1. Key Topics Ch 13 & 14
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2. Learning Outcomes
Recite the consumer’s Magna Carta and explain its meaning.
Chronicle the evolution of the consumer movement, highlighting Ralph Nader’s role.
Identify the major abuses of advertising and discuss specific controversial advertising issues.
Describe the role and functions of the FTC.
Explain recent consumer-related legislation that has been passed.
Discuss the strengths and weaknesses of regulation and self- regulation of advertising.
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3. Chapter Outline The Consumer Movement Product Information Issues
The Federal Trade Commission (FTC)
Recent Consumer Legislation
Self-Regulation in Advertising
Moral Models and Consumer Stakeholders
Summary
Key Terms
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4. Consumer Stakeholders: Information Issues & Responses
As business seeks to come out of the worldwide recession, the pace of consumer spending has slackened.
Consumers have become more cautious and selective.
Businesses need to pay careful attention to customer stakeholders, and their fair treatment.
Customer Relationship Management (CRM), the art of creating and retaining customers, is critical.
“Satisfied customers tell three friends, but angry customers tell 3,000.”
The great trust offensive seeks to win them back.
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5. The Consumer Movement The Consumer Movement -
A social movement seeking to augment the rights and powers of buyers in relation to sellers.
In addition to the rights enumerated in The Consumer’s Magna Carta (see next slide), consumers today want:
Fair value for money spent
A product that meets reasonable expectations
One with full disclosure of its specs
Truthfully advertised – and safe
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6. Basic Consumer Rights: The Consumer’s Magna Carta
Right to Safety
Right to Be Informed
Right to Be Heard
Right to Choose
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7. Consumerism in the 21st Century
Many groups make up the loose confederation known as the consumer movement.
The power held by consumers is not the result of organized groups lobbying; their efforts are at the grassroots level.
Grassroots activism of consumers has never been stronger.
Major issues fall into two groups:
Product/service information
Product/service itself
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8. Consumer Problems with Business
High prices of products
Poor quality of products
Failure to live up to advertising claims
Hidden fees
Poor quality of after-sales service
Product breakage
Misleading packaging or labeling
Feeling that consumer complaints are a waste of time
Inadequate guarantees and warranties
Failure of company complaint handling
Dangerous products
Absence of reliable product / service information
Not knowing what to do if something is wrong with product
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9. Product Information Issues
Companies understandably want to portray their products in the most flattering light.
But efforts to paint a positive portrait of a product can easily cross the line into misinformation or deception – or absurdity:
An ad implores readers to switch to Verizon high-speed internet at a price that will “never go up.” But the fine print reveals, “rates increase after two years.”
What part of “never go up” do they fail to understand?
Product and service information is relayed by advertising.
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10. Advertising Issues Arguments for Advertising
Arguments Against Advertising
Informs consumers
It is wasteful and inefficient– and decreases our standard of living
Increases consumer satisfaction
Raises the price of products and is an unnecessary business cost
Promotes efficiency in the supply chain
Inefficient means of distributing information
Effective at reaching consumers
Ineffective
An economical means of reaching consumers
High cost
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11. Psychological Appeals
Advertising Abuses
Ambiguity –
use of “weasel words”
Exaggerated Claims
Psychological Appeals
Concealment of Facts
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12. Specific Controversial Advertising Issues (1)
Comparative Advertising - the practice of directly comparing a firm’s product with the product of a competitor: Coke vs. Pepsi, and Mac vs. PC
Use of Sex Appeal in Advertising – this has been an ongoing ethical issue for decades, but recent ads target young, pre-teen girls. While ads using sex appeal work, they can have a serious impact on the physical and mental health of girls.
Advertising to children – “Kid-vid” advertising: the average child to sees 25, ,000 ads per year, including one promoting “shopaholic best friends.” Lacking cognitive development, children under the age of 8 are easy targets.
Marketing to the poor – High interest rates yield significant profits, but can bury the poor in debt.
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13. Specific Controversial Advertising Issues (2)
Advertising alcoholic beverages- A 48-year old voluntary ban on advertising hard liquor on TV has ended; youth exposure to liquor ads has increased 30-fold; some products are aimed at children.
Cigarette Advertising – many oppose advertising a dangerous product, one that kills half its users; ads target the young and less-educated markets
Health and Environmental Claims– we are environmentally aware and health-conscious, and ads make health and environmental claims they may not meet.
Ad creep– advertising has crept everywhere, into places that were once not considered acceptable for advertisements, including school buses, textbooks, doctors’ offices, movies and historical monuments.
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14. Warranties – (1 of 2) Implied Warranty - Express Warranty -
Initially used by manufacturers to limit the length of time they were responsible for products.
Came to be viewed by consumers as tools to protect the buyer against defective products.
Implied Warranty -
Unwritten promise that there is nothing wrong with the product and its intended use.
Express Warranty -
Promise or affirmation of fact that the seller makes at the time of the sale.
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15. Warranties – (2 of 2) Implied Warranty - Express Warranty -
Initially used by manufacturers to limit the length of time they were responsible for products.
Came to be viewed by consumers as tools to protect the buyer against defective products.
Implied Warranty -
Unwritten promise that there is nothing wrong with the product and its intended use.
Express Warranty -
Promise or affirmation of fact that the seller makes at the time of the sale.
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16. Warranties – (2 of 2) Full Warranty - Covers the entire product.
The Magnuson-Moss Warranty Act of set standards for what must be contained in a warranty, and its ease of being understood.
Full Warranty - Covers the entire product.
Limited Warranty - Certain parts or types of defects are not covered under the warranty.
Extended Warranty - Service plans that lengthen the warranty period and are offered at an additional cost.
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17. Packaging and Labeling
Abuses in packaging and labeling were fairly frequent before the passage of the:
Federal Packaging and Labeling Act of 1967
Prohibits deceptive labeling on consumer products
Requires disclosure of certain important information on consumer products
The FTC and the Food and Drug Administration (FDA) have responsibilities under the Act.
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18. Other Product Information Issues -
Other abuses led to passage of these laws:
Equal Credit Opportunity Act -
Prohibits discrimination in extending consumer credit.
Truth-in-Lending Act -
Requires all suppliers of consumer credit to fully disclose all credit terms.
Fair Credit Reporting Act -
Ensures that consumer-reporting agencies provide information in a manner that is fair and equitable.
Fair Debt Collection Practices Act -
Regulates the practices of third-party debt- collection agencies.
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19. The Federal Trade Commission
The government’s major instrument for ensuring that business lives up to its responsibilities.
Major Activities of the FTC -
To prevent unfair methods of competition and anticompetitive pricing
To protect consumers from unfair or deceptive acts or practices.
Administers consumer protection laws
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20. The FTC in the 21st Century
Created the National Do-Not-Call Registry, which forbids telemarketers from calling consumers who sign up with the registry.
Required telemarketers to show their contact information on consumers’ caller ID systems.
Sued firms that made misleading claims for weight loss products, and recovered millions in settlements.
FTC preference was that business self-regulate when possible, and FTC action a last resort.
Current issues include robocalls, children’s online privacy, and data brokers.
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21. Recent Consumer Legislation -
Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (CARD) –
Met with strong resistance from banks and credit card issuers
3 years later, more transparency, fewer late fees
Consumer Financial Protection Bureau –
Enforces consumer financial protection laws
Restricts unfair, deceptive or abusive acts
Takes consumer complaints
Promotes financial education
Researches consumer behavior
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22. Self-Regulation in Advertising
the control of business conduct by the business itself or business associations.
Types of Self-Regulation -
Self-discipline (firm controls itself)
Pure self-regulation (one’s peers control)
Co-opted self-regulation (industry includes consumer stakeholders)
Negotiated self-regulation (industry voluntarily negotiates standards with an outside body)
Mandated self-regulation (industry is ordered by government to develop norms)
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23. The National Advertising Division’s Program
The most prominent organization for advertising self-regulation by business.
NAD was created to help sustain high standards of truth and accuracy in national advertising.
Initiates investigations
Determines issues
Collects and evaluates data
Determines whether an advertisers claims are substantiated.
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24. Moral Models and Consumer Stakeholders
How would the three types of moral managers models, discussed in Chapter 7, view consumer stakeholders?
The Moral Management Model best represents the highest ethical standards of consumer treatment, and is therefore the recommended model for business to follow.
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25. Three Moral Management Models
Immoral Management
Amoral Management
Moral Management
Customers are viewed as equal partners in transactions
Management does not think through the ethical consequences of decisions
Customers are viewed as opportunities to be exploited
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26. Learning Outcomes
Describe and discuss the two major product issues: quality and safety.
Explain the role and functions of the Consumer Product Safety Commission and the Food and Drug Administration.
Enumerate and discuss the reasons for concern about product liability, and differentiate strict liability, absolute liability, and market share liability.
Outline business’s responses to consumer stakeholders, including customer service, Total Quality Management (TQM programs), and Six Sigma.
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27. Chapter Outline Two Central Issues: Quality and Safety
Consumer Product Safety Commission
Food and Drug Administration
Business’s Response to Consumer Stakeholders
Customer Service Programs
Total Quality Management Programs
Six Sigma Strategy and Process
Summary
Key Terms
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28. Consumer Stakeholders: Product and Service Issues
Sam Walton, founder of Walmart –
“There is only one boss. The customer. And he can fire everybody in the company …, simply by spending his money somewhere else.”
Toyota, which enjoyed a sterling reputation for quality, saw it evaporate with its gas pedal acceleration case:
First, there was the problem itself; people died. And 8 million of its cars would have to be recalled.
Second, there was Toyota’s slow response. Despite knowing about the problem in Europe since 2008, and installing new pedals there, nothing was done in the U.S. Then in 2010, the company faced a U.S. recall of 2.3 million cars. The company had dragged its feet.
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29. Two Central Issues - The Issue of Quality - The Issue of Safety -
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.
The Issue of 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.
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30. Critical Dimensions of Product Quality
Perceived Quality
Aesthetics
Serviceability
Features
Reliability
Conformance
Performance
Durability
Dimensions of Quality
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31. Ethical Underpinnings of Quality
Contractual Theory
Due Care Theory
Social Costs View
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32. The Issue of Safety Historical Perspective -
Who is liable for a defective product?
Historical Perspective -
Caveat emptor - “Let the buyer beware.”
This doctrine assumed that the buyer had as much knowledge of the product as the seller, but this was not correct.
Modern Day -
Caveat venditor – “Let the seller beware.”
But how safe should a product be?
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33. Top Ten List of Safety Principles
Build safety into product design.
Do product safety testing for all foreseeable hazards.
Keep informed about and implement latest developments in product safety.
Educate consumers about product safety.
Track and address products’ safety performance.
Fully investigate product safety incidents.
Report product safety defects promptly.
If a defect occurs, promptly offer a comprehensive recall plan.
Work with the Consumer Product Safety Commission to make sure your recall is effective.
Learn from mistakes—yours and others’.
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34. Product Liability (1 of 3)
Reasons for the concern -
The sheer number of cases where products resulted in injury, illness, or death.
The amount of the financial award.
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.
The U.S. is a litigious society.
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35. Product Liability (2 of 3)
Extensions of the strict liability rule –
Courts in several states and some countries have established a standard more demanding than strict liability:
Absolute liability - A manufacturer could be held strictly liable for failure to warn of a product hazard, even if the hazard was scientifically unknowable at the time of manufacture and sale.
Market share liability – Manufacturers who made the product share in the liability for injury according to their market shares. This doctrine was applied in delayed manifestation cases, but limited to those.
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36. Product Liability (3 of 3)
Product Tampering and Product Extortion–
The Tylenol tampering cases of the 1980s are best known. As a result, firms began to use tamper-evident packaging. Despite these efforts, 2 Australian manufacturers received threats from extortionists who poisoned over the counter analgesics and returned them to the shelves.
Product Liability Reform –
These issues have raised calls tor product liability reform, also known as tort reform. Tort law requires that the one causing injury pay the injured party. Businesses seek tort reform; consumer groups oppose it.
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37. Consumer Product Safety Commission -
An independent regulatory agency created by the Consumer Product Safety Act of 1972, which works to reduce the risk of injuries and deaths from products by:
Developing voluntary standards with industry
Issuing and enforcing mandatory standards
Banning consumer products if no feasible standard would adequately protect the public
Obtaining the recall of products or arranging for their repair
Conducting research on potential product hazards
Informing and educating consumers through media, state and local governments, private organizations, and by responding to consumer inquiries
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38. A Sketch of Ethical Principles
The Categorical Imperative
The Means-Ends Ethic
The Conventionalist Ethic
The Might-Equals-Right Ethic
The Disclosure Rule
The Organization Ethic
The Golden Rule
The Hedonistic Ethic
The Professional Ethic
The Intuition Ethic
The Proportionality Principle
The Market Ethic
The Revelation Ethic
The Utilitarian Ethic
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39. CSPC Strategic Plan, 2011-2016 Mission x Vision Goal 1 Goal 2 Goal 3
Carbon monoxide detectors
Formaldehyde in wood
Commitment to Prevention
Decisive Response
Raising Awareness
Protecting the public against unreasonable risks of injury
From consumer products.
Vision
The CPSC is the recognized global leader in consumer
Product safety
Goal 1
Leadership in Safety
Goal 3
Rigorous Hazard Identification
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40. Food and Drug Administration (1 of 2)
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
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41. Food and Drug Administration (2 of 2)
The FDA regulates -
Foods
Human prescription and non-prescription drugs
Vaccines, blood products, and other biologics
Medical devices
Electronic products
Cosmetics
Veterinary products
Tobacco products
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42. Business’ Response to Consumers
Formal interactions with consumer stakeholders have become more institutionalized
At first, casual and ineffective
Now, toll-free hot lines, user-friendly web sites, and customer service programs
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43. Customer Service Programs
Customer Service or self service?
Retailers of all types have been pushing the idea of self-service. We check out our own groceries, pump our own gas, print our boarding passes, and fix our cable tv, following a computer voice.
Customers are frustrated with after-sale problems not quickly and easily remedied.
Experts know that the key to customer retention is customer service.
Building life-long devotion among customers takes serious commitment and hard work.
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44. Seven Principles of Customer Service
Keeping your word is where it begins.
Always be honest and tell it like it is.
Always think proactively, looking around the corner.
Deal with problems as best you can yourself, never passing the buck.
Do not argue with a customer because it is a lose/lose situation.
Accept your mistakes, learn from them, and do not repeat them.
Consistency is the name of the game for lasting success.
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45. Creating a Customer-Oriented Company
Top-down culture and commitment are essential.
Identify internal champions and uphold them.
Commit resources to the task.
Hire the right people.
Empower employees.
Make customer service training a priority.
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46. Total Quality Management – (1 of 2)
Has many characteristics, but essentially means –
All business functions are blended into an integrated philosophy built around quality, teamwork, productivity, and customer understanding and satisfaction.
TQM focuses on product quality and safety, focuses on the customer, and uses continuous improvement.
The customer is the final judge of quality.
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47. Total Quality Management – (2 of 2)
TQM emphasizes eight key elements -
Ethics
Integrity
Trust
Training
Teamwork
Leadership
Recognition
Communication
The foundation upon
which all else is built
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48. Six Sigma Strategy and Process
A development within TQM that has become a way of life for many corporations.
Sigma is a statistical measure of variation from the mean; higher values of sigma mean fewer defects.
Six Sigma level of operation is 3.4 defects per million.
Most companies have 6,000 defects per million.
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49. Consumer-Stakeholder Satisfaction Model
Consumer Satisfaction
Continued Purchases by Consumers
Firm Profitability
Firm Reputation
Product Quality and Safety
Service Quality and Safety
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