Consumer Stakeholders: Information Issues and Responses

Chapter 13 Consumer Stakeholders: Information Issues and Responses

LEARNING OUTCOMES

After studying this chapter, you should be able to:

1. Recite the consumer’s Magna Carta and explain its meaning. 2. Chronicle the evolution of the consumer movement, highlighting Ralph Nader’s role. 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. Explain recent consumer-related legislation that has been passed. 7. Discuss the strengths and weaknesses of regulation and self-regulation of advertising and proposed consumer financial protection regulations.

TEACHING SUGGESTIONS

INTRODUCTION – The relationship between business and consumers is at the heart of business’s role in society. Because the products and services that a business produces are the primary reason for interaction between business and consumer, the ways in which that exchange takes place is of central importance. In this chapter, the authors focus on the consumer movement and product information issues, particularly advertising, warranties and labeling.

KEY TALKING POINTS – This chapter should be an easy one to discuss with students. Having been immersed in a consumer society for all of their lives, and having been inundated with advertising, they will be aware of many of the issues raised here. The authors describe four types of advertising abuses: ambiguous advertising, concealed facts, exaggerated claims and psychological appeals. One way to introduce this topic is to play commercials that illustrate a particular advertising abuse and ask the students to identify the abusive tactic (applicable commercials can be found on Youtube). Specifically, instructors can use commercials for health or weight loss supplements (e.g., Dexatrim) to illustrate ambiguous advertising and Budweiser “King of Beers” and “9/11 Salute” advertisements to demonstrate exaggerated claims and psychological appeals, respectively. The interesting question will be if students are able to recognize the ethical issues inherent with the use of these types of advertising abuses or if they accept the message so completely that they see little problems with it.

Neil Postman wrote an interesting book, Amusing Ourselves to Death (New York: Viking, 1985), over two decades ago that still contains a strong message about the potential ills of subjecting ourselves to extensive television viewing. Although his central concern is not television advertising per se, he does acknowledge the dangers it poses for our abilities to think critically. Since Postman wrote the book, the number of hours spent watching television has increased. Business and Society Chapter Notes

The textbook states that children watch an average of 28 hours of television each week, and may see as many as 20,000 commercials in a year. Exposure to this many ads has to make some impression on children, underscoring the need for us to carefully consider the ethical issues involved in advertising.

Malcolm Gladwell, in The Tipping Point (New York: Little, Brown and Company, 2002), reports on extremely interesting research that Sesame Street performed on young children’s attention patterns while watching television. This information is also relevant to the concerns about advertising to children.

PBS’s show Frontline aired a segment called “The Persuaders” in 2004 that does an excellent job of exploring many of these issues. It was particularly good in its discussions of psychological appeals and their use in product advertising and political campaigns. This video is well suited to supplementing discussions of these issues.

Furthermore, the impact of TIVO has forced companies to find creative ways to market their product. Specifically, TIVO has increased the use of product placement and/or plot placement to advertise consumer goods. It also has encouraged companies to seek other avenues for advertising their products. More and more companies are expanding their advertising efforts into social media outlets, which can create new legal and ethical issues. Students will have strong and varied perceptions on the ethical issues related to product placement and/or plot placements, as well as ethical issues associated with social media advertising.

PEDAGOGICAL DEVICES – In this chapter, instructors may utilize a combination of:

Cases: Wal-Mart: The Main Street Merchant of Doom The Body Shop: Pursuing Social and Environmental Change The Travel Billing Expense Controversy and the False Claims Act DTC: The Pill Pushing Debate Big Pharma’s Marketing Tactics

Ethics in Practice Cases: Where Are My Slippers? Should Toy Giveaways Be Banned? Who is Responsible for Children’s Health? The “Lifetime” of a Backpack

Spotlight on Sustainability: How Consumers View Sustainability

Power Point slides: Visit http://academic.cengage.com/management/carroll for slides related to this and other chapters. Business and Society Chapter Notes

LECTURE OUTLINE

I. THE CONSUMER MOVEMENT A. Ralph Nader’s Consumerism B. Consumerism in the Twenty-First Century

II. PRODUCT INFORMATION ISSUES A. Advertising Issues 1. Advertising Abuses a. Ambiguous Advertising b. Concealed Facts c. Exaggerated Claims d. Psychological Appeals 2. Specific Controversial Advertising Issues a. Comparative Advertising b. Use of Sex in Advertising c. Advertising to Children d. Marketing to the Poor e. Advertising of Alcoholic Beverages f. Cigarette Advertising g. Health and Environmental Claims h. Ad Creep B. Warranties C. Packaging and Labeling D. Other Product Information Issues

III. THE FEDERAL TRADE COMMISSION (FTC) A. Early Years of the FTC B. The FTC Reasserts Itself in the 1990s C. The FTC in the Twenty-First Century

IV. RECENT CONSUMER LEGISLATION A. Credit Card Act of 2009 B. Consumer Financial Protection Agency

V. SELF-REGULATION IN ADVERTISING A. Types of Self-Regulation B. The National Advertising Division’s Program

VI. SUMMARY

SUGGESTED ANSWERS TO DISCUSSION QUESTIONS

Students should recognize that their answers to these discussion questions should be well reasoned and supported with evidence. Although some answers will be more correct than others, Business and Society Chapter Notes students should be aware that simplistic answers to complex questions, problems, or issues such as these will never be “good” answers.

1. Two concerns that are relevant, but most consumers don’t consider, are the right of all consumers to an equitable distribution of goods and services, and the right to a sustainable economy. Many consumers in the United States are in the enviable position of being able to buy anything and everything they want (within certain economic constraints, of course). But they rarely, if ever, consider the plight of people living in poverty here, or inhabitants of Third World countries who struggle simply to get enough to eat. Related to the first concern is the need to consider the long-term effects our consumption patterns have on the sustainability of life on earth. E. F. Schumacher, in Small is Beautiful (New York: Harper & Row, 1973), points out that, even if we think we have solved the production problem (i.e., have the ability to produce enough to feed, clothe, and house everyone in the world), we are deluding ourselves. He does not argue that we are incapable of doing that, but he points out that in doing so we are depleting non-renewable resources without figuring out how to replace them or use renewable sources of energy.

2. The consumer movement seems to be alive and well, in terms of advocating for quality goods and services. Most of the products we buy today work well and are reasonably safe. Furthermore, as the text notes, while the consumer movement still occurs at the grassroots level, individuals now have the power of the internet to rally the troops. Global companies now must manage their business with the expectation that their transgressions can, and will be, broadcast on the World Wide Web. What we have not accomplished is getting companies to provide good customer service. Regardless of the product or service involved, many consumers remained frustrated by the level of customer service they receive. Companies that outsource customer service functions often experience customer dissatisfaction with the level of customer service provided. Recently, I was on the phone with a satellite provider trying to arrange a hook-up. The provider had outsourced this function to another country, and it took me four hours to set-up an appointment with a technician who lived 30 minutes away. Understandably, this was a frustrating process and almost influenced my decision to switch providers. The other shortcomings of the consumer movement are a result of the movement not focusing on them—those items mentioned in answer #1, equitable distribution of goods and services and a sustainable economy.

3. Two examples involve advertising to children. The first is the fast food industry’s focus on advertising to young children, who have no concept of a healthy diet. Fast food marketers adhere to the principle that if they can “hook” the children while they are young, they will be customers for life. Many of the ads target children in the 2 to 5 year age, with the idea that the children will then “nag” their parents to take them to the fast food restaurant. Many times they have the additional lure of some toy or related item that encourages a child to frequent a particular fast food restaurant. This brings up the second example, which is that companies that do target young children do so specifically with the “nag” factor in mind. They have done studies that show how much more likely an adult is to buy a certain product or service if “nagged” by a child. Both examples are blatantly Business and Society Chapter Notes

unethical, because they target an audience that is incapable of making fully rational choices.

I also have concerns over the growing use of product placement for the following reasons (1) individuals may be unable to make conscience decisions regarding the product and may be influenced by the implications of the placement of the product without realizing what is happening; (2) the constant bombardment of the placement of products in television and movies can ruin one’s enjoyment of the show or film; and (3) storylines of television and movies may be altered to accommodate the product of the highest bidder, resulting in a commercialization of artistic expression.

4. There has been a need for consumer financial products legislation for some time. Certain businesses have exploited consumers’ financial circumstances, lack of education or general naivety to bind them to unconscionable contracts. As a result, these consumers may find themselves in situations where they cannot realistically meet their debt obligations. To the extent that these businesses use unfair or predatory practices in selling their financial products, regulation is necessary to protect consumers. Consumers expect business to sell goods that are free from defects or extreme risk; many believe that providers of financial service products also should meet this expectation.

GROUP ACTIVITY

Divide students into groups of four to five students. Have each student keep a journal where they log each television show or movie that they watch during a two to three week period. Students should track each time they spot a product placement or a plot placement in a television show or movie. Once the two to three week period is over, students should meet in their group to discuss the various product placements and/or plot placements that they viewed. Students should discuss any ethical issues related to the product placement and/or plot placements associated with the programs and movies that they watched. Students should select the most controversial product placement and/or plot placement and present it to the class, including an analysis of the ethical issues involved. If possible, students should show a television or movie clip with the product placement and/or product placement for the other students to view.

INDIVIDUAL ASSIGNMENTS

Individual Assignment 1 – GoodGuide

Provide students with the following instructions:

Go to www.goodguide.com (a website that provides consumers with information on the health, environmental and social impacts of certain products). Select a product that you use or would consider using. Click on “Full Rating Details for This Product.” Identify the product in your typed response and answer the following questions:

(1) What is the product’s overall score? What does this score mean? Business and Society Chapter Notes

(2) Environment: What is the product’s score regarding environmental impact? What factors were considered in calculating this score? Why did the product earn this score?

(3) Community (Society): What is the product’s score regarding society? What factors were considered in calculating this score? Why did the product earn this score?

(4) Employees (Workers): What is the product’s score regarding workers? What factors were considered in calculating this score? Why did the product earn this score?

(5) Consumers: What is the product’s score regarding consumers? What factors were considered in calculating this score? Why did the product earn this score?

You should include a printed copy of the website with your typed response.

Individual Assignment 2 – It’s Guaranteed

Have students research the difference between a full and limited warranty. Ask students to locate copies of written warranties that they have received in connection with the purchase of various products. Students should review the warranties to determine which companies provide a full warranty and which companies provide a limited warranty. Students should summarize their findings and discuss their impressions of the use of such warranties.