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 13 Consumer Stakeholders: Information Issues and Responses © 2012 South-Western, a part of Cengage Learning 2

Learning Outcomes © 2012 South-Western, a part of Cengage Learning 1. Recite the consumer’s Magna Carta and explain its meaning. 2. Chronicle the evolution of the consumer movement, highlighting Ralph Nader’s role. 3. Identify the major abuses of advertising and discuss specific controversial advertising issues. 4. Enumerate and discuss other product information issues that present problems for consumer stakeholders. 5. Describe the role and functions of the FTC. 6. Explain recent consumer-related legislation that has passed. 7. Discuss the strengths and weaknesses of regulation and self- regulation of advertising and proposed consumer financial protection regulations. 3

Chapter Outline The Consumer Movement Product Information Issues The Federal Trade Commission (FTC) Recent Consumer Legislation Self-Regulation in Advertising Summary Key Terms 4 © 2012 South-Western, a part of Cengage Learning

Consumer Spending Consumer Expectations Consumers have decreased their spending in recent years. Businesses have to fight hard for customers.  Firms must pay careful attention to customer stakeholders and their fair treatment. 5 © 2012 South-Western, a part of Cengage Learning

Customer Relationship Management The ability of an organization to effectively identify, acquire, foster, and retain loyal profitable customers.  Customers remain dissatisfied with how they are treated and are mistrustful of businesses. 6 © 2012 South-Western, a part of Cengage Learning

The Consumer’s Magna Carta © 2012 South-Western, a part of Cengage Learning 7

The Consumer Movement Consumer Expectations “Fair value” for money spent Product that meets “reasonable” expectations Full disclosure of product specifications Truthful advertising Safe products Removal of dangerous products 8 © 2012 South-Western, a part of Cengage Learning

Consumerism A social movement seeking to augment the rights and powers of buyers in relation to sellers. 9 © 2012 South-Western, a part of Cengage Learning

Lessons From the Consumer Movement 1.Achieve a fair and just marketplace for all consumers. 2.Provide public oversight where: Corporations lack the incentives to regulate their own behavior. Issue of health, safety and other special concerns. 3.Provide resources, authority, and support for public watchdogs. 4.Intensify the fight for affordable goods and services, fair financial practices, and a chance at a decent standard of living. 5.Curb wasteful overconsumption that threatens the environment. 10 © 2012 South-Western, a part of Cengage Learning

Ralph Nader’s Consumerism Ralph Nader is considered the father of the modern consumer movement. Unsafe At Any Speed criticized the auto industry and General Motors 40 years ago. Nader and the consumer movement were the impetus for consumer legislation in the 1970s. Nader made consumer complaints respectable. 11 © 2012 South-Western, a part of Cengage Learning

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 12 © 2012 South-Western, a part of Cengage Learning

Advertising Issues 13 © 2012 South-Western, a part of Cengage Learning

Advertising Benefits The lifeblood of the free-enterprise system Stimulates competition Provides information for comparison buying Provides competitive information to competition Sales response provides a mechanism for immediate feedback Provides social and economic benefits 14 © 2012 South-Western, a part of Cengage Learning

The Need for Information 15 © 2012 South-Western, a part of Cengage Learning

Advertising Abuses 16 © 2012 South-Western, a part of Cengage Learning

Weasel Words Are inherently vague so companies can claim they were not misleading consumers. Help Like Virtually Up to 17 © 2012 South-Western, a part of Cengage Learning

Concealed Facts The practice of not telling the whole truth or deliberately not communicating information the consumer ought to have access to in making an informed choice. Hidden Fees Product placement (“stealth advertising”) Plot placement 18 © 2012 South-Western, a part of Cengage Learning

Exaggerated Product Claims Exaggerated Claims Cannot be substantiated by any kind of evidence. 1.Induce people to buy things that do them no good. 2.Result in loss of advertising efficiency as companies match puffery with puffery. 3.Drive out good advertising. 4.Result in consumer loss of faith in product claims. Puffery A euphemism for hyperbole or exaggeration that usually refers to the use of general superlatives. 19 © 2012 South-Western, a part of Cengage Learning

Psychological Appeals Designed to persuade on the basis of human emotions and emotional needs rather than reason. The products can seldom deliver what the ads promise.  Marketers appeal to all our senses, even sound, when making psychological appeals. 20 © 2012 South-Western, a part of Cengage Learning

Controversial Advertising Issues  Comparative advertising  Use of sex in advertising  Advertising to children  Marketing to the poor  Advertising of alcoholic beverages  Cigarette advertising  Health and environmental claims  Ad creep 21 © 2012 South-Western, a part of Cengage Learning

Principles of Advertising to Children 22 © 2012 South-Western, a part of Cengage Learning

Controversial Advertising Issues Environmental Claims Companies have been ramping up their advertising claims about the environmental friendliness of their products. The green economy was estimated in 2010 to be worth $1.04 trillion and growing. An industry of “green watchdogs” has been growing. Growing “green fatigue” developing among some consumers who are weary of claims. 23 © 2012 South-Western, a part of Cengage Learning

Warranties Initially used by manufacturers to limit the length of time they were responsible for products. Came to be viewed by consumers as mechanisms to protect the buyer against faulty or defective products. Express Warranty Promise or affirmation of fact that the seller makes at the time of the sale. Implied Warranty Unwritten promise that there is nothing wrong with the product and its intended use. 24 © 2012 South-Western, a part of Cengage Learning

Warranties (continued) 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. 25 © 2012 South-Western, a part of Cengage Learning

Product Information Issues Magnuson-Moss Warranty Act of 1975 Full warranty Limited warranty  The Warranty Act set standards for what must be contained in a warranty and the ease with which consumers must be able to understand it. 26 © 2012 South-Western, a part of Cengage Learning

Packaging and Labeling 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. 27 © 2012 South-Western, a part of Cengage Learning

Other Product Information Legislation 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. 28 © 2012 South-Western, a part of Cengage Learning

The Federal Trade Commission  The government’s major instrument for ensuring that business lives up to its responsibilities in the areas of advertising, warranties, and packaging/labeling. Major Activities of the FTC 1.To maintain free and fair competition in the economy. 2.To protect consumers from unfair or misleading practices. 29 © 2012 South-Western, a part of Cengage Learning

The Role of the FTC Seeks to ensure that the nation’s markets function competitively and are free of undue restrictions. Works to enhance the smooth operation of the marketplace by eliminating unfair or deceptive acts or practices. Efforts are directed toward stopping actions that threaten consumers’ opportunities to exercise informed choice. Undertakes economic analysis to support its law enforcement efforts and to contribute to the policy deliberations of government. 30 © 2012 South-Western, a part of Cengage Learning

The Divisions of the FTC 31 © 2012 South-Western, a part of Cengage Learning

The Federal Trade Commission Historical Overview Early activism of the FTC Less active years of the FTC Reassertion of the FTC in the 1990s The FTC in the Twenty-First Century 32 © 2012 South-Western, a part of Cengage Learning

Recent Consumer Legislation  Credit Card Act of 2009  Consumer Financial Protection Agency 33 © 2012 South-Western, a part of Cengage Learning

Self-Regulation in Advertising Types of Self-Regulation Self-discipline Pure self-regulation Co-opted self-regulation Negotiated self-regulation Mandated self-regulation 34 © 2012 South-Western, a part of Cengage Learning

The National Advertising Division’s Program NAD was created to help sustain high standards of truth and accuracy in national advertising. Initiates investigations Determines issues Collects and evaluates data Makes initial decision regarding substantiated claims 35 © 2012 South-Western, a part of Cengage Learning

Three Moral Management Models 36 © 2012 South-Western, a part of Cengage Learning

Key Terms Accurate information Ad creep Adequate information Age compression Ambient advertising Ambiguous advertising Clear information Comparative advertising Concealed facts Consumerism Consumer Financial Protections Agency (CFPA) Consumer’s Magna Carta Co-opted self- regulation Credit Card Act of 2009 Customer Relationship Management (CRM) Exaggerated claims Express warranty Extended warranty Full warranty © 2012 South-Western, a part of Cengage Learning 37

Key Terms (continued) Implied warranty Limited warranty Mandated self- regulation Negotiated self- regulation Plot placement Product information Product placement Psychological appeals Puffery Pure self-regulation Right to be heard Right to be informed Right to choose Right to safety Self-discipline Self-regulation Warranties Weasel words © 2012 South-Western, a part of Cengage Learning 38