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Chapter 8: Ethics and Marketing End of Chapter Questions, Projects, and Exercises 1. Are some products too dangerous to be marketed in any circumstance? What regulations, if any, would you place on marketing cigarettes? Handguns? Prescription drugs? As a starting point, refer students to The American Marketing Association’s Statement of Ethics, found at http://www.marketingpower.com/AboutAMA/Pages/Statement%20of%20Ethics.aspx which provides guidelines for marketing products. Students can then use that code to find other codes and perhaps regulations that may address this issue. For websites that address some of the regulatory issues, you might direct students to the following: •Phillip Morris website about legislation and regulation of tobacco marketing: www.philipmorrisusa.com •The following site addressed the concept of marketing handguns specifically towards women. The site raises the issue of how far might be too far to go with marketing dangerous products: Brady Center to Prevent Gun Violence: http://www.gunlawsuits.org •FDA - The Prescription Drug Marketing Act: http://www.fda.gov Some products may indeed be too dangerous to be marketed in any circumstance, especially those that pose significant risks to public health and safety. Regulations play a crucial role in ensuring that such products are not marketed irresponsibly. For cigarettes, strict regulations should be in place to minimize their harmful effects. This could include restrictions on advertising, such as banning ads that target minors or glamorize smoking. Warning labels should be prominent and clearly convey the health risks associated with smoking. Additionally, there should be limitations on where cigarettes can be sold and how they can be promoted. Handguns, being inherently dangerous, should also be subject to stringent marketing regulations. This could involve measures such as background checks for purchasers, restrictions on advertising that promotes violence or irresponsible gun use, and requirements for safe storage and handling. Prescription drugs, while not inherently dangerous, can have significant risks if not used properly. Regulations should ensure that marketing for prescription drugs is accurate and balanced, providing information on both the benefits and risks. There should also be restrictions on marketing practices that may unduly influence prescribing behavior, such as direct-to-consumer advertising that oversimplifies the benefits or downplays the risks. In summary, some products may be too dangerous to be marketed without strict regulations in place to protect public health and safety. These regulations should aim to minimize harm, ensure informed decision-making, and prevent irresponsible marketing practices. 2. Conduct a classroom debate on the McDonald’s spilt coffee case. Conduct an Internet search for this case (Liebeck v. McDonald’s) to find both legal and journalistic comments on this case. One-third of the class should play the role of Mrs. Liebeck’s attorneys, one-third the role of McDonald’s attorneys, and one-third the role of the judge and jury. Direct students to do internet research and find information on the case. Some websites to visit are: •And Now, the Rest of the Story…The McDonald’s Coffee Lawsuit: http://www.jtexconsumerlaw.com/V11N1/Coffee.pdf •McDonald’s Scalding Coffee Case: The Real Facts: http://www.justice.org/cps/rde/xchg/justice/hs.xsl/14627_14633.htm The McDonald's hot coffee case, officially known as Liebeck v. McDonald's Restaurants, was a widely publicized product liability lawsuit in the United States. Stella Liebeck, a 79-year-old woman, suffered third-degree burns when she accidentally spilled hot coffee purchased from McDonald's on her lap. She sued McDonald's, and the case became a focal point for debates about tort reform and the responsibility of corporations for product safety. The case can be debated from various perspectives: 1. Mrs. Liebeck's Attorneys: They would argue that McDonald's served coffee at a temperature far above what was safe, leading to severe injuries in this case. They might emphasize that McDonald's was aware of previous burn incidents related to their coffee but did not lower the temperature. They would likely focus on the need for corporations to prioritize consumer safety over profit. 2. McDonald's Attorneys: They might argue that the coffee's temperature was not unusually hot and that Mrs. Liebeck was responsible for her injuries. They could point out that the coffee's warning label stated that it was hot and that customers should exercise caution. They might also argue that Mrs. Liebeck's injuries were not as severe as claimed. 3. Judge and Jury: They would need to weigh the evidence presented by both sides and determine whether McDonald's was negligent in serving excessively hot coffee. They would consider factors such as the coffee's temperature, McDonald's knowledge of the risk, and whether Mrs. Liebeck's actions contributed to her injuries. They would also consider the extent of Mrs. Liebeck's damages and whether McDonald's should be held liable for them. In conclusion, the McDonald's hot coffee case is a complex legal and ethical issue that raises questions about corporate responsibility, product safety, and consumer rights. A classroom debate on this case would provide an opportunity to explore these issues from multiple perspectives and consider the broader implications for business practices and consumer protection. 3. Research the case Pelman v. McDonald’s in which it was alleged that McDonald’s was partially responsible for the health problems associated with the obesity of children who eat MacDonald’s fast food. Should MacDonald’s and other fast-food restaurants be judged negligent for selling dangerous products, failing to warn consumers of the dangers of a high-fat diet, and deceptive advertising? Some websites to look at regarding the McDonald’s obesity case: •U.S. judge dismisses obesity suit vs. McDonald’s: http://money.cnn.com/2003/01/22/news/companies/mcdonalds/index.htm •U.S. District Court Southern District of New York Opinion: http://biotech.law.lsu.edu/cases/food/Pelman_v_McDonalds_SDNY.pdf •Food Fight: Obesity Raises Difficult Marketing Questions: http://knowledge.wharton.upenn.edu/article.cfm?articleid=1149&CFID=2756464&CFTOKEN=80757050 The case of Pelman v. McDonald's was a lawsuit filed in 2002 by a group of teenagers who alleged that McDonald's was responsible for their obesity and related health problems. The plaintiffs argued that McDonald's failed to provide sufficient warnings about the health risks associated with consuming its products and engaged in deceptive advertising practices that led them to believe McDonald's food was healthier than it actually was. To determine whether McDonald's and other fast-food restaurants should be judged negligent in such cases, several factors need to be considered: 1. Product Liability: Fast-food restaurants, like other food manufacturers, have a duty to ensure that their products are safe for consumption. If it can be proven that McDonald's food contributed significantly to the plaintiffs' obesity and related health problems, McDonald's could be held liable for failing to meet this duty. 2. Failure to Warn: If McDonald's was aware of the health risks associated with its products but failed to adequately warn consumers, it could be considered negligent. However, fast-food restaurants typically provide nutritional information about their products, which consumers can use to make informed choices. 3. Deceptive Advertising: If McDonald's engaged in deceptive advertising practices that misrepresented the nutritional content or healthiness of its products, it could be judged negligent. However, advertising regulations typically require fast-food restaurants to provide accurate information about their products. In conclusion, whether McDonald's and other fast-food restaurants should be judged negligent for selling "dangerous products," failing to warn consumers, and engaging in deceptive advertising depends on the specific facts of the case. While fast-food consumption can contribute to obesity and related health problems, consumers also have a responsibility to make informed choices about their diet. 4. The Federal Trade Commission regulates advertising on the basis of two criteria: deception and unfairness.
How can an ad be unfair? Who gets hurt by deceptive advertising? Students can refer to the pages in the chapter related to fair advertising (pages 328-339). They can use the decision making process to determine how an ad can be unfair, and examine the stakeholders to decide who gets hurt by deceptive advertising. •For clarification, the Federal Trade Commission Advertising Guidance can be found at: http://www.ftc.gov/bcp/menus/resources/guidance/adv.shtm An advertisement can be considered unfair if it causes substantial injury to consumers, violates established public policy, or is unethical or unscrupulous. Some ways in which an ad can be unfair include: 1. Exploitation: Ads that exploit a consumer's inability to protect their own interests or lack of knowledge can be deemed unfair. For example, ads targeting vulnerable populations such as children or the elderly might be considered unfair. 2. Deception: While deception is primarily a criterion for regulation, it can also be considered unfair. Ads that deceive consumers by making false or misleading claims about a product or service can harm consumers by leading them to make purchasing decisions based on inaccurate information. 3. Substantial Injury: Ads that cause substantial injury to consumers, such as financial harm or health risks, can be deemed unfair. For example, ads for dangerous products that fail to adequately warn consumers of the risks can be considered unfair. Deceptive advertising harms consumers by misleading them into making purchases based on false or misleading information. This can lead to financial loss, disappointment, and even health risks. Deceptive ads can also harm competitors who lose business to the advertiser based on false claims. Additionally, deceptive advertising can erode trust in the marketplace, damaging the overall economy. In conclusion, the Federal Trade Commission regulates advertising based on the criteria of deception and unfairness to protect consumers and maintain a fair marketplace. Ads that are deemed unfair can harm consumers, competitors, and the economy as a whole. 5. Collect several sample prescription drug ads from magazines, newspapers, and television. Based on the location of the ad, what do you think is the intended target audience? Are the ads in any way misleading? Are the required side-effect warnings deceptive in any way? Do you believe that health care professionals provide adequate screening to insure that prescription drugs are not misused? This is a suggested classroom activity for students to do individually or in groups. To answer this question, you would need to collect several sample prescription drug ads from various sources and then analyze them based on their location, target audience, potential misleading aspects, side-effect warnings, and the adequacy of healthcare professionals' screening. 1. Location and Target Audience: Ads in magazines and newspapers may target a broader audience, including adults of various ages. Television ads may target a more general audience as well. However, magazines and newspapers with specific demographics (e.g., health magazines) may target individuals interested in health and wellness. Online ads could target specific demographics based on browsing behavior. 2. Misleading Aspects: Some ads may be misleading by overemphasizing the benefits of a drug while downplaying its risks or by using language that implies effectiveness beyond what is supported by evidence. 3. Side-effect Warnings: Required side-effect warnings in ads are intended to inform consumers about potential risks. However, the presentation of these warnings, such as the speed or manner in which they are delivered, could affect their effectiveness and perceived importance. 4. Healthcare Professionals' Screening: Healthcare professionals play a crucial role in screening patients to ensure that prescription drugs are not misused. This includes assessing the appropriateness of the drug for the patient's condition, monitoring for side effects, and educating patients about proper use. In conclusion, prescription drug ads can vary in their target audience, clarity of information, and potential for being misleading. Healthcare professionals are essential in ensuring that prescription drugs are used appropriately and not misused. However, the effectiveness of drug ads and healthcare professionals' screening practices can vary, highlighting the need for ongoing evaluation and regulation in this area. 6. Review the Decision Point, “Marketing in Schools,” concerning marketing in the schools and Channel One. Reflect on your own educational experience. Assume you were offered a laptop computer as long as you understood that you would see a commercial every time you turned it on and for two minutes for every fifteen minutes of use. How would you feel about this arrangement from a gut perspective? Considering it in greater detail, what types of restrictions on advertisements do you think the laptop manufacturer (or service provider who is responsible for managing the advertising messages) should impose if the laptops will be given to college-aged students? How would you develop standards for these restrictions? Some websites to reference as you discuss marketing in schools: •Commercialism in Children’s Lives: http://blogs.worldwatch.org/transformingcultures/wp-content/uploads/2010/12/Commercialism-in-Childrens-Lives-Linn.pdf •Campaign for Commercial Free Childhood: http://commercialfreechildhood.org/ From a gut perspective, I might feel uncomfortable with the idea of receiving a laptop in exchange for being exposed to commercials every time I turn it on and during my use. It might feel intrusive and distracting, potentially impacting my overall experience with the device. However, considering this arrangement in greater detail, if laptops were to be given to college-aged students with advertisements, I believe certain restrictions should be imposed to ensure that the ads are not overly intrusive or inappropriate for the educational setting. Some potential restrictions could include: 1. Content: Ads should be appropriate for a college-aged audience and should not promote harmful or illegal activities. They should also not contain offensive or inappropriate language or imagery. 2. Frequency: The frequency of ads should be reasonable and not excessively interrupt the user's experience. For example, ads should not play during critical moments such as during exams or while writing papers. 3. Duration: The duration of ads should be reasonable and not overly long. For example, ads should not be longer than a certain duration (e.g., 30 seconds) to avoid excessive interruptions. 4. Relevance: Ads should be relevant to the college-aged audience and should not be overly generic or unrelated to their interests and needs. 5. Transparency: Users should be informed about the advertising arrangement upfront so they can make an informed decision about whether to accept the laptop. To develop standards for these restrictions, the laptop manufacturer or service provider could work with educators, students, and advertising professionals to establish guidelines that balance the need to generate revenue from ads with the need to provide a positive user experience. These standards could be based on principles of transparency, relevance, and respect for the educational environment. 7. Many sales people are compensated predominantly on a commission basis. In other words, though the salesperson receives a small base hourly rate, most of her or his compensation derives from a percentage of the price of items sold. Since basically the salesperson only makes money if you buy something and he or she makes more money if you spend more money, do you ever trust a salesperson’s opinion? What would make you more likely to trust a commission-based salesperson or less likely? Is there anything a commissioned salesperson could do to get you to trust her or him? Best Buy, the consumer electronics store, communicates to consumers that it does not pay its salespeople based on commissions in order to encourage objectivity. Are you more likely to go to Best Buy as a result? Facilitate classroom discussion using ethical theories to discuss the impact on stakeholders of various methods of salesperson compensation. The compensation structure of commission-based salespeople raises questions about the trustworthiness of their opinions. Knowing that their income is directly tied to the amount customers spend, some may perceive a conflict of interest, leading to skepticism about the salesperson's motives. To trust a commission-based salesperson, several factors would influence my decision: 1. Transparency: If the salesperson is upfront about their commission-based structure and assures me that their recommendations are based on my needs rather than their potential earnings, I would be more likely to trust them. 2. Knowledge and Expertise: Demonstrating a deep understanding of the products they are selling and being able to provide detailed explanations and comparisons would increase my trust in their recommendations. 3. Honesty and Integrity: If the salesperson is honest about the limitations or drawbacks of a product and does not push me towards a more expensive option unnecessarily, I would be more likely to trust them. 4. Empathy and Understanding: Showing empathy towards my needs and budget constraints, and offering tailored solutions rather than a one-size-fits-all approach, would also increase my trust. Regarding Best Buy's communication that it does not pay its salespeople based on commissions, this would likely positively influence my decision to shop there. Knowing that the salespeople are not financially motivated to upsell or push unnecessary products would make me more comfortable seeking advice and making purchases at Best Buy. In conclusion, while the commission-based compensation structure of salespeople can raise concerns about trust, factors such as transparency, knowledge, honesty, and empathy can help build trust with customers. Retailers like Best Buy that emphasize objective sales practices can attract customers seeking a more trustworthy shopping experience. 8. In 2001 TAP Pharmaceuticals pled guilty to participating in a criminal conspiracy with doctors by providing free samples of Lupron for which the doctors later billed Medicare and patients. Federal prosecutors also charged that TAP executives and midlevel managers with fraud, alleging that TAP employees bribed doctors and hospitals with cash, free vacations, and free samples as an incentive for them to prescribe Lupron. Defendants argued that the samples and gifts were standard industry practice and did not amount to a bribe. In December 2004, a jury acquitted the individuals involved. TAP itself settled their case with the government by agreeing to pay $150 million restitution to consumers and insurance companies for what the government charged were artificially inflated drug prices. The prices were inflated because of the alleged bribes paid to doctors. TAP did not admit to any wrongdoing, claiming that it settled to avoid further legal costs. Studies have shown that samples, as well as small gifts and lunches, can lead doctors to prescribe more expensive brand names when cheaper generic drugs would be as effective. What additional facts might you need to know to make a fully informed judgment in this case? What outcome do you believe the pharmaceutical companies are striving to achieve through these practices? What alternatives might be available to pharmaceutical companies to serve a similar outcome without incurring legal liability or crossing ethical lines? Do the doctors or hospitals bear any ethical responsibility under these circumstances? What duties do the pharmaceutical companies, doctors, or hospitals have? What does the principle of fairness require in this case? What rights are implicated? Use the ethical decision making process to lead classroom discussion. To make a fully informed judgment in this case, additional facts would be needed to understand the extent of the alleged bribery and its impact on prescription practices. Factors such as the frequency and value of gifts and samples provided, the prescribing patterns of the doctors involved, and any evidence of harm to patients or the healthcare system would be relevant. The pharmaceutical companies involved may have been striving to achieve increased sales and market share for their products through these practices. By providing samples, gifts, and incentives to doctors, they may have sought to influence prescribing behavior in favor of their more expensive brand-name drugs over cheaper generic alternatives. Alternative practices that pharmaceutical companies could consider to achieve similar outcomes without incurring legal liability or crossing ethical lines include: 1. Educational Programs: Providing educational programs and materials to healthcare professionals about the benefits and uses of their products, focusing on evidence-based medicine rather than promotional tactics. 2. Transparency: Being transparent about financial relationships with healthcare professionals, including disclosing any gifts, samples, or incentives provided. 3. Supporting Independent Research: Supporting independent research on the effectiveness and cost-effectiveness of their products compared to alternatives, to help inform prescribing decisions. Doctors and hospitals may bear ethical responsibility in these circumstances if they knowingly accepted bribes or incentives that influenced their prescribing behavior to the detriment of patient care. Their duty is to act in the best interests of their patients and to prescribe medications based on clinical need and evidence-based practices, rather than financial incentives. Pharmaceutical companies, doctors, and hospitals have duties to act ethically and in the best interests of patients. The principle of fairness requires that they avoid practices that unfairly influence prescribing decisions or harm patients or the healthcare system. Patients have a right to receive unbiased and evidence-based medical care, free from the influence of undue financial incentives. In conclusion, the case highlights the ethical complexities of relationships between pharmaceutical companies, healthcare professionals, and patients. It underscores the importance of transparency, evidence-based medicine, and ethical conduct in the pharmaceutical industry to ensure patient safety and trust in the healthcare system. 9. Go to the FTC website (http://www.ftc.gov/bcp/grnrule/guides980427.htm) and review the cases in the Decision Point “Examples of Greenwashing.” You will find the FTC’s judgment on each case (and others). Do you agree with the FTC’s assessment of misleading environmental marketing examples? Lead students in discussion of disagreements with aspects of the FTC’s assessment of misleading environmental marketing examples. In cases where students agree, what could be changed about the marketing to make it more ethical? I'm unable to access external websites, including the FTC's website, to review the cases in the Decision Point "Examples of Greenwashing." However, I can provide a general perspective on the concept of greenwashing and the FTC's role in regulating misleading environmental marketing. Greenwashing refers to the practice of making misleading or false claims about the environmental benefits of a product, service, or company. The FTC has guidelines in place to prevent deceptive environmental marketing practices and takes action against companies that engage in greenwashing. I generally agree with the FTC's assessment of misleading environmental marketing examples. It's crucial for companies to be transparent and accurate in their environmental claims to avoid misleading consumers. Greenwashing not only misleads consumers but also undermines the efforts of genuinely environmentally conscious companies. By holding companies accountable for greenwashing, the FTC helps protect consumers and promote honest and transparent environmental marketing practices. It's important for companies to adhere to these guidelines to build trust with consumers and contribute positively to environmental sustainability efforts. Chapter 8 Readings Main Points and Summaries Reading 8-1: “The Friendship of Buzz, Blog and Swag,” by Kalynne Hackney Puder Main Points •The Word of Mouth Marketing Association (WOMMA) defines WOM as “the act of consumers providing information to other consumers,” and it consists of giving people a reason to talk about your products and services. •Fundamentally, WOM is a strategy that utilizes pre-existing relationships, between someone who will advocate the marketer’s product (the “advocate”) and the marketer’s targeted consumers (the “target). •Authentic WOM takes the control of the marketing message away from the marketer and allows the message to reach targets that may have put up a barrier between themselves and the marketer. This also removes the message from the marketer’s direct control. •WOMMA’s ethics initiative focuses on transparency and urges WOM marketers and their advocates to be honest and open regarding their Relationship; it urges advocates to express only honest and open Opinions; and it urges advocates to be honest and open in disclosing their Identity. •Puder asserts that in WOM, the relationship that must be made transparent to the target is not that between the advocate and the marketer, but rather between the advocate and him/herself, the target. She asserts that this hypothesis can be supported by comparing the pre-existing relationships utilized by three different forms of WOM: buzz, blog, and swag. •“Buzz” refers to the traditional word-of-mouth communication between particular individuals, regardless of the catalyst (advertising, product experience, marketer direction), and regardless of medium (face-to-face, telephone, print, or electronic). •The essential feature of “buzz” is that the pre-existing relationship between advocate and target is determinate, between particular and identified individuals. In this case, transparency or disclosure actually damages the advocate’s credibility, since disclosure can raise questions about the sincerity of the advocate and his/her message. •“Swag” refers to free product and other items given by marketers to journalists, editors and public personalities, in the hope that they may be induced to use their regular media platforms to disseminate a positive product message. •In the case of swag, the value is in the perception of unbiased, objective, un-self-interested reporting. Advocate transparency, then, serves the target, since it helps the target to determine the credibility of the advocate. •Swag consists essentially of a one-way dissemination of messages to an indeterminate audience. •“Blog” refers to a particular individual or group of individuals using the Internet to disseminate messages to a non-particular, generally unidentified and qualifiedly invisible audience that ordinarily has feedback capability. •The blogger-audience relationship varies greatly, from close person-to-person relationships to the vague, unidentified blogger and unidentified “world.” Depending on which type of relationship exists, blogs can tip toward swag or toward buzz strategies. •The ethical importance of transparency, then, is intrinsic to the relationships that WOM employs. •The ethics of utilizing pre-existing relationship in marketing strategy must first direct attention to the pre-existing relationships themselves, and examine the place of marketing activities within their context. Reading 8-2: “Privacy, Profit, & the Delicate Balance,” by Carl Hausman Main Points •Advertising has provided the United States and many other nations with a magnificent media system that is partly or wholly subsidized by media. •Advertising is changing and now advertisers can get distressingly up close and personal: Marketers can learn which Web sites you’ve visited recently, the geographic location of your computer, what type of online ad most closely correlates with the words in your email message and what types of news you like to read. •Ethics is at the heart of the conflict that may make or break the media system as we know it. •The Internet-based advertising system is not working for what is called “legacy media.” •Part of the problem is the primitive method of counting and paying for clicks, as well as overcoming the habits formed by consumers used to getting content for free. •But the real problem is privacy – consumers are afraid of exposing too much. However, the time has come when we have to admit that there’s no choice but to collectively accept some reasonable loss of privacy when we venture into the digital universe. •The reality is that any media venues must, to some extent, exploit personal information. This practice has occurred for years, such as when magazines sell their list of subscribers to other publications. •The movement of personal data can have frightening implications, hence the need for trust that the parties to whom we impart our information are acting ethically. •Laws and regulation will play a part, but trust is still at the heart of this issue. •Until advertiser-supported media can create and cultivate an environment of trust, the migration of news and other media to the internet will be stunted economically. Reading 8-3: “First Analysis of Online Food Advertising Targeting Children,” by the Kaiser Family Foundation Main Points •Concerned about the high rates of childhood obesity in the U.S., policy makers in Congress, the Federal Trade Commission, and agencies such as the Institute of Medicine have explored a variety of potential contributing factors, including the marketing and advertising of food products to children. •Without good information about what this new world of advertising really looks like, there can’t be effective oversight or policymaking. •The Kaiser Family Foundation published the first comprehensive analysis of the nature and scope of online food advertising to children (ages 12 and under), in order to help inform the decision making process for policymakers, advocates, and industry. •The report found that more than eight out of ten (85%) of the top food brands that target children through TV advertising also use branded Web sites to market to children online. •Online advertising’s reach isn’t as broad as television, but it’s much deeper. •Unlike traditional TV advertising, these corporate-sponsored Web sites offer extensive opportunities for visitors to spend an unlimited amount of time interacting with specific food brands in more personal and detailed ways. •There is broad use of “advergames” (online games in which a company’s product or brand characters are featured, found on 73% of the Web sites), and viral marketing (encouraging children to contact their peers about a specific product or brand, found on 64% of sites). •Over half (53%) of all sites in the study have television commercials available for viewing. •Over half (51%) of all sites included nutrition information, such as that found on a product labels, and approximately 44% included some type of nutritional claim, such as “good source of vitamins and minerals.” •Almost four in ten sites (38%) have incentives for the user to purchase food so they can collect brand points or stamps that they can then exchange for premiums. •One in four (25%) sites offer a “membership” opportunity for children age 12 or younger. Thirteen percent require parental permission. •76% of the Web sites offered at least one “extra” brand-related option for children, such as screensavers or wallpaper for a child’s computer. •Thirty-five percent of sites offer some type of educational content, ranging from historical facts about dinosaurs, to astronomy, sports or geography. •Almost all (97%) of the sites provided some information explicitly labeled for parents, such as what type of information is to be collected from children on the site (93%), legal disclaimers (88%), a “contact us” link (87%), etc. •Two-thirds of all brands in the study have promotions in which children may participate in some way, including sweepstakes with a chance to win prizes or a chance to get free merchandise. Reading 8-4: “Fortune at the Bottom of the Pyramid,” by C. K. Prahalad and Stuart L. Hart Main Points •After the Cold War, the former Soviet Union and its allies, as well as China, India, and Latin America, opened their closed markets to foreign investment in a cascading fashion. •This significant economic and social transformation has offered vast new growth opportunities for multinational corporations (MNCs), but its promise has yet to be realized. •The slow movement of most MNCs into emerging markets does not change the magnitude of the opportunity there, which is in reality much larger than originally thought. The real source of market promise is not the wealthy few, or the emerging middle-income consumers, rather it is the billions of aspiring poor who are joining the market economy for the first time. •Prahalad and Hart assert that this is the time for MNCs to look at globalization strategies through a new lens of inclusive capitalism. For companies with the resources and persistence to compete at the bottom of the world economic pyramid, the prospective rewards include growth, profits, and incalculable contributions to humankind. •Countries that don’t have the modern infrastructure or products to meet basic human needs are an ideal testing ground for developing environmentally sustainable technologies and products for the entire world. •In addition, MNC investment at the “bottom of the pyramid” means lifting billions of people out of poverty and desperation, averting the social decay, political chaos, terrorism, and environmental meltdown that is certain to continue if the gap between rich and poor countries continues to widen. •Doing business with the world’s 4 billion poorest people (two-thirds of the world’s population) will require radical innovations in technology and business models, along with a new level of capital efficiency and new ways of measuring financial success. •The poorest populations raise a prodigious new managerial challenge for the world’s wealthiest companies: selling to the poor and helping them improve their lives by producing and distributing products and services in culturally sensitive, environmentally sustainable, and economically profitable ways. •There are four consumer tiers in the world economic pyramid: Tier 1 consumers include 75 to 100 million affluent consumers from around the world; Tiers 2 and 3are the poor customers in developed nations and the rising middle classes in developing countries; Tier 4 is the bottom of the pyramid, with 4 billion people. Their annual per capita income is less than $1,500, the minimum considered necessary to sustain a decent life. For well over a billion people, per capita income is less than $1 per day. •The income gap between rich and poor is growing. This extreme inequity of wealth distribution reinforces the view that the poor cannot participate in the global market economy, even though they constitute the majority of the population. In fact, given its vast size, Tier 4 represents a multitrillion dollar market. •The perception that the bottom of the pyramid is not a viable market fails to take into account the growing importance of the informal economy among the poorest of the poor, which by some estimations accounts for 40 to 60 percent of all economic activity in developing countries. •The Tier 4 market is wide open for technological innovation and MNCs can be leaders in leapfrogging to products that don’t repeat the environmental mistakes of developed countries over the last 50 years. •Most MNCs automatically dismiss the bottom of the pyramid because they judge the market based on income or selection of products and services appropriate for developed countries. •To appreciate the market potential for Tier 4, MNCs must come to terms with a set of core assumption and practices that influence their view of developing countries. The bottom of the pyramid defies conventional managerial logic, but that doesn’t mean it isn’t a large and unexplored territory for profitable growth. •Serving Tier 4 markets is not the same as serving existing markets better or more efficiently; managers must first develop a commercial infrastructure tailored to the needs and challenges of Tier 4. Creating such an infrastructure must be seen as an investment. •No firm can do this alone – multiple players must be involved, including local government authorities, NGOs, communities, financial institutions and other companies. •Four elements: creating buying power, shaping aspirations, improving access, and tailoring local solutions are the keys to a thriving Tier 4 market. •Each of the four elements demands innovation in technology, business models and management processes, and business leaders must be willing to experiment, collaborate, empower locals and create new sources of competitive advantage and wealth. •MNCs are positioned to take the lead in these efforts in Tier 4 due to their resources, their ability to leverage knowledge between markets, their ability to serve as a bridge – providing access to knowledge, managerial imagination and financial resources, as well as their capacity to transfer innovations all the way up-market to Tier 1. •In order to build the required organizational infrastructure, MNCs need to build a base of local support, reorient R&D to focus on the needs of the poor, form new alliances, increase employment intensity, and reinvent cost structures. •Prahalad and Hart assert that we have only begun to scratch the surface of what is the biggest potential market opportunity in the history of commerce. The fortune at the bottom of the pyramid represents the loftiest of our global goals. Reading 8-5: “POM Wonderful,” by Chris MacDonald Main Points •The makers of POM Wonderful fruit juice are embroiled in a legal and public-relations battle with the U.S. Federal Trade Commission. •At the heart of that battle is the company’s insistence on stating, or sometimes just implying, that its product has beneficial health effects. One ad boasts of POM’s “incredible healing powers,” while another refers to it as “good medicine.” •On May 21, 2012, an FTC judge found that at least some of POM’s ads made “false and misleading” claims. •POM is striking back by releasing a new set of ads that make the judge seem to support the company’s health claims, with the tagline: “FTC v. POM: You be the judge.” •It seems that POM is trying to convince consumers to choose their juice using their hearts, rather than their heads, since if you used your head and thought it through rationally, you’d want to see the evidence supporting the health claims. •The key issues are clearly about truthfulness and about who gets to determine the truth about complex product characteristics. •The economic theory underlying market capitalism is “value-neutral,” meaning it does not place any positive or negative value on people’s desires. From this perspective, markets generally focus on satisfying people’s desires, not on judging those desires. •This assumes that people have the information they need to figure out whether a product they’re considering buying is likely to satisfy their desires. Thus, companies should not attempt to lead mislead customers. •Companies should also not interfere when regulators or responsible 3rd parties attempt to help consumers stay informed. •MacDonald asserts that POM is polluting the commercial atmosphere of truth-telling on which the market relies, thus undermining the market itself. •Companies like POM make it harder for consumers to know who to trust, and make it harder for well-intentioned companies to sell their products. Solution Manual for Business Ethics: Decision Making for Personal Integrity and Social Responsibility Laura P. Hartman, Joseph R. Desjardins, Chris MacDonald 9780078029455, 9781259060588, 9781259417856
