ETHICAL ISSUES IN MARKETING Marketing Ethics refers to the moral standards that underlie the exchange process.

This definition advances the position that ethics is predicated on interactive decision behaviours. PERSONAL CONVICTION AND EXCHANGE CONVICTION Channel members must balance their own moral needs, as reflected in their own personal value systems, with the interests of a firms internal and external stakeholders. When they enter exchange relationships, channel members must consider the interests of several firms, including their own. In addition, a shared level of confidence, or conviction, in the justness of anothers behaviour, must exist among channel members. When such personal conviction does not exist, the efficiency of the channel is greatly reduced. Therefore, some moral limitations on behaviour must be in place. These moral constraints will enable channel members to execute exchanges and eventually build relationships. Channel members interests are best served by seeking a trusting relationship with various publics with which the firm is involved. The idea of a ripple effect where a single ethical marketing action leads to others, which in turn, facilitates still others, and so on has several implications. For one, it indicates that personal convictions are interrelated and that each channel members ethical convictions are linked to the ethical codes of other exchange partners. Second, personal convictions affect societal outcomes. The outcomes of any exchange are not limited to the parties directly involved in the transaction. Moreover, personal convictions are manageable. Ethical dispositions reflect the prevailing behavioural characteristics of individuals or organisations when they encounter ethical dilemmas. To some degree, a channel members ethical disposition is manageable by others. Over time, variables in the channel environment may change the channel members ethical beliefs. Exchange conviction addresses the level of personal confidence and faith a channel member is willing to invest in other channel members. Likewise, each party to an exchange must have confidence that the other party is committed to doing the right thing. Several factors influence exchange conviction : (i) Performance Outcomes : A firms market value is based on performance measures such as growth. Growth itself is measured through increases in quantifiable outcomes such as increases in sales, market share and profits. These outcomes, in turn, usually contribute to increased capital investment in the firm and its operations. Presumably, this increased investment attracts more suppliers and customers. This cycle sometimes results in environments that encourage the pursuits of profits at any cost. An overemphasis on shortterm performance can contribute to a breach in ethics. Consequently, a persons belief in an exchange partner is often tied to how ethically an exchange partner deals with performance measures such as performance or sales. Consequently, the pursuit of revenues at any cost can undermine exchange conviction.
(ii)

Competitive Arena : As competition intensifies, firms may be more likely to engage in unethical practices to preserve their market position. A basic understanding of relationship understanding instructs firms to keep their customers, at any cost. But the costs associated with the types of actions necessary to retain customers are valued differently by different channel members. Certain firms may be willing to do whatever it takes to counter competitive challenges. Again, the sense of one firms confidence in another may be strained as a result.

(iii)

Expediency : Individuals driven by a short-term view of their personal circumstances or of economic conditions tend to take the path of least resistance. Once a short-term view is accepted as a norm in channel relations, it often becomes easier to take short-cuts on ethics to attain a firms performance objectives. Custom : Industry convention or custom is such that unethical actions are expected. Prospective exchange partners in such industries have less reason to expect full disclosure of information (i.e. the whole truth) Channel members often use their experience with industry custom as cues for managing their confidence in the ethicality of managing their confidence in the ethicality of other exchange partners.

(iv)

A channel members value system provides a mechanism for maintaining or regaining control in situations featuring moral dilemmas. The likelihood that a channel member will opt for a moral choice substantially improves when the proper value system is in place. SOCIAL TACT AND RELATIONSHIP ETHICS Although each exchange partner in a channel system possesses his own value system, ethical behaviour in a channel system depends largely on a shared morality between channel members. The study of business ethics has generally adapted a one-sided, or monadic, perspective. A monadic perspective examines moral issues at the level of an individual or single organisation and ignores the interactions of individuals or organisations. This perspective leads to false assumptions. The ethics environment is anything but one-sided. The ethics environment envelopes the channel members and their internal environment throughout the entire interaction process. Thus, the CRM model implies how channel members interact within a social system. It also implies that we should adopt a dyadic perspective when studying the issue of morality in channel relationships. Rather than focusing on individual exchange partners, the dyadic perspective focuses on the morality present in the exchange process itself. This perspective allows us to see how the morality of ecah channel members decisions are influenced by the values and behaviours of other channel members involved in the exchange. Similarly, a persons workplace ethics cannot be separated from the social system in which the individual operates. This condition is reflected in the condition known as Social Tact. Social tact describes individuals way of dealing with others in their environment. Social tact evolves over time. As a result of social tact, the relative social status of the persons involved in the exchange dictates, in part, what constitutes appropriate behaviour. For relationships to flourish, exchange partners must modify their ethical behaviour to correspond with the behaviours of other exchange partners. This leads to a concept known as Relationship ethics. Relationship ethics describes the process by which organisational ethics are adapted to suit the needs of particular exchange relationships. Each channel members representatives individual employees who interact on behalf of their respective firms are responsible for preserving the moral footing of a relationship. The preservation of any exchange is based on maintaining a balance between organisational, environmental and individual employee concerns. Whether at the individual or environmental level, the interaction process itself supplies the basis for ethical or unethical decision making. Thus, a decision to act ethically or unethically should not be viewed as an aggregate of two unit-level (aggregate) dispositions.

THE ETHICS CONTINUUM The most ethically relevant transactions of one firm that can affect another firms actions are those in which the channel partners personal or economic well-being is likely to be affected. A delicate balance exists between channel partners a breach of ethics will reduce the level of cooperation present in any exchange. The balance between the essentially opposing views held by the buying and selling channel members is reflected in an ethics continuum. The ethics continuum can be viewed as if it were an exchange scale. One end of the scale is weighted by the self-interests of the seller. The nature of this weight is reflected in the well-known expression Caveat Emptor Buyer Beware. On the other hand of the scale is the conflicting stakeholder interest of the buyer. This interest is reflected in the expression Caveat Venditor Seller Beware. Caveat Emptor The caveat emptor ideology is based on the belief that the pursuit of profit maximisation is the overriding organisational ethic. This view dictates that the moral baseline provided by the law represents the only constraint on ethical business practice. The goal is to maximise profits within the constraints of laws and regulations. When caveat emptor genuinely applies within a channel relationship, the seller need only ask whether the buyer can legitimately expect ethical marketing behaviours based on some legal or contractual right. In many channel relationships, however, there is no regulatory basis that prescribes what level of information should be exchanged among channel members. This often creates an ethical dilemma. The issue of how much information the ethical marketer is obliged to disclose in such situations is difficult to resolve. Marketers facing such decisions are torn between absolute moral standards requiring truth-telling and a need for realistic and effective marketing practices in a world that is extremely competitive. Caveat emptor usually applies when one or more of the following conditions exist in a channel setting :
(i)

(ii)

(iii)

Nonsubscription to the Marketing Concept : Channel members do not always adhere to the principles of the marketing concept. In doing so, the channel member fails to accept the argument that customers and their satisfaction exist as the focus of all marketing mix decisions. Instead, they have a production- or sales-oriented view of exchange. Ignorance of Customer Needs : Through an error of omission or commission, channel members are sometimes unaware of customers needs. Channel members may also misinterpret customer needs in situations involving ethical uncertainty. By default, the channel member is forced to resort to the law as a minimum baseline for ethical guidance. Short-term Profit Goals : Channel members under pressure to demonstrate profitability in the short run are more likely to engage in opportunistic or exploitative behaviours. The drive for bottom-line performance can often supersede any consideration of the methods or tactics employed.

Caveat Venditor The concept of caveat venditor anchors the other end of our ethics continuum. The school of caveat venditor seller beware draws on the pursuit of customer satisfaction as its organisational ethic. Caveat venditor, however, is customer satisfaction taken to its extreme. Buyers themselves sometimes engage in norm-violating behaviours that damage exchange

relationships. The opportunity for buyers to engage in unethical practices basically exists as a counterweight to the opportunity that sellers have to engage in exploitative behaviour without regard for ethical or moral principles. Such unethical customer practices could include price tag switching,(misrepresenting an exchange value), purposely delaying payments or deliveries to fellow channel members, reportng false shortfalls in shipments, and/or intentionally damaging merchandise. These practices are cumulatively known as Buyer Backlash. Buyer backlash may occur at any level of the marketing channel. However, this inversion of how marketing ethics is conventionally viewed holds particular concern to retailers. Consumer-initiated shoplifting and other forms of fraud cost retailers and wholesalers billions of dollars annually because of increased personnel and security system requirements and actual spoilage. Buyers may rationalise away guilt associated with such misbehaviour. Rationalisation of Unethical Buyer Behaviour (i) Denial of Responsibility : Buyers deny personal accountability because, according to them, factors beyond their control were operating. (ii) Denial of Injury : Nobody got hurt or the amount involved is tiny when compared to the total amount of business he or she transacted with this seller. (iii) Denial of Victim : Buyers rationalise their unethical business practices as a counterveiling mechanism for a sellers exercise of power. Here, buyers may suggest that their actions only countered the ongoing lack of attention a seller gave to their needs. (iv) Condemning the Condemners : In this justification, buyers deflect accusations of their own misconduct by pointing out that others also engaged in similar behaviours. These buyers are suggesting that unethical practice is the normative behaviour. This is dangerous rationalisation because it suggests no social tact is operative in the exchange process. (v) Appeal to Higher Loyalties : Buyers argue that their behaviour results from an attempt to fulfill some higher order ideal or value. At the same time, his justification deprioritises the values of ones exchange partner. If these attempt at self-justifying ones misactions are successful, unethical customer actions become more likely. Our ethics continuum suggests that channel mmebers on either side of the exchange relationship may be modifying the norms, rules, and standards governing their exchange behaviour over time and across circumstances. Such changes are, in many instances, based on the varying needs of the stakeholders who influence their exchange relationship. ETHICAL DILEMMAS IN RELATIONSHIP MANAGEMENT (I) Exclusionary Tactics Exclusionary tactics are intentional strategies aimed at restricting normal channel flows in a distribution system. These tactics may be observed in a variety of market actions. Some view this practice as unethical as free market system is impeded. However, others view this practice as necessary rewards granted to selected channel members in return for their superior performance. There are certainly times when exclusive dealings and exclusive territories are used legitimately to protect interbrand competition . This enables both manufacturers and resellers to concentrate their efforts on building and maintaining brand equity. Excessive interbrand competition produced by excessive distribution can erode a brands image. However, when certain channel members are accorded special distribution privileges, barriers to market entry by new competitors are sure to arise. Exclusionary practices do not always originate from the actions of the manufacturers. Today, the consolidated power enjoyed by mega-retailers may allow them to block the full market distribution

of goods and services effectively, keeping some manufacturers out of the market. (II) Diverting Practices Diverting practices refer to the unauthorised distribution of products. One way this is accomplished is through gray marketing. Gray marketing describes a situation in which a manufacturers authorised distributor sells through unauthorised intermediaries. This practice often involves the unauthorised distribution of branded products in other countries. Gray marketing damages channel relationships because channel pricing strategies are thrown out of gear. Normal profit margins can no longer be earned by legitimate channel members because the unauthorised intermediaries undercut dealer prices. Additionally, unauthorised dealers rarely offer the same kind of service as authorised dealers. Such actions can lead to high levels of customer dissatisfaction with brands over which manufacturers actually have little control. In short, gray markets influence pricing policies and may affect distribution policies and changes in buyer behaviour. Perhaps, more importantly, gray markets often generate animosity among the parties involved. (III) Repressive Control Maneuvers Repressive control maneuvers describe coercive attempts to manipulate another channel mambers business practices. One of the most common repressive control maneuvers is full-line forcing, the practice of distribution rights only to those intermediaries who agree to carry a manufacturers entire product line. Essentially, this involves an all-or-nothing policy aimed at securing full-line exposure. Clothing members have long pursued this policy. Repressive control maneuvers sometimes end up being reflected in the nature of the channel structure itself. Authorised dealers often give up substantial control to manufacturers to win distribution rights. They may even be more common in contractual channel structures like franchising agreements. Franchise agreements usually specify from whom the franchisee can buy , how much fanchisee will charge for its products and services, and what its operational procedures are. Franchisees enter into these agreements recognising that franchisors, at least initially, can repress their freedom to act in their own best interests. (IV) Anticompetitive Channel Promotions Anticompetitive channel promotions involve efforts by one channel member to control the distribution of its products. Examples of anticompetitive channel promotions include brand discounts, aggregate rebates, demand signalling, and slotting allowances. Brand discounts are often provided to a channel member in return for shelf space. These discounts often turn into clandestine pricing tactics in which greater shelf space is traded off in return for lower prices. A producer may offer retailers who are willing to give its products more shelf space the opportunity to earn higher margins. Whats the harm? First, the manufacturers who give brand discounts are usually large manufacturers who control many product lines. These discounts may eliminate the opportunity for small limited line producers to obtain shelf-space. Furthermore, these discounts drive up overall consumer costs because generic alternatives and lesser-known, presumably less expensive brands do not have the built-in margins for such a leverage. As a result competition is dampened and customer choices are limited. Aggregate rebates are currency or merchandise credits offered on the basis of total line sales. Demand signalling signifies the manufacturers use of pre-launch advertising and skimming wholesaler pricing to convince retailers that its product is a winner. This practice has proven very

deceptive to intermediaries. Slotting allowances are shelf-space rental fees paid by manufacturers to retailers. They are also called Street Money or Replacement Fees. Because these fees or merchandising credits are often negotiated orally and in private, little public idea is available on the scope of slotting allowances. But they may account for upto one-third of all expenditures producers make on trade promotions. Slotting allowances do provide retailers with a way to counter producers repressive control tactics. However, some producers accuse retailers of employing slotting allowances as proactive, profitcentred methods of culling out less desirable suppliers and manufacturers. Slotting allowances hurt manufacturers because the practice increases the cost of introducing new products and could ultimately restrict research and development spending. If this occurs, customers may find they have fewer and higher priced goods available to choose from. Retailers have created a situation where producers often have often have to bid against one another to obtain a retailers agreement to carry a product. Manufacturers have been known to retaliate by the use of full-line forcing. MORAL CODES IN CHANNEL RELATIONSHIPS Each channel firm conducts all of its channel affairs based on its individual moral codes. Moral Codes deal with how channel members use rules and standards to tell right from wrong. Issues of right or wrong in channel relationships often lie in the gray area that must be resolved between exchange partners. Each employee serves as a personal emissary or representative of the channel organisation. The problem of course is, that there is likely no consensus among these employees regarding what is the right set of ethics to use. As a result, contradictory moral positions come into play when firms interact in channel settings. Three genres of moral codes exist : Rules-based moral codes Consequence-based moral codes Experience-based moral codes Rules-based Moral Codes A rule-based moral code refers to a set of universal principles that people use to resolve ethical conflicts. The Ten Commandemnts are a well-known set of moral rules. Believers of rule-based moral codes argue that outcomes change over time. For this reason, advocates of rule-based moral codes believe that no two behavioural outcomes can ever be exactly alike. Not surprisingly, then, rules-based moral theory posits that individual evaluations of right and wrong should not be based on universal moral principles. However, moral laws are hard to come by. Difficulties arise when moral conflicts must be resolved in traditional marketing channels. Buyers and sellers, suppliers and producers, and wholesalers and retailers are each likely to interpret the same event in different ways. The presumption that moral rules can be established which are universally applicable to the behaviours for each party across all circumstances is, therefore, troubling. Rules-based moral codes are flawed because they ignore the unique needs, interests and concerns of the employees acting on behalf of the channel firm. Consequences-based Moral Codes Believers of a consequences-based moral code suggest that decision makers can evaluate a behaviour' morality based on the behaviours consequences. As such, a morally questionable act can be deemed acceptable if the behaviour produces a desirable outcome. The consequence-based approach appeals to channel members because they are concerned with exchange performance and outcomes. Still problems concerned with how decision makers determine who the consequences

benefit can emerge. Here are two separate approaches to consequence-based codes to help resolve this issue. (i) Egoism : Egoism determines whether an act is right or wrong based solely on whether the outcome optimises the decision makers self-interests. An egoistic approach to ethical decision-making within channels will injure social tact. Channel members employing an egoistic perspective will act with little regard for their exchange partners concerns. Therefore, egoism violates a fundamental principle in relationship marketing. : a concern for other channel members needs. So, an egoistic perspective will almost always lead to poor outcomes in channel relations. Marketers will not be successful in the long-run if their actions are motivated primarily by their own self-interests. Utilitarianism : People who subscribe to utilitarianism believ the proper decision in a moral dilemma is the one that produces the greatest good for the greatest number of people. On the surface, at least, this suggests utilitarians will embrace the need to preserve channel relationships.

(ii)

Consequence-based approaches to ethical decision making within marketing channels are not foolproof. Experience-based Moral Codes Experience-based moral codes suggest that the ethicality of an issue can be evaluated based on the decision makers previous exchange counters. Experience-based decision makers subjectively assess cues available from the individuals and organisations involved in the dilemma. Then, based on this assessments, they determine the morality of some action. When one is striving to develop long-term relationships guided by social tact, examinimg how eachy member behaved in prior, related situations is logical. The subjective nature of experience-based moral codes is also attractive because they account for the unique character of the exchange relationship itself. Unfortunately, several imperfections are associated with experience-based moral codes. These include :
(i)

(ii)

(iii)

Situational differences : When individuals use past interactions with channel members as a guide to current ethical behaviours, they assume the prior and current situations are comparable. These assumptions may be wrong. Multiple Cues : The experience-based approach is based on moral decisionmakers subjective interpretations of prior events. But individual channel members are likely to selectively retain different elements from their experiences. Individual channel members are also likely to recall exchange situations in ways that reinforce egoistic interpretation of events. Different exchange partners are not going to behave uniformly. Taken together, these characteristics make it difficult for moral decisionmakers to decide which individuals, organisations, or situations should be used as cues. A Presumption of Rightness : The experience-based approach assumes that prior moral decision scenarios yielded ethical choices. When earlier decision scenarios yield unethical outcomes, channel members using experiential measures tend to repeat the unethical behaviour. Over time, unethical behaviour may begin to dominate and become the norm of the relationship.

Experience-based moral codes have appeal because they recognise the multi-faceted nature of exchange relationships. When formulating business strategies, channel members ascribing to this situational approach try to predict the conflicts that will arise between their organisations and their suppliers, customers and the community at large. However, when individual employees look to prior interactions with channel members, there is no guarantee that conflicting moral positions or perceptions can be reconciled.

Moral Codes in Combination Most people use a combination of moral codes, depending on the types of decisions and the settings in which they confront the ethical dilemma. In relationship ethics, individuals can be depicted as bundles of moral positions that cumulatively act in channel roles according to some decision rule. Moral codes only partially account for the channel firms unethical behaviours. Other factors include individual, organisational, environmental and relationship-oriented elements. MODEL OF RELATIONSHIP ETHICS (a) Individual Factors : Moral philosophies help shape the ethical decision rules for individuals. Other factors influencing a persons tendency to act unethically are : Socialisation : Socialisation relates to how interactions with peers, family members, and other members of the society shape an individuals personal ethic. Demographic Characteristics such as gender, race, and religion also influence an individuals personal ethic. (b) Organizational Factors : An organisation is a group of individuals with shared goals. An organisational environment is the collective values, attitudes, and norms that stem from these shared goals. As such, an organisations value system exists as a composite of the values of individuals and the formal and informal ethical policies the organisation has in place. An organisations value system is the dimension that best differentiates one organisation from another. Time and again organisations with a well-defined set of ethical values have demonstrated superior market performance. The actions of top management are most responsible for how an organisations value system develops. In fact, some experts suggest the two most basic responsibilities of execustives are to conform to a complex code of morals and to create moral codes for otehrs. Three other factors influence organisational value systems : Organisational referents Reinforcement of behaviours Corporate code of ethics Organisational Referents An employee interacts with a number of significant others in organisational settings, including coworkers, supervisors,a nd top management. Through their actions and attitudes, these persons are symbolic of the organisations value system. Employees often look toward the behaviours of others to determine appropriate behaviour in similar situations. Reinforcement of Behaviours Formal or informal ethical codes will only be as effective in inducing moral behaviour as the system in place for reinforcing them. When channel members are punished for acting unethically, the corporate value system will be reinforced. Conversely, ignoring ethical misconduct will reinforce more of that type of misbehaviour. Corporate Code of Ethics An ethical code addressed what the organisation expects from its representatives and other internal stakeholders. To be useful, a corporate code of ethics must be :

Accessible : It must be easily understood, applied and recalled and consistent with widely understood ethical practice and general ethical theories. Productive : It should be capable of providing the two forms of guidance that are critical to those facing moral quandries : insight and justification. Insight should be provided so relatively uncomplicated ethical problems can be solved quickly. Applicable : An ethical code should also provide the decision maker with the justification that is often necessary to act in one way or the other in response to more challenging ethical dilemmas.

However, no code of ethics can possibly address all of the potential ethical dilemmas that a channel member may face. A code of ethics can provide general guidelines that can be adapted to individual channel members and their interaction processes. THE COMPONENTS OF AN ETHICAL EXCHANGE PROCESS Quality in exchange The Promise Principle Sense of morality of duty Morality of Aspiration Equality of Exchange There would be no association without exchange, no exchange without equality, and no equality without commensurability. Such a view emphasises how important equality is to virtuous exchanges. Contemporary views of fair exchange suggest that the parties to exchange should be equal in terms of need. Channel partners do not have to be equal in terms of power, knowledge, or moral goodness, but if each is genuinely interested in obtaining something the other has, mutually ethical behaviours will usually develop. The Promise Principle The Promise Principle suggests that individual channel members can voluntarily impose obligations upon themselves under which they can choose to join together for mutual advantage. Trust allows people to cooperate with others to actively serve anothers purposes. Promise keeping is generally the best way to generate trust. Ethical exchange in channel settings is therefore deeply rooted in promise keeping. It follows that channel members are morally obligated to deliver on their promises to one another, regardless of whether those promises are legally binding. Morality of Duty Morality of duty is characterised by thou shalt nots similar to those featured in the Ten Commandments. It condemns those who fail to respect the basic moral rules governing individuals and society. Individuals coexisting within channel settings thus operate within the burden of not knowingly doing harm to one another. Morality of Aspiration The Morality of Aspiration, by contrast, is characterised by Thou Shalts admonishments for channel members to be all that they can be in terms of their ethicality. These include recognition rewards for suppliers who achieved planned outcomes, forgiving errors made by an exchange partner, and the accommodating (as opposed to grudging) resolution of conflict.