1/16/2012 OBJECTIVES WEBSTER S DEFINITION: GENERAL RULE BUSINESS ETHICS BUSINESS ETHICS

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1 OBJECTIVES Why should business ethics concern you? BUSINESS ETHICS Define various terminologies regarding ethics Identify key factors of an ethical situation Make ethical decisions WEBSTER S DEFINITION: GENERAL RULE Ethics is the study of right and wrong in actions. ASK: Is this the right thing to do? BUSINESS ETHICS BUSINESS ETHICS Principles that define what is right or wrong conduct for an organization Business ethics affect profits Profits affect paychecks Paychecks affect employees 1

2 BUSINESS ETHICS BUSINESS ETHICS VIDEO Best way to handle ethical dilemmas is to avoid their occurrence in the first place Corporate Codes of Ethics Corporate Codes of Conduct Roles of Ethicists and committees Procedures to resolve ethical dilemmas Ethics Training ACTIVITY Research Code of Conduct for 3 Different Companies 2

3 OBJECTIVE Use an ethical decision model to make morally correct decisions Ethical Decision Model BUSINESS ETHICS ETHICAL DECISION MODEL Identify the ethical dilemma Identify the affected parties Identify alternative actions Identify the effects of each alternative on the identified parties Select the best alternative ACTIVITY Case Studies 1

4 Objectives Ethics and Advertising Lesson 3 Business Ethics Identify and explain common ethical problems in advertising. Describe ethical standards of the advertising profession. Key Terms What do you think? Advertising False advertising Puffery Bait and switch Telemarketing Code of ethics Substantiation Guarantee Warranty Testimonial Read article Discuss these questions? Is an advertising company responsible for the truthfulness of the ads it creates or are the customers solely responsible? Is it naïve to think that an advertising company might refuse to be party to false claims? Advertising Honest Ads: Would These Work? (from movie Crazy people ) Advertising: practice of attracting public attention to a product or business for the purpose of increasing sales. How can people purchase a product if they don t know about it? Most people in advertising act ethically, but a few don t. Fine line between encouraging people to purchase a product and manipulating or deceiving people into purchasing a product. Automobiles They re boxy, but they re good. And in these dangerous times, isn t safe more important than sexy? Airline Most of our passengers get there alive. Travel The French can be annoying. Come to Greece; we re nicer. Life Insurance We know you love him. But if he happens to die, we ll give you two Mercedes and a summer home. Wouldn t that be nice too? 1

5 You Decide Ethical or Not? Television commercials for Flying Man action figures. The commercials, which run each Saturday morning during the Flying Man cartoon, show the toys flying, although small print on the screen states that they don t actually fly. An ad for plastic surgery in a popular magazine for teen girls. An advertisement for a dance studio in a magazine for senior citizens. The ad highlights several benefits of dance lessons, including companionship, improved health, and relief from loneliness. You Decide Ethical or Not? Beer commercials that air during prime time on a popular cable TV music video channel. Television and print commercials for a bank that issues credit cards, advertising a 0 percent interest rate for the first six months. No mention is made of what happens to the interest rates after that time. Unethical Ads in History Lucky Cigarettes Lyndon Johnson Presidential Campaign Ad Pepsi and Immersive Games Ethical Problems in Advertising False Advertising Puffery Bait and Switch Advertising to Children Telemarketing False Advertising False Advertising False advertising practice of making statements about product that the advertiser knows are not true. May be about how product works, how it is made, or how it will affect people who buy or use it. It s unethical and dishonest Public reaction can be severe (example: Tobacco Industry) 2

6 False Advertising False Advertising Advertisement Advertisement Real Product Real Product False Advertising False Advertising Puffery Puffery Puffery term used to describe statements that are not outright lies, but merely exaggerations. Example: Amusement park claiming that to be the best time you ll ever have in one day. Unethical? Illegal? Federal Trade Commission (FTC) regulates advertising and advertisers. FTC allows puffery, defining it as claims 1. that reasonable people do not believe to be true product qualities. 2. that are incapable of being proven either true or false. 3

7 Puffery? Puffery? Puffery? Bait and Switch Bait and switch the practice of advertising product at a low price while intentionally stocking only a limited number in hopes of luring shoppers to buy more expensive items. Illegal, but sometimes hard to prove. There is no legally mandated minimum number of products that must be kept in stock. Businesses must do the following: Clearly state the number of products in stock Offer rain checks to customers who request them. Rain check written guarantee that customers can have the product at the discounted price when more are delivered to the store. Bait & Switch? Bait & Switch? 4

8 Bait & Switch? Advertising to Children Children are vulnerable to deceptive advertising. They are trusting, believe claims on TV or what adults tell them. Children have difficulty differentiating between fantasy and reality. Laws passed to protect children. Prohibits creators/producers of children s cartoon from advertising products related to the characters of that program during the broadcast. Child s best defense? Attentive family members! Advertising to Children Advertising to Children Advertising to Children Telemarketing Telemarketing practice of selling directly to individuals through unsolicited phone calls, e mails, or faxes. Technology has made this practice more common. Many people feel that telemarketers are wasting their time. Government created the Do Not Call List Companies that call anyways could face fines or sanctions How do you feel about telemarketing calls? How do you handle them? 5

9 Ethics and Law According to FTC s Description Policy Statement (1983), an advertisement is considered deceptive and illegal based on the following criteria: 1. The advertisement contains a representation, omission, or practice that is likely to mislead the customer. Includes products that do not work as claimed Bait and switch advertisements Failure to fulfill warranty Ethics and Law 2. The act or practice must be considered from the perspective of the reasonable consumer (example: person floating with joy in ad) 3. The representation, omission, or practice must be material. (in other words, the ad convinced the consumer s decision to buy) Code of Ethics The Ethical Standard Most advertisers act professionally. Code of ethics written set of principles and rules intended to serve as a guideline for ethical behavior for individuals under the organization's authority. American Advertising Federation s (AAF) Code of Ethics: Truth Substantiation Comparisons Bait advertising Guarantees and warranties Price claims Testimonials Taste and decency Truth Advertising shall tell the truth, and shall reveal significant facts, the omission of which would mislead the public. Ethics starts with truth and fairness. Choosing not to reveal important facts about a product is a form of dishonesty. Truth 6

10 Substantiation Substantiation Advertising claims shall be substantiated by evidence in possession of the advertiser and advertising agency, prior to making such claims. Requires more than believing a claim to be true. Substantiation the validation of advertising claims with objective data from independent research. Advertiser must be able to prove all claims are true. Comparisons Comparisons Advertising shall refrain from making false, misleading, or unsubstantiated statements or claims about a competitor or his/her products or services. Making false claims about competitors is illegal. Company may be sued for libel. Comparison Bait Advertising Advertising shall not offer products or services for sale unless such offer constitutes a bona fide effort to sell the advertising products or services and is not a device to switch consumers to other goods, or services, usually higher priced. 7

11 Guarantees and Warranties Advertising of guarantees and warranties shall be clear, with enough information to tell consumers of their principal terms and limitations or, when space or time restrictions keep such disclosures, the advertisement should clearly reveal where the full text of the guarantee or warranty can be examined before purchase. Guarantees and Warranties (cont.) Guarantee an assurance attesting to the durability or quality of a service or product. Warranty written promise to repair or replace a product if it breaks or becomes defective within a specified period of time. Often explained in small print and complex language. Carefully read the details! Example: Apple Warranties, ShopAdidas Guarantee Price Claims Advertising shall avoid price claims which are false or misleading, or saving claims which do not offer provable savings. Violations are hard to prove. People fail to notice the small print containing disclaimers to the ad. Example: Walmart Rollback or Meijer Everyday Pricing Testimonials Advertising containing testimonial shall be limited to those of competent witnesses who are reflecting a real and honest opinion or experience. Testimonial an endorsement of a product by someone claiming to have benefited from its use. Celebrities or experts (Marie Osmond) Very effective sales technique Taste and Decency Taste and Decency Advertising shall be free of statements, illustrations or implications which are offensive to good taste and public decency. How many people must be offended or an ad to be considered offensive? Pleasing everyone is impossible. Offending a particular group can have huge consequences for a company. Example: Janet Jackson, SuperBowl Half Time 8

12 Taste and Decency Limitations of the Advertising Code of Ethics For code to be effective, it must be enforceable and actually enforced. Membership in trade groups like the American Advertising Federation (AAF) is voluntary. Don t need a license to be an advertiser. 9

13 OBJECTIVES Explain key ehtical problems and concerns relevant to the practice of selling. Identify a variety of principles of honest and ethical selling. Lesson 4 Business Ethics ETHICS AND SELLING KEY TERMS Selling Price gouging False prizes Commission Straight commission Class-action lawsuit Conflict of interest Fraud ETHICAL PROBLEMS AND CONCERNS IN SELLING Lying and Manipulation Price Gouging False Prizes Commission Conflict of Interest SELLING LYING AND MANIPULATION The practice of exchanging goods for money. Simple process. When only goal is to make a sale, may resort to being dishonest. Gallup poll of ethical professions Stereotype of people in certain fields such as car salesman. Lying/manipulation is unethical and illegal. Practice may result in more money at the time, but what happens later? 1

14 PRICE GOUGING The practice of pricing a product far above the normal market value on the basis that consumers have not other way to buy the product. Example: Gas prices increasing on 9/11 to over $4.00/gallon. FALSE PRIZES Winning a valuable prize such as a car or vacation and then told you must pay service or delivery charge before you can collect the prize. Prize doesn t exist and money disappears. Loopholes usually explained in small print. May lure you in with prize to get you to listen to a sales pitch on another product/service. Too good to be true? Probably is! COMMISSION Earning a percentage of the total sales that a person makes. More you sell, more you earn. Straight commission employee doesn t not get a salary or hourly wage; income is based solely on what they sell. Motivates people to sell. Can encourage deceptive and dishonest sales techniques. Class-action lawsuit suit brought on behalf of a large group of people. CONFLICT OF INTEREST Occurs when people s professional decisions and actions are influenced by their personal interests. Can occur when people are paid on commission. Can result in loss of trust. PRINCIPLES OF ETHICAL SELLING Think long term Elevate the goal Change the tactics Learn to listen THINK LONG-TERM Majority of unethical business decisions/actions are based on short-term thinking. Acquiring money immediately which can lead to taking shortcuts/cutting corners. Forget about long-term consequences of their actions. 2

15 ELEVATE THE GOAL Goal is to create a mutually beneficial relationship, not just selling a product. Act for the customers best interests, not making a buck. CHANGE THE TACTICS Lying doesn t work in the short-term or longterm. Potential lawsuits Legal expenses and lost judgments may lead to bankruptcy. Employees lose jobs LEARN TO LISTEN Traditional model of selling Memorize key points Present information to customers Hope the pitch convinces customers Questions asked of customers lead to a decision to buy Unsolicited questions are considered distractions Put yourself in customers shoes Forget the sales pitch! Listen to your customer! 3