1 Consumer Stakeholders: Product and Service Issues Business and Society: Ethics and Stakeholder Management, 7e Carroll & Buchholtz Copyright ©2009 by South-Western, a division of Cengage Learning. All rights reserved Prepared by Deborah Baker Texas Christian University Chapter 14

2 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 TQM programs and Six Sigma. Chapter 14 Learning Outcomes

3 Chapter 14 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  Summary  Key Terms  Discussion Questions

4 Introduction to Chapter 14 The chapter focuses on product quality and safety issues. In connection with safety, product liability and tort reform are discussed.

5 The Issue of Quality Driven by an increase in family income and intense global competition The Issue of Safety Driven by the public’s increasing concern with safety and risk-free products—and business’s responsibility to address this concern Two Central Issues: Quality and Safety

6 Critical Dimensions of Product Quality Perceived Quality Aesthetics Serviceability Features Reliability Conformance Performance Durability Dimensions of Quality

7 Ethical Dimensions of Quality Contractual Theory Due Care Theory Social Costs View

8 The Issue of Safety 1900s Caveat Vendor “Let the seller take care” 1900s Caveat Vendor “Let the seller take care” 1800s Caveat Emptor “Let the buyer beware” 1800s Caveat Emptor “Let the buyer beware” Historical Perspective

9 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’ Top 10 List of Safety Principles Figure 14-1

10 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 Consumer Product Injuries

11 Product Liability FIRST... Product liability has become a major issue because of the sheer number of cases where products resulted in injury, illness, or death and the amount of the financial award. SECOND... We have become an increasingly litigious society. THIRD… Rise in the doctrine of strict liability. Reasons for the Concern

12 Product Liability Extensions of the Strict-Liability Rule  Absolute liability  Market share liability Delayed manifestation cases

13 Other Issues Product Liability  Product tampering  Product extortion  Product liability reform (tort reform)

14 Consumer Product Safety Commission 1. 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

15 Consumer Product Safety Commission Indoor Air Quality Hazards Children’s Product Hazards Fire / Electrical Hazards Other Hazards Carbon monoxide detectors Formaldehyde in wood Carbon monoxide detectors Formaldehyde in wood Bunk beds Drawstrings on children’s clothing Bunk beds Drawstrings on children’s clothing National Electrical Code Handheld hair dryers National Electrical Code Handheld hair dryers Automatic garage door openers Swimming pools Automatic garage door openers Swimming pools VOLUNTARY SAFETY STANDARDS Figure 14-3

16 Consumer Product Safety Commission 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 Problems Confronting the CPSC Figure 14-4

17 Food and Drug Administration The Mission of the FDA The FDA is responsible for protecting the public health by assuring the safety, efficacy, and security of human and veterinary drugs, biological products, medical devices, our nation’s food supply, cosmetics, and products that emit radiation. The FDA is also responsible for advancing the public health by helping to speed innovations that make medicines and foods more effective, safer, and more affordable; and helping the public get the accurate, science- based information they need to use medicines and food to improve their health. Figure 14-5

18 Total Quality Management TQM All business functions are blendedinto an integrated philosophy builtaround quality, teamwork,productivity, and customerunderstanding and satisfaction.The customer is the final judgeof quality.

19 Business’s Response to Consumers Convert customer expectations to standards and specifications Define quality in terms of customer expectations Realign organization to ensure quality is achieved

20 Total Quality Management Figure 14-6

21 Strengths & Weaknesses of Quality Definitions Figure 14-7

22 Six Sigma Methodologies and techniquesfor improving quality andreducing costs.It stresses the importance ofcustomers.Six Sigma level of operation is3.4 defects per million.

23 Consumer-Stakeholder Satisfaction Model Consumer Satisfaction Continued Purchases by Consumers Firm Profitability Firm Reputation Product Quality and Safety Service Quality and Safety Figure 14-8

24  Contractual theory  Due care theory  Social costs view  Strict liability  Absolute liability  Market share liability  Delayed manifestation cases  Product liability reform  Tort reform  Consumer Product Safety Commission  Food and Drug Administration  Total Quality Management  Six Sigma Key Terms