2. »Marketing is a key functional area and
critical for organic growth of a business
» Plays a central role is in creating and
sustaining value for an organization.
»Marketing helps a firm in creating value
by better understanding the needs of its
customers and providing them with
innovative products and services.
2
3. » Marketing ethics is viewed as important
because of marketing’s interface with many
diverse stakeholders.
» Marketing is a key functional area in the
business organization that provides a visible
interface with not only customers, but other
stakeholders such as the media, investors,
regulatory agencies, channel members, trade
associations, as well as others
3
4. DEFINITION OF MARKETING ETHICS
» For marketers, ethics in the workplace refers
to rules (standards, principles) governing the
conduct of organizational members and the
consequences of marketing decisions.
» Ethical marketing is defined as “practices
that emphasize transparent, trustworthy, and
responsible personal and organizational
marketing policies and actions that exhibit
integrity as well as fairness to consumers and
other stakeholders
4
6. Marketing Definition
“Marketing is the process of planning and
executing the conception, pricing, promotion,
and distribution of ideas, goods, and services
to create exchanges that satisfy individual and
organizational objectives.”
-American Marketing Association (AMA)
7. INTRODUCTION
» Conducting ethical transactions is of
paramount importance because it effects a
firms ability to build and maintain consumer
trust .
» Once consumer trust is lost it is very difficult
to regain.
» Firms must profit to survive but using profit
as the sole guiding principle can lead to short
term actions that may cause the firm to lose
customers in the long run.
7
8. » Marketing ethics refers to ethical issues
specific to domain of marketing.
» The marketing profession is often singled out
among business disciplines as the root cause
of a host of ethical concerns .
» Anyone involved in marketing activities must
recognise the ethical implications of their
actions.
8
9. CREATING AN ETHICAL CLIMATE
1. VALUES : Set of values within the marketing
division that guides decision making and
behavior.
2. RULES :set of explicit rules that govern all of
the firm’s transactions
3. CONTROLS : system that rewards good
behavior and punishes bad behavior
Top management must commit to establishing
an ethical climate and employees throughout
firm must also be dedicated
9
11. » Value-oriented framework, analyzing ethical
problems on the basis of the values which they
infringe (e.g. honesty, autonomy, privacy,
transparency).
» Stakeholder-oriented framework, analysing
ethical problems on the basis of whom they affect
(e.g. consumers, competitors, society as a whole).
» Process-oriented framework, analysing ethical
problems in terms of the categories used by
marketing specialists (e.g. research, price,
promotion, placement).
11
12. ETHICAL ISSUES IN MARKATING
PACKAGING AND BRANDING
.
PRICING
MARKET RESEARCH
MARKET AUDIENCE
ADVERTISING AND PROMOTION
12
13. PACKAGING AND BRANDING
» Four aspects of packaging involve ethical issues
1.Label information
2.Packaging graphics
3.Packaging safety
4.Environmental implication of packaging.
13
14. Label information
» Label information on packages can mislead
consumers by providing exaggerated information
or by unethically suggesting that a product
contains more of desired attributes (for instance
nutrition) or less of undesired attributes (such as
trans fat) than is actually the case.
14
15. Packaging graphics
» Packaging graphics are unethical when the
picture on a package is not a true representation
of product contents (as when a children’s toy is
made to appear much bigger on the packge than
it actually is). Another case of potentially
unethical packaging is when a store brand is
packaged so that it looks virtually identical to a
well known national brand.
15
16. Packaging safety
» Unsafe packaging problems are particularly
acute when packaging is not tamperproof and
contains dangerous products that are unsafe for
children
16
17. Environmental implication of packaging.
» Packaging information is misleading and
unethical when it suggests environmental
benefits that cannot be delivered.
17
18. PRICING
» Pricing should offer value for the money,
although it does not necessarily need to
represent the lowest price on the market .Price
structure is based on a number of elements,
customers should understand the total cost they
pay. There should be no “hidden extras.
18
20. Price Fixing
» Price fixing is an agreement between business
competitors to sell the same product or service at
the same price. In general, it is an agreement
intended to ultimately push the price of a product
as high as possible, leading to profits for all the
sellers.
20
21. Price skimming
» Price skimming is a pricing strategy in which a
marketer sets a relatively high price for a product
or service at first, then lowers the price over time.
It is a temporal version of price discrimination
/yield management. It allows the firm to recover
its sunk costs quickly before competition steps in
and lowers the market price.
21
22. Predatory pricing
» Predatory pricing (also known as destroyer
pricing) is the practice of selling a product or
service at a very low price, intending to drive
competitors out of the market, or create barriers
to entry for potential new competitors.
» If competitors or potential competitors cannot
sustain equal or lower prices without losing
money, they go out of business or choose not to
enter the business.
22
23. Predatory pricing - contd
» The predatory merchant then has fewer
competitors or is even a de facto monopoly, and
hypothetically could then raise prices above what
the market would otherwise bear.
23
24. Price war
» Price war is a term used in business to indicate a
state of intense competitive rivalry accompanied by
a multi-lateral series of price reduction.
» One competitor will lower its price, then others will
lower their prices to match. If one of them reduces
their price again, a new round of reductions starts.
» In the short-term, price wars are good for
consumers, who can take advantage of lower
prices. Often they are not good for the companies
involved. The lower prices reduce profit margins
and can threaten their survival.
24
25. Price war
» In the long term, the consumer may lose too.
With fewer firms in the industry, prices tend to
increase, sometimes higher than before the price
war started.
25
26. Dumping (Pricing Policy)
» Dumping is the act of charging a lower price for a
good in a foreign market than one charges for the
same good in a domestic market.
» This is often referred to as selling at less than
"fair value." Under the World Trade Organization
(WTO) Agreement, dumping is condemned (but
is not prohibited) if it causes or threatens to
cause material injury to a domestic industry in the
importing country.
26
27. Marketing Research
» Most marketing research benefits both the
sponsoring company and its consumers.
» Through marketing research, companies
learn more about consumers’ needs, resulting
in more- satisfying products and services.
» However, the misuse of marketing research
can also harm or annoy consumers.
» Two major public policy and ethic issues in
marketing research are intrusions on
consumer privacy and the misuse of research
findings.
27
28. Intrusions on consumer privacy
» A few consumers fear that researchers might
use sophisticated techniques to probe their
deepest feelings and then use this knowledge
to manipulate their buying.
» Or they worry that marketers are building
huge data bases full of personal information
about customers
» Other consumers may have been taken in by
previous research surveys that actually
turned out to be attempts to sell them
something.
28
29. » The best approach is for researchers to ask
only for the information they need, to use it
responsibly to provide value, and to avoid
sharing information without customers’
permission.
29
30. Misuse of research findings.
Marketing research has been misused to make
sales pitches or to generate list of sales
prospects in a practice known as sugging
Use of research data in the growing field of
data marketing , in which retailers , through
credit-card records and other information are
able to construct detailed profiles of
individuals customers.
30
31. Marketing Audience
» Ethical danger points include:
» Targeting the vulnerable (e.g. children, the
elderly).
» Excluding potential customers from the market:
selective marketing is used to discourage
demand from undesirable market sectors .
» Examples of unethical market exclusion or
selective marketing are industry attitudes to the
gay, ethnic minority and obese ("plus-size")
markets
31
32. » The elderly hold a disproportionate amount of the
world's wealth and are therefore the target of
financial exploitation.
» In the case of children, the main products are
unhealthy food, fashionware and entertainment
goods.
32
33. ADVERTISING
» Advertising is a form of communication used in
helping sell products and services.
» Typically it communicates a message including
the name of the product or service and how that
product or service could potentially benefit the
consumer.
» However, advertising does typically attempt to
persuade potential customers to purchase or to
consume more of a particular brand of product or
service
33
34. Advertisement -definition
A paid nonpersonal
communication about an
organisation and its products
that is transmitted to a target
audience through a mass
medium .
34
35. Advertising is widely criticized on
following grounds
1. Exaggerated claims and outright false- hoods
are most oblivious targets for complaints
2.Lack of taste , irritating repetition and offensive
character of many ads
3.Morality of specific kinds of ads (alcohol and
tobacco products)
4.Use of excessive violence
5.Creating culture of consumerism
35
37. Ethics in Advertising
» Puffery
» Advertising to Children
» Promoting Unhealthy Products
» Subliminal Advertising
» Deceptive Advertising
» Surrogate Advertisements
» Exploiting Social Paradigms
37
38. Puffery
» Flattering, often exaggerated praise and publicity,
especially when used for promotional purposes.
» Puffery is language used in the promotion of a
product which is designed to make the product seem
more appealing with the use of claims which are
usually subjective, bombastic, and difficult to prove.
» For instance, a advertisement promoting the "world's
best cup of coffee" would classify as puffery. That
claim would be almost impossible to substantiate.
Puffery often uses the superlative form of a word, like
"best" or "greatest".
38
39. Deceptive Advertising
» Deceptive advertising is the use of false or
misleading statements in advertising
» As advertising has the potential to persuade
people into commercial transactions that they
might otherwise avoid, many governments
around the world use regulations to control false,
deceptive or misleading advertising
39
43. Subliminal Advertising
» A subliminal message is a signal or message
embedded in another medium, designed to pass
below the normal limits of the human mind's
perception. These messages are unrecognizable
by the conscious mind, but in certain situations
can affect the subconscious mind and can
negatively or positively influence subsequent later
thoughts, behaviors, actions, attitudes, belief
systems and value systems.
43
44. Surrogate Advertisements
» Surrogate Advertisements In India alcohol and
cigarette advertisements were banned outright
some years back. However, alcohol and cigarette
companies alike are using the avenue of
surrogate advertisements to press forward their
case.
44
45. Social Paradigms
» Exploiting Social Paradigms In the hopes of
making a fast buck, marketers often resort to
exploiting social paradigms typical to certain
areas.
» In India, for example, a large multinational
corporation ran an ad campaign that depicted a
young woman who because of her dark facial
complexion was unable to find jobs. But as the ad
showed, as soon as the woman started using the
facial whiteness cream manufactured by the
corporation, she got the job of her choice.
45
48. Financial services
» The financial services industry operates largely
through personal selling by :
» Stock Brokers
» Insurance Agents
» Financial Planners & Investment Managers
» Tax Advisors
Personal selling creates innumerable opportunities
for abuse , and although finance professionals
take pride in the level of integrity in the industry,
misconduct still occurs
48
50. Deception
» The ethical treatment of client requires sales
person to explain all of the relevant information
truthfully in an understandable ,non misleading
manner.
» Promotion material for a mutual fund ,may be
accurate but misleading if it emphasizes the
strengths of fund and minimizes the weakness .
» Figures of past performance can carefully be
selected and displayed in a ways that give
misleading impression
50
51. » Deception can also occur when essential
information is not revealed
» For example a sale charge is merged into funds
annual expenses , which may be substantially
higher than competition’s
» In India SEBI regulations 1996 requires the
issuer of the security to disclose all material
information , which an average prudent investor
may require to take decision to invest.
51
52. » The rationale for this provision of the Securities
Act is fairness to investors who have right to
make decisions with adequate information.
» Some of the provisions of SEBI(mutual fund)
regulations with respect to new offerings are as
follows :
1 The offer document shall contain disclosures
which are adequate in order to enable the
investors to make informed investment decision
52
53. 2 The offer document and advertisement materials
shall not be misleading or contain any statement
or opinion which are incorrect or false.
3 No guaranteed return shall be provided in a
scheme unless such returns are fully guaranteed
by the sponsor or the asset management
company
53
54. Churning
» Churning is defined as excessive or inappropriate
trading for a client’s account by a broker who has
control over the account with the intent to
generate commissions rather than to benefit the
client.
» The ethical objection to churning is straight
forward : It is a breach of fiduciary duty to trade in
ways that are not in the client’s interest.
54
55. Suitability
» Brokers ,insurance agents and other sales
persons have an obligation to recommend only
suitable securities and financial products.
» It is difficult to define suitability but is based on
customers financial situation , needs ,time
horizon and risk appetite & profile , the agents
should recommend suitable investment portfolio.
55
56. Common causes of unsuitability
» Recommending Stocks when bonds would be
better fit the investor’s objectives.
» Unsuitable grades of securities , such as
selecting lower rated bonds when higher rated
ones are more appropriate.
» Unsuitable trading techniques including the use
of margins or options , which can leverage an
account and create greater volatility and risk.
» Unsuitable liquidity.
56
57. ANATOMY OF A LOSS
» Rs 70,000 crore was the net investment in
mutual funds in 2006-7. If 5% of these were
mis-sold, the loss works out to Rs 3,500 crore.
» Rs 25,000 crore was the premium for new
policies issued in 2006. If 10% of these were
mis-sold, the loss works out to Rs 2,500 crore.
» Rs 1,40,000 crore worth of loans disbursed in
2006-7. If in 5% cases, the interest rate was
mis-stated, the loss is Rs 1,600 crore.
57
58. » Estimated Rs 16,000 crore of shares traded by
retail investors in 2006-7. If even 10% of this
was misguided, the loss is Rs 1,600 crore.
» Rs 1,20,000 crore of real estate bought in
2006-7. If 10% of the buyers were given 5%
less than promised, the loss is Rs 600 crore.
» Five million new credit cards were issued in
2006-7. If 10% of these had hidden charges
and led to penalties, the loss is Rs 200 crore.
58
60. FINANCIAL MARKETS
» Financial transactions typically takes place in
organized markets , such as :
STOCK MARKETS
COMMODITY MARKERTS
CURRENCY MARKETS
BOND MARKETS
FUTURE AND OPTION MARKETS
60
61. » These markets presuppose certain moral rules
and expectations of moral behavior .
» The most basic of these is a prohibition against
fraud and manipulation.
» There should be fairness and level playing field
for all who participate in these markets
» But the level playing field can get tilted by many
factors including unequal information, bargaining
power and resources.
61
62. Unfair ways of financial markets operation
»Fraud and Manipulation
»Unequal information
»Bargaining power
62
63. Fraud and Manipulation
» Manipulation generally involves the buying and
selling of securities for the purpose of creating a
false or misleading impression about the direction
of their prices so as to induce other investors to
buy or sell the securities .
» Fraud is the willful misrepresentation of a
material fact that causes harm to a person who
reasonably relies on the misrepresentation .
63
64. » Investors – both as buyers and sellers – are
vulnerable to fraud because the value of financial
instruments depends almost entirely on
information that is difficult to verify.
» Fraud and Manipulation are addressed by
mandatory disclosures regulations as well as by
penalties for false and misleading statements in
any information released by a firm.
64
65. Unequal information
» Competition between parties with very unequal
information is widely regarded as unfair because
the playing field is tilted in favour of a player with
superior information.
» That every person should posses the same
information is an unrealisable ideal and actual
market are characterized by a great information
asymmetries .
» The average investor cannot hope to compete on
equal terms with a market pro
65
66. » The possession of unequal information is unfair
when the information is illegitimately acquired or
when its use violates some obligation to others.
( for e.g “insider trading” )
66
67. INSIDER TRADING
» Insider trading refers to trading in the securities of
a company to take advantage of material "inside"
information about the company that is not
available to the public.
» Such a trade is motivated by the possibility of
generating extraordinary gain with the help of
nonpublic information (information not yet made
public).
» It gives the trader an unfair advantage over other
traders in the same security
67
68. » The Securities and Exchange Board of India
(Prohibition of Insider Trading) Regulations,
1992, say, "insider" is any person who, is or was
connected with the company, and who is
reasonably expected to have access to
unpublished price-sensitive information about the
stock of that particular company, or who has
access to such unpublished price sensitive
information.
68
69. How does insider trading work?
» An insider buys the stock (he might also
already own it). He then releases price-
sensitive information to a small group of
people close to him, who buy the stock based
on it, and spread the information further. This
results in an increase in volumes and prices
of the stock. The inside information has now
become known to a larger group of people
which further pushes up volumes and prices
of the stock.
69
70. » After a certain price has been reached, which
the insider knows about, he exits, as do the
ones close to him, and the stock's price falls.
Those who had inside information are safe
while the ordinary retail investor is stuck
holding a white elephant as, in many cases,
the 'tip' reaches him only when the stock is
already on a boil.
70
71. » The regular investor gets on the bandwagon
rather late in the day as he is away from the
buzz with no direct connection to the 'real'
source. He buys the overvalued stock due to
imbalance in the information flow
» The market regulator has recently come out
with a consultative paper on amendments to
Sebi (Prohibition of Insider Trading)
Regulations 1992.
71
72. Bargaining power
» Generally ,agreements reached by arm’s length
bargaining are considered to be fair regardless of
the actual outcome.
» A trader who negotiates a future contact that
results in a great loss ,for example , has only
himself to blame .
» Unequal bargaining power can result from many
sources
72
73. » Resources : In most transactions wealth is an
advantage. The rich are better able than poor to
negotiate over almost all matters .
» Large investors have greater opportunities .
They can be better diversified ; they can bear
greater risk and there by obtain higher leverage.
» Processing Ability : Even with equal access to
information , people vary enormously in their
ability to process information and to make
informed judgements .
73
74. » Financial markets can be dangerous places for
who lack an understanding of the risks involved .
» Securities firm and institutional investors
overcome the problem of people’s limited
processing ability by employing specialist in
different kinds of markets.
74
76. Banking
» INTEREST ON LOANS
» YOU ARE TOLD that the interest rate on the
personal loan is a flat 9% per annum. BUT a 9%
flat rate of interest works out to a reducing rate of
nearly 16.5%.The flat rate is not a true indicator
because your outstanding keeps reducing with
every EMI repayment. YOU STAND TO LOSE
because your interest cost is higher than what
had been communicated to you. YOU SHOULD
find out the reducing rate of interest
76
77. Banking
» LOCKER FACILITY
» YOU ARE TOLD you will get locker facilities if
you buy an insurance policy. BUT banks cannot
put such preconditions for offering a facility. YOU
STAND TO LOSE because you are forced to
block money and buy insurance you don’t need.
YOU SHOULD take up the matter with the
Banking Ombudsman.
77
78. Banking
» CREDIT CARDS
» YOU ARE TOLD there is no annual fee on the
credit card being offered. BUT the annual fee has
been waived only for the first year.The next year
you will be billed for the annual fee. YOU STAND
TO LOSE because you end up paying for
something you did not want. YOU SHOULD
confirm and get the free for life offer in writing.
78
79. Banking
» DOORSTEP BANKING
» YOU ARE TOLD you get free doorstep banking if
you maintain a minimum balance in your savings
account. BUT the minimum balance earns very
little interest. YOU STAND TO LOSE because the
interest lost on the minimum balance more than
makes up for the free service. YOU SHOULD opt
for Net banking instead.
79
80. » ON IRDA’S EFFORTS TO PREVENT MIS-
SELLING:
Irda’s code of conduct reiterates the need to
disseminate the requisite information.
Investors now have the option to return the policy
within 15 days if they disagree with its terms.
Every insurer must have an effective grievance
redressal mechanism.
Irda also offers facilities for online registration of
complaints.
80
81. » ON STEPS TAKEN TO PREVENT MIS-
SELLING: The model code of conduct on
illustrations of returns used to sell a product was
adopted in 2004. Now sales illustrations can be
shown at 6% and 10% returns only. In 2006, Irda
issued the Ulip guidelines again keeping the
interest of customers in mind. Despite these and
many other initiatives, there are a few examples
of mis-selling in the industry.While they are
declining, it is critical that the customers are
aware of what to look for while buying an
insurance polic
81
82. Mutual Funds
» NFOs
» YOU ARE TOLD a new fund with an NAV of Rs
10 is cheaper than one priced at Rs 80.BUT NAV
does not matter.A fund of Rs 10 and one of Rs 80
invest in the same market at the same time. YOU
LOSE because investing in new untested funds
may prove costly. YOU SHOULD not invest in
NFOs unless they are unique.
82
83. » DIVIDEND PAYMENTS
» YOU ARE TOLD to buy a fund because it has
announced a high dividend. BUT dividends do
not matter in a mutual fund. It is only your money
coming back to you. YOU LOSE if you invest on
the basis of dividend payment because high
dividend does not always mean good
performance. YOU SHOULD focus on equity
funds with a good track record.
83
84. » EQUITY FUNDS
» YOU ARE TOLD equities have given 40-50%
returns in recent years and you can be sure of
30% returns. BUT returns are market linked and
not assured. Future returns may not be as high.
YOU LOSE because returns may not be in line
with projections. YOU SHOULD choose funds on
the basis of performance over a long term.
84
85. » THE MATIC FUNDS
» YOU ARE TOLD that this new fund is going to
invest in a novel manner so invest in it. BUT
ultimately, a thematic equity fund is only another
mutual fund. It invests in promising stocks like
any other fund. YOU LOSE if you invest in the
new fund by liquidating existing holdings. YOU
SHOULD not be swayed by new-fangled themes.
85
86. Marketing Research
» Ethical danger points in market research include:
- Invasion of privacy.
- Stereotyping.
Stereotyping occurs because any analysis of real
populations needs to make approximations and
place individuals into groups. However if
conducted irresponsibly, stereotyping can lead to
a variety of ethical undesirable result.
86
87. » Stereotypes often form the basis of prejudice and
are usually employed to explain real or imaginary
differences due to race, gender, religion, age,
weight, ethnicity, socio-economic class, disability,
and occupation, among the limitless groups one
may be identified with
87
88. » when an organization behaves ethically,
customers develop more positive attitudes about
the firm, its products, and its services. When
marketing practices depart from standards that
society considers acceptable, the market process
becomes less efficient—sometimes it is even
interrupted. Not employing ethical marketing
practices may lead to dissatisfied customers, bad
publicity, a lack of trust, lost business, or,
sometimes, legal action. Thus, most
organizations are very sensitive to the needs and
opinions of their
88
