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ETHICS AND SOCIAL RESPONSIBILITY
IN MARKETING
CHAPTER CONTENTS
PAGE
MATERIALS AVAILABLE FOR LECTURE AND DISCUSSION .................................. 4-2
STUDENT LEARNING OBJECTIVES ................................................................................ 4-3
KEY TERMS AND CONCEPTS ........................................................................................... 4-3
LECTURE NOTES

There is More to Anheuser-Busch Than Meets the Palate ............................................ 4-4

Nature and Significance of Marketing Ethics ................................................................ 4-4

Understanding Ethical Marketing Behavior .................................................................. 4-5

Understanding Social Responsibility in Marketing ....................................................... 4-9
ANSWERS TO “APPLYING MARKETING CONCEPTS AND PERSPECTIVES” .... 4-13
ANSWERS TO “INTERNET EXERCISE”......................................................................... 4-14
SUPPLEMENTAL LECTURE NOTE (SLN)

SLN 4-1: The Five Most Common Kinds of Industrial Espionage .............................. 4-15
IN-CLASS ACTIVITY (ICA)

ICA 4-1: Sustainable Development .............................................................................. 4-16
VIDEO CASE 4 TEACHING NOTE (TN)

Energy Performance Systems, Inc.: Cheap, Green Electricity ..................................... 4-20
POWERPOINT THUMBNAILS .......................................................................................... 4-27
4-1
Chapter 4
MATERIALS AVAILABLE FOR LECTURE AND DISCUSSION
PowerPoint
Slides1
Transparencies2
Handouts3
Textbook Figures
Figure 4-1
A framework for understanding ethical behavior .... 

Figure 4-2
Three concepts of social responsibility .................... 

Supplemental Figures and Advertisements
Figure 4-A
Anheuser-Busch ad promoting
responsible drinking ................................................ 
Figure 4-B
Drinking among high school seniors ....................... 
Figure 4-C
International comparison of the percentage of
software in use that is pirated.................................. 
Figure 4-D
Consumer Bill of Rights .......................................... 
Figure 4-E
Personal moral philosophies .................................... 
Figure 4-F
Elements of a social audit ........................................ 


In-Class Activity (ICA) Figure
ICA 4-1, Figure 1
Sustainable Development...............................

Teaching Note (TN) Figures
TN 4, Figure 1
TN 4, Figure 2
1
2
3
Benefits and Costs of Groups Affected by
a Whole Tree Energy Plant ...........................

Segments to Reach and Messages and
Media to Use in Marketing the
Whole Tree Energy Technology ...................

“PowerPoint Slides” are available on a CD-ROM and appear as “PowerPoint Thumbnails” within this chapter
of the Instructor’s Manual.
100 “Transparencies” are available to textbook adopters by request of their local McGraw-Hill/Irwin sales
representative.
Instructors may choose to reproduce some figures and hand them out to each student in the class to enhance
discussion. These “Handouts” are shown with a check in the right column.
Chapter 4
4-2
STUDENT LEARNING OBJECTIVES
After reading this chapter students should be able to:

Appreciate the nature and significance of ethics in marketing.

Understand the differences between legal and ethical behavior in marketing.

Identify factors that influence ethical and unethical marketing decisions.

Distinguish among the different concepts of ethics and social responsibility.
KEY TERMS AND CONCEPTS
cause-related marketing
moral idealism
code of ethics
social audit
Consumer Bill of Rights
social responsibility
ethics
utilitarianism
green marketing
whisle-blowers
laws
4-3
Chapter 4
LECTURE NOTES
Chapter Opening
Photo
CHAPTER OPENING EXAMPLE
There is More to Anheuser-Busch Than Meets the Palate
Slide 4-7
Figure 4-A
Responsible
drinking ad
Slide 4-8, T
Figure 4-B
High school
drinking ad
Anheuser-Busch spends millions of dollars each year trying to convince
people not to abuse its products and millions more to decrease litter and solid
waste. Why? Anheuser-Busch acts on what it views as an ethical obligation to
its customers with its “We All Make a Difference” advertising campaign.
This effort reinforces the good practices of drinkers who exercise personal
responsibility, designate a driver, or call a taxi, and salutes parents who talk
with their children about illegal underage drinking.
In addition to its successful alcohol awareness and education initiatives,
Anheuser-Busch is an advocate and sponsor of efforts to preserve the natural
environment. For example, it is the world’s largest recycler of aluminum
cans—recycling the equivalent of 120% of the beer cans it ships domestically.
Slide 4-9
I. NATURE AND SIGNIFICANCE OF MARKETING ETHICS
Ethics are the moral principles and values that govern the actions and
decisions of an individual or group. They serve as guidelines on how to
act rightly and justly when faced with moral dilemmas.
A. Ethical/Legal Framework in Marketing

Ethics deal with personal moral principles and values.

Laws are society’s values and standards that are enforceable in
the courts.

There are numerous situations where judgment plays a large role
in defining ethical and legal boundaries. Often, actions that are
technically legal could be viewed as unethical, and sometimes
actions considered to be ethical may not be seen as legal.
B. Current Perceptions of Ethical Behavior
1. There has been a public outcry about the unethical practices of
businesspeople. Public opinion polls show:

Chapter 4
58% of U.S. adults rate ethical standards of business
executives as “fair” or “poor.”
4-4

90% think white-collar crime is “very common” or
“somewhat common.”

76% say the lack of ethics in businesspeople contributes to
tumbling societal moral standards.

41% of 1,694 corporate employees in a recent survey stated
that they were aware of ethical problems in their companies.
2. There are at least three possible reasons the state of perceived
business ethical conduct is at its present level:

Increased pressure on businesspeople to make decisions in a
society characterized by diverse value systems.

Growing tendency for business decisions to be judged
publicly by groups with different values and interests.

Ethical business conduct may have declined.
CONCEPT CHECK
1. What are ethics?
Answer: Ethics are the moral principles and values that govern the actions
and decisions of an individual or group. They serve as guidelines on how
to act rightly and justly when faced with moral dilemmas.
2. What are three possible reasons for the present state of ethical
conduct in the United States?
Answer: These reasons are: (1) increased pressure on businesspeople to
make decisions in a society characterized by diverse value systems;
(2) growing tendency for business decisions to be judged publicly by
groups with different values and interests and; (3) ethical business
conduct may have declined.
Figure 4-1
Ethical framework
Slide 4-13, T
II. UNDERSTANDING ETHICAL BEHAVIOR
Researchers have identified numerous factors that influence ethical
marketing behavior. Their relationships can be shown in a framework
in which societal culture and norms→business culture and industry
practices→corporate culture and expectations→personal moral
philosophy and ethical behavior.
A. Societal Culture and Norms
1. Culture refers to the set of values, ideas, and attitudes that are
learned and shared among members of a group.
4-5
Chapter 4

Culture serves as a socializing force that determines what is
considered by the group to be morally right and just.

This means that moral standards can be different in different
cultures, which can in turn create moral dilemmas.
2. Societal values also affect ethical and legal relationships among
individuals, groups, and the organizations they create, including
business practices.
Software piracy

In the U.S., the unauthorized use of another’s intellectual
property (ideas, copyright, trademark, or patent) is deemed
both unethical and illegal.

In other countries, copyright infringement is culturally
acceptable.

The advent of the Internet has increased the piracy or
copyright infringement of software.
MARKETING NEWSNET
What does it mean?
Global Software Piracy
Slide 4-15
Figure 4-C
Software piracy
comparisons
Slide 4-16
By 2005 the Internet will link an estimated 1.17 billion Internet users
worldwide, making business software piracy easy because pirated copies of
software can be distributed and downloaded quickly and globally. An
estimated one in every three business software applications in use in the world
is pirated. Piracy means lost jobs, wages, tax revenues, and a potential barrier
to success for software start-up companies around the globe.
Owing to differences in cultures, unauthorized copying is more common
in some countries than in others: For example, 70% of software in eastern
Europe is pirated, compared with rates of 60% in the Middle East, 59% in
Africa and Latin America, 98% in Vietnam, 91% in China, 89% in Russia,
88% in Lebanon and Oman, 41% in Canada, and 25% in the U.S.
Unauthorized copying of business software costs U.S. producers about
$12 billion in worldwide sales annually.
B. Business Culture and Practices
Chapter 4

Business culture consists of “the effective rules of the game, the
boundaries between competitive and unethical behavior, [and]
the codes of conduct in business dealings.”

Business culture affects ethical conduct both in the exchange
relationship between sellers and buyers and in the competitive
behavior among sellers.
4-6
1. Ethics of Exchange.
Ethical exchanges between buyer and seller should result in both
parties being better off after a transaction.

Before the 1960s, the legal concept of caveat emptor—let
the buyer beware—was a part of American business culture.

In 1962, President John F. Kennedy outlined a Consumer
Bill of Rights that codified the ethics of exchange between
buyers and sellers. These were the right to:
Figure 4-D
Consumer Bill
of Rights
–
safety, in the form of industry and federal safety
standards for products sold in the U.S. The U.S.
Consumer Product Safety Commission routinely checks
the safety of 15,000 consumer products.
–
be informed, which means that marketers:
Slide 4-18
FTC
How does it protect
consumers?
Slide 4-19
•
have a responsibility to give consumers complete and
accurate information about products and services.
The Federal Trade Commission (FTC) oversees the
claims made by advertising agencies.
•
should restrict the solicitation and protect the
disclosure of consumers’ personal information.
–
choose, which means that the practice of many
supermarkets to demand “slotting fees,” cash payments
or free goods to stock new products and therefore
limiting the number of new products available to
consumers, should be balanced against freedom of
choice.
–
be heard, which means that consumers should have
access to public policy makers to make complaints about
products and services that can lead to legislation, such as
the proposed Patient’s Bill of Rights or the Telephone
Consumer Protection Act (1991).
2. Ethics of Competition.
Two kinds of unethical competitive behavior are most common:
(1) economic espionage and (2) bribery.
SLN 4-1: The
Five Most
Common
Kinds of
Industrial
Espionage

Economic espionage involves the collection of trade secrets
or proprietary information from a company’s competitors.
–
The practice is both illegal and unethical and carries
serious criminal penalties.
–
Includes trespassing, theft, fraud, misrepresentation,
search competitors’ trash, etc.
4-7
Chapter 4

Offering or accepting a bribe or kickback is considered
unethical behavior in American business culture.
–
Bribe: when money is paid before an exchange occurs.
Most common in industries experiencing intense
competition or in countries in the earlier stages of
economic development.
–
Kickback: when money is paid after an exchange occurs.
–
Both are often disguised as gifts, consultant fees, and
favors.
–
Both are common in business-to-business and
government exchanges, not business-to-consumer ones.
C. Corporate Culture and Expectations
Corporate culture reflects the shared values, beliefs, and purposes
of employees that affect individual and group behavior. Corporate
ethical culture manifests itself in codes of ethics and the ethical
actions of top management and co-workers.
1. The Codes of Ethics.
A code of ethics is a formal statement of ethical principles and
rules of conduct.

It is estimated that 80 percent of U.S. companies have an
ethics code and one of every five large companies has
corporate ethics officers.

The lack of specificity is one of the major reasons for the
violation of ethics codes.

The American Marketing Association has provided a
detailed code of ethics at www.marketingpower.com.
2. Ethical Behavior of Top Management and Co-Workers.

Workers sometimes violate ethics codes because of how they
perceive the behavior of top management and co-workers.

Ethical dilemmas often bring personal and professional
conflict. For this reason, 35 states have laws protecting
whistle-blowers, employees who report unethical or illegal
actions of their employers.
C. Personal Moral Philosophy and Ethical Behavior
Ultimately, ethical choices are based on the personal moral
philosophy of the decision maker. Moral philosophy is:
Chapter 4
4-8
Figure 4-E
Personal moral
philosophies
Slide 4-23

Learned through the process of socialization with friends,
family, and by formal education.

Influenced by the societal, business, and corporate culture.
1. Moral Idealism.
Moral idealism is a moral philosophy that considers certain
individual rights or duties as universal, regardless of the
outcome. This philosophy exists in the Consumer Bill of Rights.
2. Ultilitarianism.
Utilitarianism is a moral philosophy that focuses on “the
greatest good for the greatest number,” by assessing the costs
and benefits of the consequences of ethical behavior. This
philosophy underlies these economic tenets of capitalism.
CONCEPT CHECK
1. What rights are included in the Consumer Bill of Rights?
Answer: The rights to safety, to be informed, to choose, and to be heard.
2. What is meant by moral idealism?
Answer: It is a moral philosophy that considers certain individual rights or
duties as universal, regardless of outcome.
III. UNDERSTANDING SOCIAL RESPONSIBILITY IN
MARKETING
Social responsibility means that organizations are part of a larger
society and are accountable to that society for their actions.
Figure 4-2
3 concepts of social
responsibility
A. Three Concepts of Social Responsibility
The societal marketing concept stresses the marketing’s social
responsibility in the following areas:
1. Profit Responsibility.
Slide 4-27, T

Profit responsibility holds that companies have a simple
duty—to maximize profits for their owners or stockholders.

Profiteering occurs when a company makes excessive
profits, usually by taking advantage of a shortage of supply
to charge extremely high prices.
4-9
Chapter 4
2. Stakeholder Responsibility.

Stakeholder responsibility focuses on the obligations an
organization has to those who can affect achievement of its
objectives.

These constituencies include customers, employees,
suppliers, and distributors.
3. Societal Responsibility.
Societal responsibility refers to obligations that organizations have
to the (1) preservation of the ecological environment and
(2) general public. Companies have responded to this concern with
two marketing practices that reflect socially responsible behavior:
MNN
AMEX CRM

Green marketing consists of marketing efforts to produce,
promote, and reclaim environmentally sensitive products.

Cause-related marketing occurs when the charitable
contributions of a firm are tied directly to the customer
revenues produced through the promotion of one of its
products.
MARKETING NEWSNET
Will Consumers Switch Brands for a Cause? Yes, If…
Slide 4-29
American Express pioneered cause-related marketing when it sponsored
the renovation of the Statue of Liberty. This effort raised $1.7 million for the
renovation, increased card usage among cardholders, and attracted new
cardholders. By 2005, cause-related marketing could raise over $8 billion.
Cause-related marketing benefits companies as well as causes.
Research indicates that 82% of U.S. consumers say they have a more favorable
opinion of companies that support causes, and 67% say they will switch to a
brand or retailer that supports a good cause if the price and quality are equal.
Figure 4-F
Elements of a
social audit
B. The Social Audit: Doing Well by Doing Good
Converting socially responsible ideas into actions involves careful
planning and monitoring of programs.
Slide 4-31
Chapter 4
1. Many companies develop, implement, and evaluate their social
responsibility efforts by means of a social audit, which is a
systematic assessment of a firm’s objectives, strategies, and
performance in terms of social responsibility. It consists of five
steps:
4-10
McDonald’s ad

Recognition of a firm’s social expectations and the rationale
for engaging in social responsibility endeavors.

Identification of social responsibility causes or programs
consistent with the company's mission.

Determination of organizational objectives and priorities for
programs and activities it will undertake.

Specification of the type and amount of resources necessary
to achieve social responsibility objectives.

Evaluation of social responsibility programs and activities
undertaken and assessment of future involvement.
Integrating mkt &
social resp.?
Slide 4-32
ICA 4-1:
Sustainable
Development
2. Sustainable development involves conducting business in a way
that protects the natural environment while making economic
progress.

Green marketing is an example of one such ecologically
responsible initiative. Other initiatives have focused on
working conditions and quality-of-life issues at offshore
manufacturing sites that produce goods for U.S. companies.

Companies that show societal responsibility have been
rewarded for their efforts by benefiting from favorable wordof-mouth among consumers and typically outperforming less
responsible companies on financial performance.
C. Turning the Table: Consumer Ethics and Social Responsibility
CTIA ad
Consumer
responsibly
Consumers also have an obligation to act ethically and responsibly
in the exchange process and in the use of products.
1. Some consumers engage in unethical practices regarding
warranty claims, coupon redemption, credit card applications,
returning merchandise, recording copyrighted music, etc.
Slide 4-33
2. Determination of organizational objectives and priorities for
While consumers are sensitive to ecological issues, research
shows that consumers:

May be unwilling to sacrifice convenience and pay
potentially higher prices to protect the environment, and

Lack the knowledge to make informed decisions dealing
with the purchase and use of products.
4-11
Chapter 4
CONCEPT CHECK
1. Marketing efforts to produce, promote, and reclaim environmentally
sensitive products are called
.
Answer: green marketing
2. What is a social audit?
Answer: A social audit is a systematic assessment of a firm’s objectives,
strategies, and performance in the domain of social responsibility.
Chapter 4
4-12
ANSWERS TO “APPLYING MARKETING CONCEPTS
AND PERSPECTIVES”
1.
What concepts of moral philosophy and social responsibility are applicable to the
practices of Anheuser-Busch described in the introduction to this chapter? Why?
Answer: Anheuser-Busch would seem to be applying a utilitarian ethical philosophy
because it has apparently weighed the benefits of this program (incidence of
drinking/drunk-driving mishaps) against its costs (decrease in sales revenues).
The company has applied the societal responsibility concept of social responsibility,
given its focus on the general public.
2.
Compare and contrast moral idealism and utilitarianism as alternative personal
moral philosophies.
Answer: Moral idealism considers individual rights or duties as universal regardless of
the outcome. Utilitarianism focuses on the “greatest good for the greatest number” by
assessing the costs and benefits of the consequences of ethical behavior. It is important
to note that moral idealism does not consider costs, benefits, or consequences, as does
utilitarianism. However, utilitarianism does not consider rights or duties outside the
context of ethical behavior.
3.
How would you evaluate Milton Friedman’s view of the social responsibility of a
firm?
Answer: Friedman is a proponent of the profit responsibility concept of social
responsibility. As such, he believes that a firm’s simple duty is to maximize profits for
its owners or stockholders so long as it engages in open and free competition without
deception or fraud. This view is narrow because it focuses solely on the firm and not the
other constituencies of the firm. On the other hand, the ethical stance reflected in the
avoidance of deception or fraud does illustrate a broader view of the firm’s relationship
with its constituencies.
4.
Cause-related marketing programs have become popular. Describe two such
programs that you are familiar with.
Answer: Students are likely to provide a variety of answers to this question, many of
which are local or regional in nature. The most visible national cause-related programs
are associated with the Olympics.
4-13
Chapter 4
ANSWERS TO “INTERNET EXERCISE”
Transparency
International
Slide 4-37
Bribery as a means to win and retain business varies widely by
country. Transparency International, based in Germany, periodically
polls employees of multinational firms and institutions, and political
analysts and ranks countries on the basis of their perceived level of bribery
to win or retain business. To obtain the most recent ranking, visit the
Transparency International website at www.transparency.org.
[NOTE: The link has changed to: Click on the “Knowledge Centre”
link and then the “Survey” link. Finally, scroll down to the latest
Corruption Perceptions Index (CPI) press release and click on the link to
read the report.]
Scroll the Corruption Perceptions Index to see where the United
States stands in the worldwide rankings as well as its neighbors, Canada
and Mexico. Any surprises? Which country listed in the most recent
ranking has the highest ranking and which has the lowest ranking?
Answers:
1. For the 2002 CP, the latest available, the United States is ranked #16 on
the index, while Canada is ranked #7 and Mexico is ranked #57. If the
students are surprised at the results, the instructor might inquire why.
This should lead to a discussion of the students’ perceptions of the values
and ethics of each country.
2. Of the 102 counties ranked in the 2002 CPI, the highest ranked country is
Finland while the lowest is Bangladesh.
Instructors should note that because this site is updated frequently, the page
may be inaccessible on occasion.
Chapter 4
4-14
SLN 4-1: SUPPLEMENTAL LECTURE NOTE
The Five Most Common Kinds of Economic Espionage
Economic espionage is the clandestine collection of trade secrets or proprietary
information about a company's competitors. The five most common kinds of economic
espionage and measures that firms use to contain them are described below:
Kind of Espionage
Description
Security Measures
1. Dumpster diving
Economic spies pick through
corporate garbage to find
valuable information.
If an item is proprietary or
sensitive, shred or burn it
before discarding it.
2. Elicitation
Business and scientific
seminars, international trade
shows, and unsolicited
telephone calls all present
opportunities for eliciting
sensitive company
information.
Since company personnel
may not know whom they are
talking to, they are instructed
to be careful about divulging
information.
3. Electronic
interception
Economic snooping
conducted via
telecommunications or
computer intrusions using
hardware available at any
electronics vendor.
Hire an electronics security
consultant to identify
possible sources of
intrusions. Transmit data by
mail, the safest route.
4. Traditional theft
Breaking into a company
facility to copy corporate
files or stealing an
executive’s luggage or laptop
computer.
Install burglary systems at
company facilities; executive
should hand carry sensitive
information.
5. Insider treason
Economic spying conducted
by company employees.
Employees should be alert to
suspicious behavior.
Source: Barry R. Shapiro, “Economic Espionage,” Marketing Management (Spring 1998), pp. 56–58; “The Lure of
the Steal,” U.S. News & World Report (March 4, 1996), pp. 45–48.
4-15
Chapter 4
ICA 4-1: IN-CLASS ACTIVITY
Sustainable Development
Learning Objective. To have students learn how companies proactively balance
shareholder value though environmental stewardship and corporate social responsibility in the
markets they serve.
Definitions. The following marketing terms are referred to in this in-class activity (ICA):

Social Responsibility: The idea that organizations are a part of a larger society and are
accountable to that society for their actions.

Sustainable Development: Conducting business in a way that protects the natural
environment while making economic progress.
Nature of the Activity. To have students identify and analyze how Dow Chemical
Company and Cargill, large, multi-national corporations, implement their commitment to
sustainable development.
Estimated Class Time. 25 minutes, which consists of:

10 minutes to explain the nature of this ICA and distribute the World Business
Council for Sustainable Development Handout to student teams.

15 minutes to present summaries by student teams during the subsequent class period.

[NOTE: Students will spend 30 minutes outside class to complete their assignment.]
Material Needed.

Copies of ICA 4-1, Figure 1: World Business Council for Sustainable Development
Handout” for each student.
Preparation Before Class. Follow the steps below:
1. Read the material in Chapter 4 on environmental quality, social responsibility, and
sustainable development.
2. Familiarize yourself with the World Business Council for Sustainable Development
website, which is www.wbcsd.ch.
Chapter 4
4-16
Instructions. Follow the steps below to conduct this ICA:
1. Give students this background mini-lecture:
“According to the Dow Chemical Company, “We strongly believe that if we are to be
successful in the 21st Century, we must simultaneously excel in all three elements of the
Triple Bottom Line of sustainable development: economic prosperity, corporate social
responsibility and environmental stewardship.”1 It is a member of the World Business
Council for Sustainable Development (WBCSD), which consists of a coalition of 165
international companies from over 30 countries that are committed to the three tenets of
sustainable development: economic growth, ecological balance, and social progress.
The WBCSD believes that there are significant opportunities for companies to use
sustainable development practices to both manufacture and market profitable products
and services in and to developing countries because such practices can reward firms with
both growth opportunities and cost savings. The WBCSD has identified seven keys to
implementing sustainable business practices:2
a. Innovate. Technological and social innovation can do much to improve people’s
quality of life and tackle the depletion of resources and pollution.
b. Practice eco-efficiency. This means creating more value with less impact. It can
open up significant business opportunities and help economies grow.
c. Move from stakeholder dialogues to partnerships for progress. This consists of
alliances between business, government, and civil society to offer new solutions
to common concerns.
d. Provide and inform consumer choice. Individuals will change their consumption
practices when they realize that they can gain financial benefits and better quality
of life from sustainable behavior.
e. Improve market framework conditions. Sustainability is hindered by monopolies,
corruption, perverse subsidies, and prices that do not reflect real economic, social,
and environmental costs. Legislation and regulations should promote
competition, intellectual and physical property rights, reliable contractual terms,
fair and transparent accounting standards, freedom and democracy, and full-cost
pricing of goods and services.
f. Establish the worth of the Earth. The market system needs to reflect the true
environmental and social costs of goods and services. Proper valuation will help
maintain the diversity of ecosystems, conserve natural resources, and prevent the
build-up of toxic substances in the environment.
g. Make the market work for everyone. Poverty and protectionism are the largest
barriers to achieving sustainability through the market. Protectionism makes it
harder for firms to seize profitable business opportunities and therefore increase
consumer purchasing power.”
1
Sustainable Development and Dow. See htto://www.dow.com/susdev/sd_dow/index.htm.
2
Sustainability Through the Market. See http://www.wbcsd.ch/ DocRoot/ihlC8nJnH2pOLpa23tNc/stm.pdf.
4-17
Chapter 4
2. Assign students into teams.
3. Give copies of the World Business Council for Sustainable Development handout to
each student.
4. Have the student teams go to the World Business Council for Sustainable
Development (WBCSD) website, which is www.wbcsd.ch. Assign students the
following tasks:
a. Click on the “Case studies” link, which showcases some of the best global
business practices for sustainable development.
b. Click on the “Sort by: company or country” link to select one case study on
sustainable development.
c. ASSIGNMENT: Have student teams write a ½-page brief that summarizes the
sustainable business practice implemented by the firm analyzed and the benefits
to economic growth, ecological balance, and social progress plus a ½-page
commentary on the benefits of sustainable development to an organization’s
marketing strategy.
d. Hand in their summaries during the subsequent class period.
5. At the beginning of the next class period, select one student from 2 to 3 student teams
to give a brief report on the sustainable business practices they wrote about.
Marketing Lesson. Many firms view sustainable development as an opportunity, not a
threat. As these case studies show, organizations that invest in such practices can have a positive
effect on economic growth, ecological balance, and social progress as well as their bottom line.
Website. The World Business Council for Sustainable Development website is
www.wbcsd.ch.
Chapter 4
4-18
ICA 4-1, FIGURE 1
World Business Council For Sustainable Development Handout
 Go to the World Business Council for Sustainable Development website
(www.wbcsd.ch) and perform the following tasks…
1. Click on the “Case studies” link, which showcases some of the best global business
practices for sustainable development.
2. Click on the “Sort by: company or country” links to select one case study on sustainable
development organized by either a company or a country.
3. ASSIGNMENT: Write a ½-page brief that summarizes the sustainable business practice
implemented by the firm analyzed and the benefits to economic growth, ecological
balance, and social progress plus a ½-page commentary on the benefits of sustainable
development to an organization’s marketing strategy.
 Hand in your briefs and be prepared to present and discuss the issues of sustainable
development during the next class period.
4-19
Chapter 4
TN: VIDEO CASE 4
Energy Performance Systems, Inc.: Cheap, Green Electricity
EPS
Synopsis:
Whole Energy
Slide 4-43
Energy Performance Systems (EPS) and founder David Ostlie believe
they see both the forest and the trees. EPS has developed an electricitygenerating technology that is based on growing, harvesting, transporting,
drying, and burning whole hardwood trees at very high temperatures—in
existing or new power plants. Technical breakthroughs in forestry have made it
possible for farmers to raise and harvest fast-growing hybrid poplars on tree
plantations as a cash crop. Its combustion technology—using renewable
energy—has the potential to reduce acid rain and harmful fossil fuel emissions.
The company believes its technology is simple, offers lower-cost
electricity, provides jobs in rural areas, and is environmentally clean. Though it
has garnered several patents and demonstrated all stages of the technology from
setting up tree plantations to stacking trees for burning, EPS has not yet been
able to contract with an electrical utility to build an entire power plant.
Students will conduct a cost-benefit analysis of the project and then
analyze its marketing strategy to communicate its benefits to a variety of
stakeholders—from utilities to environmentalists.
Teaching Suggestions:
David Ostlie, president of Energy Performance Systems (EPS) and
inventor of the Whole Tree Energy™ (WTE) technology, believes that to
commercialize the WTE to produce electricity is as much a task of marketing
and education as it is one of technology. This means Ostlie and EPS have the
job of educating many different groups, or market segments, about key
elements of the WTE technology. In some cases this means challenging the
“conventional wisdom”—what everyone takes as truth that, in fact, is wrong!
The end-of-case questions lead students up to Question 5, the most critical
question, about which segments must be educated or reached and the appeals
and media to use.
Answers to Questions:
1. Assume EPS builds a 100-megawatt Whole Tree Energy plant that proves
successful and meets design objectives. What are the (a) benefits and (b) costs to
these six groups: Society as a whole, government agencies that helped with
initial research and development funding, EPS, other utilities with competing
technologies, energy users in the region of the plant, and households living near
the plant?
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Answer:
This question introduces students to a benefit-cost analysis of difficult technology
trade-offs that might affect society as a whole in today’s global economy. Benefits
and costs for the six groups appear in TN 4, Figure 1. Note that, as with any complex
benefit-cost analysis of an issue affecting wider society, it is difficult to quantify
precisely all the benefits and costs. For example, if the WTE plant is built and is a
success, it is relatively easy to quantify the cost of energy and the jobs generated. But
it is almost impossible to quantify the improved health of people in households living
near the WTE plant—a very serious problem in the US today for households living
near fossil-fuel power plants.
2. (a) If the WTE plant is built and is a failure, how does this affect the benefits and
costs in Question 1? (b) Should governments support new technologies like
WTE? Explain your answer.
Answers:
a.
If the WTE plant fails to produce clean, low-cost electricity, then the benefits
in Question 1 disappear. And some of the expected costs may become
potential benefits—such as more land being available for food crops rather
than for energy (tree) crops.
b.
This is an example of where the free market system may not always work to
the consumers’ benefit and may require government financing in the initial
research and development stage. Private utilities, concerned with achieving
short-term profits, are reluctant to invest millions of dollars in a technology
that may not work and will not be profitable for many years to come. So in
the case of WTE, the government has invested several million dollars in hope
that society will be better off in terms of cheaper electricity with less pollution
and that, if successful, the WTE technology will be adopted by electric
utilities around the U.S.
3. What are some of the key elements EPS should have in developing its strategy to
market WTE to prospective utility buyers:
Answers:
Energy Performance Systems is using a “near-textbook strategy” in marketing its
WTE technology to prospective utility buyers:
a.
Target key utilities likely to buy the WTE technology. This involves using
selection criteria such as (1) need for additional power production capacity for
users in its service area; (2) ownership of polluting fossil-fuel plants by the
utility; (3) adequate supply of trees from natural stands, forest biomass
residue, and waste wood; (4) likely availability of agricultural land on which
to start natural-stand tree plantation; and (5) willingness of key decision
makers in the utility to be innovative and try a new technology.
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b.
Address concerns the buying utility may have. This involves the six major
concerns identified in the case: (1) Can burning wood produce high enough
temperatures to produce electricity efficiently? (2) Can whole trees be loaded,
transported, and dried? (3) Are enough trees available to support a
commercial-size power plant? (4) Are there environmental, pollutionreduction benefits for utilities? (5) What will a plant retrofitted with WTE
cost? And (6) What will the cost be of electricity produced by a WTE plant?
Some of these concerns will need to be addressed with additional research.
c.
Work with groups, or market segments, besides the utilities to get their
support. As discussed below, this includes segments such as college
students, the general public, scientists/opinion leaders, farmers, and
individuals and agencies in the state and federal government.
d.
“Close” the first sale. As Dave Ostlie says in the case, “One electric utility
must give WTE an honest try and then the technology should speak for itself.”
e.
Continue to innovate. As all organizations are learning, it is essential to find
ways to serve the needs of customers more effectively.
4. As a concerned citizen, (a) what do you see as the key benefits of the WTE
technology and (b) what do you personally see as the potential “show stoppers”
for WTE—the critical things that can prevent it from being commercialized and
becoming a reality?
Answers:
a.
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Key benefits for WTE cited by Dave Ostlie and EPS include the following:

Does not emit pollutants typical of fossil-fuel power plants that contribute
to acid rain: SO2, NOx, polyaromatic hydrocarbons, and particulates.

Does not add to CO2 emissions that lead to global warming as fossil fuels
do because burning trees leaves the CO2 balance unchanged.

Provides—based on research studies—lower cost electricity than fossil
fuels or nuclear energy.

Can retrofit mothballed and underused fossil fuel plants with severe
pollution problems back in operation to provide lower-cost electricity.

Can provide a new cash crop for U.S. farmers, which should reduce
agricultural subsidies for many crops.

Can reduce the U.S. strategic dependence on foreign oil.

Can add U.S. jobs in growing, harvesting, and transporting whole trees
and in operating power plants.
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b.

Will regenerate U.S. forests better through harvesting than if the trees died
naturally, unless the forests were regenerated naturally by forest fires.

Can use the wood ash as crop a fertilizer or return it to the forest floor.
The general public typically identifies the following concerns as potential
“show-stoppers” for WTE:

Can EPS really burn whole trees?

Can EPS get the high temperatures necessary to generate the steam that
will produce the electricity?

Are there enough trees to support a large power plant?

Is it practical to raise trees as a cash crop?

Do forests really regenerate better when harvested than when the trees are
allowed to die naturally?

Is WTE really nonpolluting?

Can EPS really load and transport whole trees?
These topics are representative of the kinds of questions asked—and hence the
marketing and education problems that EPS must undertake.
5. A new product or technology like WTE requires educating a number of key
groups, or “influencers,” about the technology. Excluding the electric utilities
themselves, (a) what groups or market segments should EPS try to reach,
(b) what key benefits should be emphasized to each, and (c) what promotional
methods or media should EPS use to reach each segment?
Answers:
These are difficult and important questions for Dave Ostlie and EPS in trying to gain
acceptance for the Whole Tree Energy technology. Besides electric utilities, the
market segments EPS must reach include the following: the general public,
environmentalists, college students, scientists/opinion leaders, farmers, forest owners,
and both state and federal elected officials and agency heads. The reason for some of
these may not be obvious.
For example, college students are far more open to new ideas than many of the other
segments and may ensure the WTE concept gets a fair discussion. State and federal
elected officials (e.g. state governors, state and federal senators, and representatives)
and agency heads (e.g., directors of state departments of natural resources, directors
of federal agencies like the U.S. Forest Service, U.S. Environmental Protection
Agency, and U.S. Department of Energy) are critical in helping provide grants to help
fund a demonstration plant and to understand the benefits; as they become
knowledgeable about WTE, they become potential advocates for it.
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Using these market segments, TN 4, Figure 2 summarizes the message or education
each should receive in terms of the benefits identified and possible media to use in
reaching these segments.
Epilogue:
By early 2002, David Ostlie and Energy Performance Systems (EPS) believed that they
had turned the corner—more than a decade after the company’s startup. Some recent
events affecting Whole Tree Energy:
1. Power purchase agreement to build the first plant. To commercialize WTE, it is
critical to build a “demonstration plant” that shows the feasibility of the technology.
To do this, it is necessary to sign a “power purchase agreement”—usually with an
electric utility—that ensures the buyer will purchase electricity at an agreed-on rate
and send it into the power grid. EPS, working with a developer, signed a power
purchase agreement in 2000 with Xcel Energy, a large electric utility.
2. Potential agreement on plant construction. In early 2002, EPS was negotiating
with a large utility to actually build a 50-megawatt power plant near Saint Peter in
southern Minnesota: 20-megawatts to be produced by WTE and the balance from
wood chips. This requires contracting for 46,000 acres of tree plantations.
3. US electricity shortages. In 2000, electricity shortages occurred in California, the
East Coast, and the Midwest—causing electric utilities to look for new sources of
power. Such shortages will necessitate construction of new power plants.
4. Tougher clean air standards. On March 26, 2002, the U.S. Court of Appeals
cleared the way for the Environmental Protection Agency (EPA) to enforce strict
clean air standards. The EPA says that the standards approved in 1997 will prevent
15,000 premature deaths, 350,000 cases of asthma, and 1,000,000 cases of decreased
lung function in children . Especially targeted is ozone smog containing soot particles
caused by power plant pollution.
5. New EPS planting and harvesting equipment. To make WTE competitive with
other sources of electricity, the cost of the whole-tree fuel must be kept low. So Dave
Ostlie, with assistance from the U.S. Department of Energy, has developed a new tree
harvester that is capable of cutting, filling, and collecting trees on a tree farm about
three to four times as fast as current tree harvesting equipment. He has also
developed a “planter” that can plant about an acre an hour of fast-growing poplar tree
“slips”—each 10 inches long.
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TN 4, FIGURE 1
BENEFITS AND COSTS OF GROUPS AFFECTED BY
A WHOLE TREE ENERGY PLANT
Group Affected by WTE
Benefits
Costs
1. Society as a whole
 Less pollution
 Less global warming
 More environmentally
friendly
 Shift of land from food to
energy crops
 Jobs may be lost
2. Government agencies
and taxpayers giving
R&D funding to
WTE
 Lower-cost electricity for
consumers
 More internationally
competitive industries
because of low-cost
electricity
 Tax revenues from EPS
 Taxmonies going to
research on WTE rather
than for other valuable uses
 Revenues, profits, jobs for
employees
 None, if first WTE succeeds
 Caution: WTE must get
“bugs” out of the design
3. Energy Performance
Systems (EPS)
4 Utilities with
competing
technologies
 May adapt WTE technology  May make some of their
and reduce “pollution tax”
dirty power plants obsolete,
payments
forcing closure and loss of
jobs
5. Energy users in
region of WTE plant
 Low-cost electricity
 May give manufacturers in
region a competitive cost
advantage
6. Households living
near WTE plant
 Less pollution, cleaner air
 Additional large trucks on
local highways transporting
 More available jobs in WTE
whole trees to WTE plant
plant, tree farms, and
transportation
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 None, if first WTE succeeds
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TN 4, FIGURE 2
SEGMENTS TO REACH AND MESSAGES AND MEDIA TO USE IN MARKETING
THE WHOLE TREE ENERGY TECHNOLOGY
P
S
Environmentalists
P
P
Farmers
S
P
S
P
Forest Owners1
Scientist/Opinion Leaders
State
Government
Federal
Government
S
Elected
Officials
S
Agencies
S
Elected
Officials
S
Agencies
P
S
P
P
P
S
P
P
S
S
S
S
S
P
P
S
P
P
P
S
S
P
P
S
P
P
S
S
General audience
newspapers, magazines
Business newspapers,
magazines
Scientific and technical
magazines
P
S
Direct mail brochures
College Students
S
Personal visits, talks, sales
calls
P
Promotional Methods
and Media to Use
Regenerate forests
S
Reduce U.S. dependence on
foreign oil
Add forestry and power
plant jobs
Lower cost electricity
S
New cash crop for farmers
No added CO2
General Public
Market Segment
to Reach
Retrofit dirty fossil fuel
plants
No bad pollutants
Benefits to Stress in Message to
Marketing Segments
P
P
S
S
P
S
S
P
P
S
S
P
S
P
P
P
P
P
P
S
P
P
S
S
P = primary benefit to stress in the message, or primary method or medium to use.
S = secondary benefit to stress in the message, or secondary method or medium to use.
1
Includes federal, state, county, and private forests.
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S
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