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Chapter 13
Consumer Stakeholders: Information Issues and Responses
LEARNING OUTCOMES
After studying this chapter, you should be able to:
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7.
Recite the consumer’s Magna Carta and explain its meaning.
Chronicle the evolution of the consumer movement, highlighting Ralph Nader’s role.
Identify the major abuses of advertising and discuss specific controversial advertising
issues.
Enumerate and discuss other product information issues that present problems for
consumer stakeholders.
Describe the role and functions of the FTC.
Explain recent consumer-related legislation that has been passed.
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.
The textbook states that children watch an average of 28 hours of television each week, and may
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Chapter Notes
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.
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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,
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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
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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?
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(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.