1 Consumer Stakeholders: Information Issues and Responses 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 13

2 Chapter 13 Learning Outcomes 1. Recite the consumer’s Magna Carta and explain its meaning. 2. Chronicle the evolution of the consumer movement. 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. Discuss the strengths and weaknesses of regulation and self-regulation of advertising.

3  The Consumer Movement  Product Information Issues  The Federal Trade Commission  Self-Regulation in Advertising  Summary  Key Terms  Discussion Questions Chapter 13 Outline

4 Introduction to Chapter 13 Within the context of customer relationship management, the chapter focuses on the evolution and maturity of the consumer movement and product information issues, such as advertising.

5 The Consumer’s Magna Carta Right to Safety Right to Be Informed Right to Be Heard Right to Choose

6 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

7 The Consumer Movement Consumerism A social movement seeking toaugment the rights and powers ofbuyers in relation to sellers

8 Lessons from the Consumers Movement 1. Achieve a fair and just marketplace for all consumers 2. Provide public oversite 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 Figure 13-1

9 Ralph Nader’s Consumerism  Ralph Nader is considered the father of the 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

10 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 Figure 13-2

11 Product Information Issues  Lowers standard of living  Decreases consumer satisfaction  Inefficient means of distributing information  Ineffective  High cost  Increases standard of living  Increases consumer satisfaction  Efficient means of distributing information  Effective  Low cost Arguments For Advertising Arguments Against Advertising

12 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

13 The Need for Information Clear Accurate Adequate Consumers need information that is…

14 Advertising Abuses Ambiguity Exaggeration Employment of Psychological Appeals Concealment of Facts

15 Weasel Words  Help  Like  Virtually  Up to

16 Concealed Facts  Selective use of facts to create a false belief  Hidden Fees  Product placement  Plot placement

17 Exaggerated Product Claims 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

18 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

19 Principles of Advertising to Children Consider the audience’s level of knowledge and maturity Be neither deceptive nor unfair to children Have adequate substantiation for advertising claims to children Do not stimulate children’s unreasonable expectations Products inappropriate for children should not be advertised to them Present positive and pro-social roles and role models Use advertising to serve an educational role Parents are responsible for providing guidance for children Figure

20 Express Warranty Promise or affirmation of factthat the seller makes at thetime of the sale Implied Warranty Unwritten promise that there isnothing wrong with the productand its intended use Warranties

21 Product Information Issues Magnuson-Moss Warranty Act of 1975  Full warranty  Limited warranty

22 Product Information Issues 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  FTC administers the Act

23 Product Information Issues Other Product Information Issues Equal Credit Opportunity Act Truth-in-Lending Act Fair Credit Reporting Act Fair Debt Collection Practices Act

24 The Federal Trade Commission Major Activities of the FTC 1. To maintain free and fair competition in the economy 2. To protect consumers from unfair or misleading practices

25 The Role of the FTC  Enforce federal antitrust and consumer protection laws  Ensure markets function competitively  Enhance the smooth operation of the marketplace  Stop actions that threaten consumers’ opportunities  Undertake economic analysis to support enforcement  Carry out policies of Congressional mandates, such as consumer education  Advance policies through cost-effective, non-enforcement activities Figure 13-4

26 The Divisions of the FTC Advertising practices Credit practices Enforcement Marketing practices Service industry practices

27 The Federal Trade Commission Historical View  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

28 Self-Regulation in Advertising Types of Self-Regulation Types of Self-Regulation Self-discipline Pure self-regulation Co-opted self-regulation Negotiated self-regulation Mandated self-regulation

29 National Advertising Division (NAD) Self-Regulation in Advertising  Initiates investigations  Determines issues  Collects and evaluates data  Makes initial decision regarding substantiated claims

30 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 Figure 13-5

31 Key Terms  Customer Relationship Management  Consumer’s magna carta  Right to safety  Right to be informed  Right to choose  Ambiguous advertising  Weasel words  Concealed facts  Fees  Right to be heard  Consumerism  Product information  Clear information  Accurate information  Adequate information  Warranties  Implied warranty  Express warranty  Full warranty

32 Key Terms  Product placement  Plot placement  Exaggerated claims  Puffery  Psychological appeal  Comparative advertising  Age compression  Ad creep  Ambient  Limited warranty  Extended warranties  Self-regulation  Self-discipline  Pure self-regulation  Co-opted self-regulation  Negotiated self-regulation  Mandated self-regulation