raw materials Managing waste Managing energy usage

Ethics Ethics are guidelines for good behavior. Knowing the difference between right and wrong.

Legal issues v. Ethical issues May be a fine line between them Some actions may be legal, but not ethical Ethical behavior is truthful, fair, tries to take into account well- being of everyone

Ethics in Marketing Corporate scandals have forced businesses to address ethical issues Consumers have a higher degree of trust in ethical businesses “don’t be evil”

Ethical issues in marketing Price Gouging Pricing products unreasonably high when the need for the product is great or consumers do not have any other choices

Bribes, kickbacks, favors Usually illegal as well as unethical --Foreign Corrupt Practices Act (e.g., Wal Mart in Mexico) Most companies have strict rules against favors / kickbacks

High Pressure Tactics Pressure to make sales quotas

“Bait and Switch” Luring customers in with a great deal When customers get to the store, the deal is no longer available / sold-out The business tries to sell the customer something that costs moremore

Illegal Pyramid Scheme

Illegal Pyramid Scheme

Code of Ethics Companies who want to behave ethically develop a Code of Ethics to help employees make ethical decisions Failure to follow the Code of Ethics may lead to an employee’s being disciplined

Making Ethical Choices How do you know which course of action is the correct one?

Decision-making process Get the facts Identify the parties involved Think of the alternatives

Evaluate Alternatives Is it in compliance with the law? Is it in compliance with any professional rules? Is it in compliance with company policy? Is it right, fair, and honest? Will it build good will for the company? Are you comfortable with it? Will it hold up to public scrutiny?