Business & Society Business & Society Ethics, Sustainability, and Stakeholder Management Eighth Edition Archie B. Carroll Ann K. Buchholtz © 2012 South-Western, a part of Cengage Learning 1

Chapter 14 Consumer Stakeholders: Product and Service Issues © 2012 South-Western, a part of Cengage Learning 2

Learning Outcomes © 2012 South-Western, a part of Cengage Learning 1.Describe and discuss the two major product issues: quality and safety. 2.Explain the role and functions of the Consumer Product Safety Commission and the Food and Drug Administration. 3.Enumerate and discuss the reasons for concern about product liability, and differentiate strict liability, absolute liability, and market share liability. 4.Outline business’s responses to consumer stakeholders, including customer service, total quality management (TQM programs), and Six Sigma. 3

Chapter Outline Two Central Issues: Quality and Safety Consumer Product Safety Commission Food and Drug Administration Business’s Response to Consumer Stakeholders Total Quality Management Programs Six Sigma Strategy and Process Summary Key Terms 4 © 2012 South-Western, a part of Cengage Learning

Two Central Issues Quality Product quality means different things to different people. Service quality usually means that the service was performed as expected and on time. Interest is driven by an increase in family income and intense global competition. Safety Nearly all consumer products or services entail some small degree of risk. Interest about safety is driven by the public’s concern with safety and risk-free products– and business’ responsibility to address this concern. © 2012 South-Western, a part of Cengage Learning 5

Critical Dimensions of Product Quality 6 © 2012 South-Western, a part of Cengage Learning

Ethical Underpinnings of Quality 7 © 2012 South-Western, a part of Cengage Learning

The Issue of Safety How safe should a product be made? Historical Perspective 1800s caveat emptor: “Let the buyer beware.” 1900s caveat emptor: “Let the seller take care.” 8 © 2012 South-Western, a part of Cengage Learning

Top Ten List of Safety Principles 1.Build safety into product design. 2.Do product safety testing for all foreseeable hazards. 3.Keep informed about and implement latest developments in product safety. 4.Educate consumers about product safety. 5.Track and address products’ safety performance. 6.Fully investigate product safety incidents. 7.Report product safety defects promptly. 8.If a defect occurs, promptly offer a comprehensive recall plan. 9.Work with the CPSC to make sure your recall is effective. 10.Learn from mistakes—yours and others’. 9 © 2012 South-Western, a part of Cengage Learning

Consumer Product Injuries 1.Sports and recreational activities and equipment 2.Home structures and construction materials 3.Home furnishings and fixtures 4.Housewares 5.Personal use items 6.Home workshop apparatus, tools, and attachments 7.Packaging and containers for household products 8.Home and family maintenance products 9.Toys 10.Space heating, cooling, and ventilation equipment 10 © 2012 South-Western, a part of Cengage Learning

Product Liability Reasons for the concern The sheer number of cases where products resulted in injury, illness, or death and the amount of the financial award. We have become an increasingly litigious society. Rise in the doctrine of strict liability. Anyone in the value chain of a product is liable for harm caused to the user if the product is unreasonably dangerous because of a defective condition. 11 © 2012 South-Western, a part of Cengage Learning

Extensions of the Strict Liability Rule  Expansion of the strict liability rule is at the heart of the explosion of litigation in the U.S. Absolute liability Is more demanding that strict liability. Market share liability Evolved from delayed manifestation cases where delayed reactions to products appear years after exposure. 12 © 2012 South-Western, a part of Cengage Learning

Other Product Liability Issues  Product tampering and product extortion  Product liability reform (Tort reform) 13 © 2012 South-Western, a part of Cengage Learning

Consumer Product Safety Commission An independent regulatory agency that was created by the Consumer Product Safety Act of Develops voluntary safety standards with industry 2. Issues and enforces mandatory standards 3. Bans consumer products if no feasible standard would protect the public 4. Obtains the recall of products or arranges repair 5. Conducts research on potential product hazards 6. Informs and educates consumers through media, government and private organizations, and by responding to consumer inquiries 14 © 2012 South-Western, a part of Cengage Learning

Consumer Product Safety Commission (continued) 15 © 2012 South-Western, a part of Cengage Learning

Problems Facing the CPSC Having adequate resources to do the job Having sufficient staff to address current needs Being forced to shift priorities New challenges from a changing world 16 © 2012 South-Western, a part of Cengage Learning

Food and Drug Administration Grew out of experiments with food safety by Harvey W. Wiley in the late 1800s. The FDA resides within the Health and Human Services Department. Engages in three categories of activity Analysis Surveillance Correction 17 © 2012 South-Western, a part of Cengage Learning

What does the FDA Do? The FDA is responsible for Assuring the safety, effectiveness, and security of human and veterinary drugs, vaccines and other biological products, medical devices, the U.S. food supply, cosmetics, dietary supplements, and products that give off radiation. Regulating tobacco products. Advancing the public health by helping to speed product innovations. Helping the public get the accurate, science-based information they need to use medicines and foods to improve their health. 18 © 2012 South-Western, a part of Cengage Learning

Customer Service Programs Building life-long devotion among customers takes serious commitment and hard work. Companies address customer service through Money-back guarantees Warranties Offices of consumer affairs  Top management must be committed to quality customer service. 19 © 2012 South-Western, a part of Cengage Learning

Seven Principles of Customer Service 1.Keeping your word is where it begins. 2.Always be honest and tell it like it is. 3.Always think proactively. 4.Deal with problems as best you can yourself, never passing the buck. 5.Do not argue with a customer because it is a lose/lose situation. 6.Accept your mistakes, learn from them, and do not repeat them. 7.Consistency is the name of the game for lasting success. 20 © 2012 South-Western, a part of Cengage Learning

Creating a Customer-Oriented Company 21 © 2012 South-Western, a part of Cengage Learning

Total Quality Management TQM All business functions are blended into an integrated philosophy built around quality, teamwork, productivity, and customer understanding and satisfaction. The customer is the final judge of quality. 22 © 2012 South-Western, a part of Cengage Learning

Total Quality Management (continued) TQM emphasizes eight key elements 1.Ethics 2.Integrity 3.Trust 4.Training 5.Teamwork 6.Leadership 7.Recognition 8.Communication 23 © 2012 South-Western, a part of Cengage Learning The foundation upon which all else is built The foundation upon which all else is built

Business’ Response to Consumers 24 © 2012 South-Western, a part of Cengage Learning

Total Quality Management 25 © 2012 South-Western, a part of Cengage Learning

Strengths and Weaknesses of Quality Definitions 26 © 2012 South-Western, a part of Cengage Learning

Six Sigma Strategy and Process Six Sigma A general heading under which is grouped a number of strategies, methodologies, and techniques Aims to improve quality and reduce costs. It stresses the importance of customers. Six Sigma level of operation is 3.4 defects per million. Most companies have 6,000 defects per million. 27 © 2012 South-Western, a part of Cengage Learning

Consumer-Stakeholder Satisfaction Model 28 © 2012 South-Western, a part of Cengage Learning

Key Terms Absolute liability Consumer Product Safety Act of 2008 Consumer Product Safety Commission Consumer stakeholder satisfaction model Contractual theory Delayed manifestation cases Due care theory Food and Drug Administration Market share liability Product liability reform Six Sigma Social costs view Strict liability Tort reform Total Quality Management © 2012 South-Western, a part of Cengage Learning 29