CHAPTER 4 - Lecture Outline

I.     The Nature of Social Responsibility

A.    Social responsibility refers to an organization’s obligation to maximize its positive impact and minimize its negative impact on society. It deals with the total effect of all marketing decisions on society.

B.    Stakeholders include those constituents who have a “stake” or claim in some aspect of a company’s products, operations, markets, industry, and outcomes; these include customers, employees, investors and shareholders, suppliers, governments, communities, and many others.

1.     There is ample evidence to demonstrate that ignoring stakeholders’ demands for responsible marketing can destroy customers’ trust and even prompt government regulations.

2.     On the other hand, socially responsible activities can generate positive publicity and boost sales.

3.     Socially responsible efforts have a positive effect on local communities and indirectly help the sponsoring organization by attracting goodwill, publicity, and potential customers and employees.

4.     While social responsibility is a positive concept in itself, most organizations embrace it in the expectation of indirect long-term benefits.

C.    The Dimensions of Social Responsibility

1.     Socially responsible organizations strive for marketing citizenship by adopting a strategic focus for fulfilling the economic, legal, ethical, and philanthropic social responsibilities that their stakeholders expect of them.

a)    Companies that consider the diverse perspectives of stakeholders in their daily operations and strategic planning are said to have a “stakeholder orientation,” which goes beyond customers, competitors, and regulators to include understanding and addressing the needs of all stakeholders, including communities and special interest groups.

b)    As a result, organizations are now under pressure to undertake initiatives that demonstrate a balanced perspective on stakeholder interests.  

2.     The economic, legal, ethical, and philanthropic dimensions of social responsibility can be viewed as a pyramid, as shown in Figure 4.1.

a)    At the most basic level, all companies have an economic responsibility to be profitable so they can provide a return on investment to their owners and investors, create jobs for the community, and contribute goods and services to the economy.

b)    Marketers are expected to obey all laws and regulations.

c)    Marketing ethics refers to principles and standards that define acceptable conduct in marketing as determined by various stakeholders, including the public, government regulators, private interest groups, consumers, industry, and the organization itself.

 (1)  The most basic of these principles have been codified as laws and regulations to encourage marketers to conform to society’s expectations of conduct.

(2)   Ethical marketing decisions foster trust, which helps to build long-term marketing relationships.

d)    Philanthropic responsibilities are not required of a company, but they promote human welfare or goodwill, as do the economic, legal, and ethical dimensions of social responsibility.

 (1)  Many firms link their products to a particular social cause on an ongoing or short-term basis, a practice known as cause-related marketing.

 (2)  Some companies are going beyond financial contributions and adopting a strategic philanthropy approach, which is the synergistic use of organizational core competencies and resources to address key stakeholders’ interests and achieve both organizational and social benefits.

D.    Social Responsibility Issues

Managers make decisions related to social responsibility every day. To be successful, a business must determine what customers, government regulators, and competitors, as well as society in general, want or expect in terms of social responsibility. There are three major categories of social responsibility issues.

1.     The Natural Environment

One of the more common ways marketers demonstrate social responsibility is through programs designed to protect and preserve the natural environment.

a)    Many companies are making contributions to environmental protection organizations, sponsoring and participating in clean-up events, promoting recycling, retooling manufacturing processes to minimize waste and pollution, and generally reevaluating the effects of their products on the natural environment.

b)    Green marketing refers to the specific development, pricing, promotion, and distribution of products that do not harm the natural environment.

c)    Although demand for economic, legal, and ethical solutions to environmental problems is widespread, the environmental movement in marketing includes many different groups, whose values and goals often conflict.

d)    Some environmentalists and marketers believe that companies should work to protect and preserve the natural environment by implementing the following goals:

(1)   Eliminate the concept of waste

(2)   Reinvent the concept of a product

(3)   Make prices reflect products’ true cost

(4)   Make environmentalism profitable

2.     Consumerism

a)    Consumerism refers to the efforts of independent individuals, groups, and organizations working to protect the rights of consumers.

b)    A number of interest groups and individuals have taken action against companies they consider irresponsible by lobbying government officials and agencies, engaging in letter-writing campaigns and boycotts, and making public service announcements.

c)    Of great importance to the consumer movement are four basic rights spelled out by President John F. Kennedy. These rights include the following:

(1)   The right to safety means that marketers have an obligation not to market a product that they know could harm consumers.

(2)   The right to be informed means that consumers should have access to and the opportunity to review all relevant information about a product before buying it.

(3)   The right to choose means that consumers should have access to a variety of products and services at competitive prices; they should also be assured of satisfactory quality and service at a fair price.

(4)   The right to be heard ensures that consumers’ interests will receive full and sympathetic consideration in the formulation of government policy.

3.     Community Relations

a)    Social responsibility also extends to marketers’ roles as community members.

b)    Individual communities expect marketers to make philanthropic contributions to civic projects and institutions and to be “good corporate citizens.”

c)    From a positive perspective, a marketer can significantly improve its community’s quality of life through employment opportunities, economic development, and financial contributions to educational, health, cultural, and recreational causes.

II.    The Nature of Ethics

A.    Marketers should be aware of ethical standards for acceptable conduct from several viewpoints—company, industry, government, customers, special interest groups, and society at large.

1.     When marketing activities deviate from accepted standards, the exchange process can break down, resulting in customer dissatisfaction, lack of trust, and lawsuits.

2.     Marketing ethics goes beyond legal issues.

a)    Although we often try to draw a boundary between legal and ethical issues, the distinction between the two is often blurred in decision making.

b)    The legal system provides a formal venue for marketers to resolve ethical disputes as well as legal ones.

B.    Ethical Issues in Marketing

An ethical issue is an identifiable problem, situation, or opportunity requiring an individual or organization to choose from among several actions that must be evaluated as right or wrong, ethical or unethical. Marketers must be able to identify these issues and decide how to resolve them.

1.     Product-related ethical issues generally arise when marketers fail to disclose risks associated with a product or information regarding the function, value, or use of a product. Ethical issues also arise when marketers fail to inform customers about existing conditions or changes in product quality.

2.     Promotion can create ethical issues in a variety of ways, among them false or misleading advertising and manipulative or deceptive sales promotions, tactics, and publicity. Other ethical issues are linked to promotion, including the use of bribery in personal selling situations.

3.     In pricing, common ethical issues are price fixing, predatory pricing, and failure to disclose the full price of a purchase.

4.     Ethical issues in distribution involve relationships among producers and marketing middlemen. Other serious issues include manipulating a product’s availability for purposes of exploitation and using coercion to force intermediaries to behave in a specific manner.

C.    The Ethical Decision-Making Process

1.     Individual Factors

a)    When people need to resolve ethical conflicts in their daily lives, they often base their decisions on their own values and principles of right or wrong.

b)    However, research has established that an organization’s values often have more influence on marketing decisions than a person’s own values.

2.     Organizational Factors

a)    Marketers resolve ethical issues not only on the basis of what they learned from their backgrounds, but also on the basis of what they learn from others in the organization. The outcome of this learning process depends on the strength of each individual’s personal values, opportunity for unethical behavior, and exposure to others who behave ethically or unethically.

b)    Organizational, or corporate, culture can be defined as a set of values, beliefs, goals, norms, and rituals that members of an organization share. An organization’s culture gives its members meaning and suggests rules for how to behave and deal with problems within the organization.

c)    Top management, especially the chief executive officer or vice president of marketing, sets the ethical tone for the entire organization.

d)    Coworkers’ influence on ethical choices depends on a person’s exposure to unethical behavior. Especially in gray areas, the more a person is exposed to unethical activity by others in the organizational environment, the more likely it is that he or she will behave unethically.

e)    Organizational pressure plays a key role in creating ethical issues.

3.     Opportunity

a)    Opportunity—conditions that limit barriers or provide rewards—may also shape ethical decisions in marketing.

b)    If a marketer takes advantage of an opportunity to act unethically and is rewarded or suffers no penalty, he or she may repeat such acts as other opportunities arise.

c)    Opportunity to engage in unethical conduct is often a better predictor of unethical activities than personal values.

d)    Professional codes of conduct and ethics-related policies influence opportunity by prescribing what behaviors are acceptable.

e)    Individual factors as well as organizational culture may influence whether an individual becomes opportunistic and tries to take advantage of situations unethically.

D.    Improving Ethical Conduct in Marketing

1.     It is possible to improve ethical conduct in an organization by hiring ethical employees and eliminating unethical ones.

a)    An organization must rid itself of “bad apples” through screening techniques and enforcement of the firm’s ethics standards.

b)    The problem of the “bad barrel” can be resolved by redesigning the organization’s image and culture so that it conforms to industry and societal norms of ethical conduct.

2.     If top management develops and enforces ethics and legal compliance programs to encourage ethical decision making, then it becomes a force to help individuals make better decisions.

3.     Codes of Conduct

a)    To improve ethics, many organizations have developed codes of conduct (also called codes of ethics), which consist of formalized rules and standards that describe what the company expects of its employees.

b)    Codes of conduct promote ethical behavior by reducing opportunities for unethical behavior; employees know both what is expected of them and what kind of punishment they face if they violate the rules.

c)    Codes of conduct do not have to be so detailed that they take into account every situation, but they should provide guidelines that enable employees to achieve organizational objectives in an ethical, acceptable manner.

4.     Ethics Officers

a)    Organizational compliance programs must have oversight by high-ranking persons in the organization known to abide by legal and common ethical standards.

b)    Ethics officers usually are responsible for creating and distributing the code of conduct, enforcing the code, and meeting with organizational members to discuss or provide advice about ethical issues. They may also set up toll-free “hotlines” to provide advice.

5.     Implementing Ethics and Legal Compliance Programs

a)    To nurture ethical conduct in marketing, open communication and coaching on ethical issues are essential. This requires providing employees with ethics training, clear channels of communication, and follow-up support throughout the organization.

b)    It is important that companies consistently enforce standards and impose penalties or punishment on those who violate codes of conduct. The company must also take reasonable steps in response to violations of standards and, as appropriate, revise the compliance program to diminish the likelihood of future misconduct.

c)    The identification of ethical issues and implementation of compliance programs and codes of conduct that incorporate both legal and ethical concerns constitute the best approach to preventing violations and avoiding litigation.

III.   Incorporating Social Responsibility and Ethics into Strategic Planning

A.    Although the concepts of ethics and social responsibility are used interchangeably, it is important to distinguish between the two concepts.

1.     Ethics relates to individual and group decisions—judgments about what is right or wrong in a particular decision-making situation.

2.     Social responsibility deals with the total effect of marketing decisions on society.

B.    If other persons in an organization approve of an activity, and it is legal and customary within the industry, chances are that the activity is acceptable from both an ethical and a social responsibility perspective.

C.    Being Socially Responsible and Ethical Is Not Easy

1.     To promote socially responsible and ethical behavior while achieving organizational goals, marketers must monitor changes and trends in society’s values.

2.     After determining what society wants, marketers must then attempt to predict the long-term effects of decisions pertaining to those wants.

3.     There are costs associated with many of society’s demands.

4.     In trying to satisfy the desires of one group, marketers may dissatisfy others.

5.     Balancing society’s demands to satisfy all members of society is difficult, if not impossible. Marketers must evaluate the extent to which members of society are willing to pay for what they want.

D.    Social Responsibility and Ethics Improve Marketing Performance

1.     There is increasing evidence that being socially responsible and ethical pays.

2.     Recognition is growing that the long-term value of conducting business in a socially responsible manner far outweighs short-term costs.

3.     While it is true that the concepts of ethics and social responsibility are controversial, it is possible—and desirable—to incorporate ethics and social responsibility into the planning process.