L ECTURE -12-13 # S YNOPSIS

The Ethics of Consumer Protection & Marketing

Purpose of this Chapter 1. How far the manufacturer go to make their product safe? 2. Is the relationship among producer and customer a contract or more than that? 3. How far the companies know more than the consumer about their sensitive product information regarding safety and health? 4. On the whole does advertising help or harm customer? 5. Do the companies have a duty to protect their customers privacy? Market approach to consumer protection (MATCP): Many people believe that consumers automatically will be protected from injury by the operations of free and competitive markets and that neither governments nor businesspeople have to take special steps to deal with these issues. In the MATP consumer safety is seen as a good that is most efficiently provided through the mechanism of the free market whereby sellers must respond to consumer demands. If consumers want safer products they will indicate this preference by willingly paying more for safer products. If the consumers do not place a high value on safety, and do not show preference or want to pay higher value for safer products; it is wrong to push increased level of safety down their throats. It is just wrong for businesspeople to decide on their own that consumers should have more protection than they are demanding as to force on them costly safety devices that they would not buy on their own. If government regulations forced all appliance makers to make only the safer model or if the government make mandatory for the manufacturers to conform to some safety features; then the consumers who dont fell justified to pay the added dollar for added safety would be forced for sure!! So in a nutshell__ 1) Consumers have the power to control the market for their safety / protection product; 2) Businesspersons should not force the consumer to pay unwanted safety, 3) Government should also not impose those safety features on products that the consumers are not willing to pay for.

Criticism: PCM fails then MATP fails. So, if we can prove that PCM doesn't work from those 3 points of views then we can prove that MATP is a failure. 1. There are numerous buyers and sellers 2. Everyone has full and perfect information 3. All buyers and sellers are rational utility maximizes. The sophisticated consumer products on contemporary markets shelves are too complex for anyone to be an expert or to be knowledgeable about them. Not surprisingly, the manufactures, who knows about their products; might not voluntarily provide information about the safety levels or defective characteristics of their products. Because, information might be seen as a product and information can be sold. On the other side of coin, even if a market for information is created; then the cost of those information can not be covered; because of free riders; who catch up with information for free. The contract view of Business Firms Duties to Consumers The relationship between a business firm and its consumers is essentially a contractual relationship, and the firms moral duties to the customer are those created by this contractual relationship. When a consumer buys a product, this view holds, the consumer voluntarily enters into a Sales contract with the business firms. This theory claims that the business firms have four main moral duties: a) b) c) d) Complying with the terms of the sales contract (basic duty), Disclosing the nature of the product (secondary), Avoiding misrepresentation (Secondary), Avoiding the use of coercion and undue influence (Secondary).

The duty to Comply: The duty of the manufacturer is to provide consumers with a product that lives up to those claims that the firm expressly made about the product, which led the customers to enter the contract freely and which formed the customers understanding concerning what they agreeing to buy. Along with the express information the seller has a duty to carry through on any implied claims knowingly made about product. The duty to comply has four dimensions: 1) 2) 3) 4) Reliability Service life Maintainability Product Safety

The duty of disclosure: The seller has a duty to inform the buyer of any characteristics of the product that could affect the customers decision to purchase the product. The idea here is that, the seller would give the buyer enough information so that they can compare their products with other sellers and can choose freely thereby. The duty not to misrepresent: Sellers misrepresent a commodity when they represent it in a way deliberately intended to deceive the buyer into thinking something about the product that the seller knows is false. The deception might flow from two sources: 1) A verbal lie (This a new car; though not) 2) Gesture (An old car is placed among the new ones) The duty not to Coerce: People often act irrationally when under the influences of fear or emotional stress. When a seller takes advantage of a buyers fear or emotional stress to extract consent to an agreement that the buyer would not make if the buyer were thinking rationally, then the seller is using duress (coercion) or undue influence. Criticism: 1. The theory unrealistically assumes that manufacturers make direct agreement with the consumers. The manufacturer never enters into any direct contract with the consumers. How then can one say that manufacturers have contractual duties to the consumers?

Manufacturers

Dealers

Wholesaler s

Retailers

Consumers

2. A contract is a two-edged sword. If a consumer can freely agree to buy a product with certain qualities, the consumer can also freely agree to buy a product without these qualities. That is, freedom of contract allows a manufacturer to be released from contractual obligations by explicitly disclaiming that the product is reliable, serviceable, safe and so on.

3. In this theory it is assumed that buyers and sellers are equally skilled at evaluating the quality of a product and that buyers are able to adequately protect their interests against the seller. 4. Pure laissez-faire theory works here which gives birth to the Caveat Emptor; which means Let the buyer take care. But, as a matter of fact; Consumers have neither the expertise nor the time to acquire and process the information on which they must base their purchase decisions. So, the consumers must rely on the judgment of the seller in making their purchase decisions. The Due Care Theory Consumers and sellers do not meet as equals and that the consumers interests are particularly vulnerable to being harmed by the manufacturer who has a knowledge and an expertise that the consumer lacks. The doctrine of Caveat Emptor is being replaced by the Caveat Vendor; which means Let the seller take care Because consumers must depend on the greater expertise of the manufacturer, the manufacturer not only has a duty to deliver a product that lives up to the express and implied claims about it, but also has a duty to exercise due care to prevent others from being injured by the product , even if the manufacturer explicitly disclaims such responsibility. Due care must enter into the: a) Design of the product, b) The choice of reliable materials for constructing the products, c) The manufacturing process involved in putting the product together, d) The quality control used to test and monitor production, e) The warnings, labels, and instructions attached to the product. 1. There is no clear method for determining when one has exercised enough due care. If the manufacturer tries to eliminate even low-level risks, this would require that the manufacturer invest so much in each product, that the product would be priced higher. 2. It is assumed that the manufacturers can discover the risk related to a product before the consumers buy and use it. In fact, in a technology innovative society, new products whose defects cant emerge until years of decades have passed, will continually be introduced into the market. Example: The correlation between cancer & asbestos.

Advertising Ethics Commercial advertising is sometimes defined as a form of information and an advertiser as one who gives information. The implication is that the defining function of advertising is to provide information to consumers. As a matter of fact; more than half of all television ads contained no consumer information about the advertised product and that only half of magazine ads contained more than one informational cue. The primary function of commercial advertisement, rather is to sell a product to prospective buyers, and whatever information they happen to carry is subsidiary to this basic function. So, advertising is a form of communication. But it is different from other communication by two ways: a) It is a public communication dimension and might have strong social impacts, b) It is intended to induce its target audience to buy the sellers product. Social Effects / Impacts: a) Psychological b) Advertising & waste c) Advertising & Market power Psychological effects: Vulgar / offensive: Advertisement sometimes employ images that many people find vulgar, offensive, disgusting and tasteless. Example: Axe, Zatak.

Materialistic mentality: Personal efforts are diverted from non-materialistic aims and objectives, which are more likely to increase the happiness of people and are instead channeled into expanded material consumption. Example: Flower to Tiffany Advertising & Waste: The cost of advertising doesnt add anything to the basic utility of a product. In the end, the consumers are paying for something that they actually dont consume!! So, the advertising cost / expense is recognized as a real waste of scarce resources. Advertising & Market power The giant companies have the financial backup to advertise frequently in the expensive (effective like TVs, Daily papers) medias. So, they create such a brand image in the market place that the consumer has an automatic loyalty to their product. Small firms are then unable to break into the market because they cant finance the expensive advertising campaigns that would be required to get consumer to switch their brand loyalties. Advertising then is supposed to reduce competition and raise barriers entry into markets and help the larger firms to create virtual monopoly or oligopoly.