Chapter 4
The Ethics of Consumer
Production and Marketing
VELASQUEZ, M. G. (2012). BUSINESS ETHICS (7TH ED.). NEW
1
JERSEY U.S.A, PEARSON EDUCATION INC.
Risks to Consumers
Dangerous and risky products
Deceptive selling practices
Poorly constructed products
Failure to honor warranties
Deceptive and unpleasant advertising
VELASQUEZ, M. G. (2012). BUSINESS ETHICS (7TH ED.). NEW
2
JERSEY U.S.A, PEARSON EDUCATION INC.
Market Approach to
Consumer Protection
1. Safety is a commodity that should not be mandated by
government. Safety should instead be provided through
the market.
2. In a market, sellers will provide safety if consumers
demand it.
3. In a market, the price of safety and the amount sellers
provide will be determined by the costs of providing it and
the value consumers place on it.
4. Government intervention in consumer markets makes
them unfair, inefficient, and coercive.
VELASQUEZ, M. G. (2012). BUSINESS ETHICS (7TH ED.). NEW
3
JERSEY U.S.A, PEARSON EDUCATION INC.
Problems with the
Market Approach
Assumes markets are perfectly competitive, but they
are not because:
◦ Buyers do not have adequate information when products
are complex and information is costly and hard to find.
◦ Buyers are often not rational about product risk or
probabilities and are often inconsistent.
◦ Many consumer markets are monopolies or oligopolies.
VELASQUEZ, M. G. (2012). BUSINESS ETHICS (7TH ED.). NEW
4
JERSEY U.S.A, PEARSON EDUCATION INC.
Contract View of Business
Firm’s Duties to
Customer
The view that the relationship between a business
firm and its customers is essentially a contractual
relationship, and the firm’s moral duties to the
customer are those created by this contractual
relationship.
VELASQUEZ, M. G. (2012). BUSINESS ETHICS (7TH ED.). NEW
5
JERSEY U.S.A, PEARSON EDUCATION INC.
Moral Duty to Consumers
under Contractual Theory
Duty to comply with express and implied claims
of:
◦ Reliability
◦ Service life
◦ Maintainability
◦ Safety
Duty of disclosure
Since a contract cannot bind where both parties do not have full
knowledge, the seller also has a duty to disclose to the buyer any
facts about the product that would affect the consumer's decision
to purchase it.
VELASQUEZ, M. G. (2012). BUSINESS ETHICS (7TH ED.). NEW
6
JERSEY U.S.A, PEARSON EDUCATION INC.
Duty not to misrepresent
Sellers also must not misrepresent their products. Even more
than not disclosing information, misrepresentation makes
freedom of choice impossible; it is, in reality, coercive.
Duty not to coerce
Coercion itself also renders a contract void, because people act
irrationally when under the influence of fear. Sellers must not
take advantage of gullibility, immaturity, or ignorance, which
reduce the buyer's ability to make a free rational choice.
VELASQUEZ, M. G. (2012). BUSINESS ETHICS (7TH ED.). NEW
7
JERSEY U.S.A, PEARSON EDUCATION INC.
Problems with
Contractual Theory
Assumes makers of products deal directly with
consumers but they do not.
◦ Manufacturer’s advertisements do form a kind of direct
promise to consumers.
Sellers can remove all their duties to buyers by getting
them to agree to disclaimers of responsibility.
Assumes consumer and seller meet as equals, but seller
has more knowledge so consumer must rely on the
seller.
VELASQUEZ, M. G. (2012). BUSINESS ETHICS (7TH ED.). NEW
8
JERSEY U.S.A, PEARSON EDUCATION INC.
Due Care Theory of
Firm’s Duties to Customer
The view that because manufacturers are in
a more advantaged position and consumers
must rely on them, they have a duty to take
special care to ensure that consumers’
interests are not harmed by the products
that they offer them.
VELASQUEZ, M. G. (2012). BUSINESS ETHICS (7TH ED.). NEW
9
JERSEY U.S.A, PEARSON EDUCATION INC.
Manufacturer’s Duties in Due
Care Theory
In designing product:
◦ research its risks in conditions of use
◦ design it so risks are minimized
◦ take capacities of users into account
In production:
◦ use strict quality control to eliminate defects
◦ ensure materials and manufacturing do not add defects or
risk
In marketing:
◦ provide users with information about using product safely
◦ warn of all dangers
◦ do not market to those unable to avoid risk
VELASQUEZ, M. G. (2012). BUSINESS ETHICS (7TH ED.). NEW
10
JERSEY U.S.A, PEARSON EDUCATION INC.
Social Costs View of the
Manufacturer’s Duties to
Consumers
The view that a manufacturer should pay the costs
of any injuries caused by defects in the product,
even if the manufacturer exercised all due care in
designing, making, and marketing it, and the injury
could not have been foreseen.
Product injuries are external costs that should be
internalized as a cost of bringing the product to
market, this maximizes utility and distributes costs
more fairly.
VELASQUEZ, M. G. (2012). BUSINESS ETHICS (7TH ED.). NEW
11
JERSEY U.S.A, PEARSON EDUCATION INC.
Criticisms of the Social
Costs View
Unjust to manufacturers since compensatory justice
says one should compensate injured parties only if
the injury was foreseeable and preventable.
Falsely assumes that the social cost view prevents
accidents.
◦ Instead, it encourages consumer carelessness by relieving
them of responsibility for their injuries.
VELASQUEZ, M. G. (2012). BUSINESS ETHICS (7TH ED.). NEW
12
JERSEY U.S.A, PEARSON EDUCATION INC.
Characteristics of
Advertising
◦ A public communication aimed at a large
social group intended to induce members of
this audience to buy the seller’s products.
◦ It succeeds by creating a desire for the
seller’s product or a belief that a product will
satisfy a preexisting desire.
VELASQUEZ, M. G. (2012). BUSINESS ETHICS (7TH ED.). NEW
13
JERSEY U.S.A, PEARSON EDUCATION INC.
Criticisms of Advertising
Based on Social Effects
It debases the tastes of the public.
◦ Response: this criticism is not a moral criticism.
It inculcates materialistic values.
◦ Response: this criticism ignores the lack of
evidence that advertisements can change
people’s values.
VELASQUEZ, M. G. (2012). BUSINESS ETHICS (7TH ED.). NEW
14
JERSEY U.S.A, PEARSON EDUCATION INC.
Criticisms of Advertising
Based on Social Effects
Its costs are selling costs that, unlike production costs,
do not add to the utility of products and so waste
resources.
◦ Response: this criticism ignores how advertising can increase
consumption which is good.
It is used by big firms to create brand loyalties which let
them become monopolies or oligopolies.
◦ Response: this criticism ignores studies showing big monopoly
or oligopoly firms do not advertise more than little firms.
VELASQUEZ, M. G. (2012). BUSINESS ETHICS (7TH ED.). NEW
15
JERSEY U.S.A, PEARSON EDUCATION INC.
Criticisms of Advertising
Based on Its Effects on
Desires
Advertising creates psychic desires which,
unlike physical desires, are pliable and
unlimited.
◦ Psychic desires are created so firms can use us to
absorb their output.
◦ Using us this way treats us as means and not as
ends and so is unethical.
Response: this criticism ignores studies which
suggest non-subliminal advertising cannot
create and manipulate desires in adults.
VELASQUEZ, M. G. (2012). BUSINESS ETHICS (7TH ED.). NEW
16
JERSEY U.S.A, PEARSON EDUCATION INC.
Requirements of
Deceptive Advertising
An author who (unethically) intends to make the
audience believe what he or she knows is false by
means of an intentional act or utterance.
Media or intermediaries who communicate the false
message of the advertisement .
An audience who is vulnerable to the deception and
who lacks the capacity to recognize the deceptive
nature of the advertisement.
VELASQUEZ, M. G. (2012). BUSINESS ETHICS (7TH ED.). NEW
17
JERSEY U.S.A, PEARSON EDUCATION INC.
Importance of
Consumer Privacy
Protects individuals from disclosures that can shame,
interfere in one’s private life, hurt loved ones, and lead
to self-incrimination.
Enables the intimacy that develops personal
relationships, the trust and confidentiality that
underlies client-professional relationships, the ability
to maintain distinct social roles, and the ability to
determine how others will see us.
VELASQUEZ, M. G. (2012). BUSINESS ETHICS (7TH ED.). NEW
18
JERSEY U.S.A, PEARSON EDUCATION INC.
Balancing Right to Privacy
and Business Needs
Is the purpose of collecting information a legitimate
business need that benefits the consumer?
Is the information that is collected relevant to the
business need?
Is the consumer informed the information is being
collected and the purpose?
Did the consumer consent to the information disclosure?
Is the information accurate?
Is the information secure and not disclosed to recipients
or used in ways to which the consumer did not consent?
VELASQUEZ, M. G. (2012). BUSINESS ETHICS (7TH ED.). NEW
19
JERSEY U.S.A, PEARSON EDUCATION INC.
References
Text Book: Velasquez, Manuel E. (7th edition). Business Ethics:
Concepts and Cases. Prentice Hall.
Velasquez, M. G. (2012). Business Ethics Concepts and Cases. 7th
Edition, Prentice Hall.
VELASQUEZ, M. G. (2012). BUSINESS ETHICS (7TH ED.). NEW
20
JERSEY U.S.A, PEARSON EDUCATION INC.