Ethical Influences (HSC SSCE Business Studies): Revision Notes

Ethical Influences

Introduction to ethical influences in marketing

Marketing involves both ethical and legal dilemmas. While laws set legal standards, ethical standards are harder to define. Ethical behaviour refers to conduct that goes beyond legal requirements. Some marketing strategies may be legal but are still considered unethical or morally wrong.

Businesses must balance profit-making objectives with their responsibility to consumers, society, and competitors. Understanding ethical influences helps businesses maintain their reputation and customer trust while operating within acceptable social norms.

Ethical criticisms of marketing

Critics argue that the marketing industry does not always adopt ethical practices and often blurs the line between right and wrong. The main ethical criticisms include:

Creation of needs — materialism

Materialism is an individual's desire to constantly acquire possessions. Critics believe businesses use sophisticated promotional strategies to persuade and manipulate customers to buy products they don't need.

Large businesses particularly use powerful advertising techniques to create artificial needs and wants. This can lead to:

• Excessive consumer spending
• Financial stress for individuals and families
• Environmental damage from overproduction and waste
• Focus on possessions rather than wellbeing

Use of stereotyping

Stereotyping occurs when groups of people are portrayed in ways that don't fully represent reality. Common examples include:

• Gender stereotypes: Women shown cooking, cleaning, or caring for children; men shown using power tools or watching sport
• Racial stereotypes: Depicting certain ethnicities in limited or stereotypical roles
• Age stereotypes: Portraying groups like children or elderly people in narrow ways

The UK introduced laws in 2019 banning gender-stereotypical activities in advertising. One banned ad featured fathers who couldn't care for their babies properly, perpetuating harmful stereotypes that men are incapable of childcare.

Use of sex to sell products

Marketers often overuse sexual themes and connotations to sell products. This practice:

• Portrays unrealistic images as attainable
• Suggests products will increase the user's attractiveness or charm
• Can have subtle but persuasive impacts on consumer behaviour
• Objectifies people, particularly women

While many consumers are sceptical of such claims, sex appeal in advertising remains common because it attracts attention and creates emotional responses.

Product placement

Product placement is the inclusion of advertising in entertainment. This involves inserting branded products into TV shows, movies, or other media content.

Product placement can be:

• Subtle: An actor driving a specific car brand or using a particular phone
• Prominent: Products displayed clearly in the foreground

Businesses use this technique to reach consumers who have become resistant to traditional advertising. However, critics argue that:

• It blurs the line between advertising and entertainment
• Consumers may not recognise they're being marketed to
• It's a concealed form of advertising that lacks transparency

Invasion of privacy

Online advertising has raised serious ethical concerns, particularly regarding tracking web users and using their data for targeted advertising. This may breach consumer privacy.

Truth and accuracy in advertising

Advertising is a paid, non-personal message communicated through a mass medium. Ethical businesses must ensure their advertising is truthful, as they can be held morally responsible for misleading the public.

When consumers discover advertisements are untrue or inaccurate, they may:

• Feel cheated and stop buying the product
• Complain to government agencies
• Damage the business's reputation through negative word-of-mouth

Untruths due to concealed facts

Concealed facts are pieces of information purposely omitted from an advertisement. While advertising naturally emphasises positive aspects, deliberately hiding important information is unethical.

This practice can severely harm customer trust when the truth emerges. Consumers expect complete and honest information to make informed purchasing decisions.

Exaggerated claims — puffery

Puffery refers to exaggerated claims used for promotional purposes that no reasonable person would take as factual. It is not misleading or deceptive if the audience could not reasonably be misled.

Acceptable puffery example: A café advertising "the best coffee in town" — reasonable consumers recognise this as promotional language, not a factual claim.

Unacceptable exaggeration example: A sparkling mineral water brand advertising bubbles as "natural" when they were actually added during bottling. This was found to be misleading.

Vague statements

Vague statements use deliberately ambiguous language that allows consumers to assume the advertiser's intended message. These "weasel words" let marketers deny any intention to mislead.

These terms can be interpreted in many ways, making it difficult for consumers to understand what they're actually getting. While some marketers regard such statements as acceptable, others view them as unethical.

Good taste in advertising

What constitutes "good taste" is highly subjective — some consumers find certain advertisements offensive while others don't. Marketers must be aware of community sensitivities and social norms.

However, some marketers deliberately push boundaries to create attention and controversy. This can backfire when:

• Complaints are made to advertising standards bodies
• Negative publicity damages the brand
• Consumers boycott products
• The advertisement must be withdrawn

Sexualisation of children

One particularly serious concern is the sexualisation of children in advertising. According to the Australia Institute, premature sexualisation of children in media can lead to:

Marketing to children

Advertisers and marketers now target children more than ever through:

• Television commercials during children's viewing times
• Social media platforms (Facebook, Instagram, Twitter, Snapchat)
• Smartphone apps and games
• Product packaging with cartoon characters

Products that may damage health

All consumer products must be safe and meet consumer guarantees under the Australian Consumer Law (ACL). Businesses cannot sell banned products and must ensure products comply with mandatory safety standards.

Consumer protection measures

Generally, manufacturers are liable for damages, but if retailers cannot identify the manufacturer, they may be held liable.

Marketing of junk food

The marketing of junk food has been heavily criticised by nutritionists and health advocates, especially as childhood obesity rates reach epidemic proportions.

Problems with junk food marketing include:

• Products portrayed as essential parts of a balanced diet
• Terms like "low fat", "reduced fat", "fat free", or "light" can be misleading (these products often contain added sugar and chemicals)
• Extensive advertising creates demand for unhealthy products
• Children are particularly vulnerable to these marketing messages

Self-regulatory codes

Industry has established codes to regulate junk food marketing to children:

• Responsible Children's Marketing Initiative (RCMI)
• Quick Service Restaurant Initiative (QSRI)

However, these codes have significant limitations:

Example: Kellogg's can categorise Coco Pops as a "healthier dietary choice" under current definitions, making it acceptable for marketing to children.

Around 40% of what Australian school-aged children eat is unhealthy food. The millions of dollars companies spend creating demand for these products is a marketing success but a public health failure.

Government restrictions

Current government restrictions in Australia:

• No advertising during programs for pre-school children
• Queensland banned outdoor junk food advertising at government-owned sites in 2019
• Limited regulation of digital marketing through apps and social media

Engaging in fair competition

Competition in the marketplace is essential for a healthy economy. Businesses compete to attract customers, increase sales revenue, and maximise profit. However, intense competition can tempt businesses to engage in unfair marketing strategies.

The Competition and Consumer Act 2010 requires businesses to compete fairly. Part IV of the Act aims to deter anti-competitive behaviour that limits or prevents competition.

Types of prohibited anti-competitive conduct

Cartel conduct

A cartel exists when two or more competing businesses agree to act together. The Act prohibits businesses from making agreements to:

• Fix prices: Agreeing to set identical prices for products
• Rig bids: Communicating before lodging bids to agree who will win and at what price
• Share markets: Dividing up markets or customers among competitors
• Restrict outputs: Limiting production to keep prices high

Anti-competitive agreements

Contracts or arrangements containing provisions that substantially lessen competition in a market are prohibited. This prevents businesses from making deals that reduce competitive pressure and harm consumers.

Misuse of market power

The Act prohibits businesses with substantial market power from engaging in conduct that has the purpose, or effect, of substantially lessening competition. Businesses must not take advantage of their power to:

• Damage or eliminate a competitor
• Prevent anyone from competing in a market
• Prevent a competitor from entering a market

Exclusive dealing

Exclusive dealing occurs when one business trades with another and imposes restrictions on them. For example, a hair products supplier will only sell to a hairdresser on condition the hairdresser doesn't purchase from other suppliers.

This can be legal if it doesn't substantially lessen competition:

• McDonald's sells Coca-Cola but not Pepsi (legal because KFC sells Pepsi but not Coke)
• The overall market for soft drinks remains competitive

Resale price maintenance

Resale price maintenance occurs when a supplier sets the price at which retailers must sell products. The law states:

• Suppliers can recommend a retail price
• It is illegal to force retailers to sell at that price
• Retailers must be free to compete on price
• Setting a minimum price is illegal
• Preventing retailers from discounting is illegal
• Setting a maximum price is legal (prevents price gouging in areas with no competition)

Mergers and acquisitions

While most mergers and acquisitions are legal and beneficial, the Act prohibits any merger or acquisition that would substantially reduce competition in a market.

Businesses proposing a merger or acquisition can ask the ACCC for permission. The ACCC will permit it only if it won't substantially limit competition. If businesses proceed without permission, the ACCC can investigate and take action.

Importance of fair competition

Fair competition benefits:

• Consumers: Through lower prices, better quality, and more choice
• Businesses: By creating an equal playing field and rewarding innovation
• The economy: By promoting efficiency and innovation

Sugging

Sugging — "selling under the guise of a survey" — is a sales technique disguised as market research. You may have experienced this if you've been:

• Approached in a shopping centre to complete a "survey"
• Contacted by telephone for product research that turns into a sales pitch

Although sugging is not illegal, it raises several ethical issues:

• Invasion of privacy: Collecting personal information under false pretences
• Deception: Misleading consumers about the purpose of contact
• Damage to legitimate research: People become suspicious of genuine market research

Impact on market research

Identifying sugging

A marketing code of ethics

The Australian Association of National Advertisers (AANA) Code of Ethics 2012 sets standards for marketers and advertisers. The objectives are to ensure that advertisements and marketing communications are:

• Legal
• Decent
• Truthful
• Prepared with a sense of obligation to consumers and society
• Fair and responsible toward competitors

Ad Standards complaint resolution process

Ad Standards manages the complaint resolution process for the advertising self-regulation system. The process works as follows:

1. Consumers complain: Anyone can submit a complaint to Ad Standards about an advertisement they believe breaches the Code
2. Assessment: Ad Standards considers and assesses complaints against the Code
3. Notification: The advertiser is notified and requested to provide a written response
4. Community Panel review: Submissions are made to the Ad Standards Community Panel
5. Determination: The Panel reaches a decision by simple majority

Possible determinations

The Community Panel can make two types of determinations:

• Dismissed complaints: The Panel determines there is no breach of a code or initiative
• Upheld complaints: The Panel determines there is a breach, and the advertiser is requested to remove or amend the advertisement as soon as possible

Criticisms of self-regulation

Many consumer organisations argue that self-regulation is ineffective because:

Self-regulation is a system where a business or industry controls its own activities rather than being publicly regulated by an outside organisation like government.

Why ethical behaviour and government regulation are important

Benefits of ethical behaviour

Ethical behaviour in marketing provides significant advantages:

Marketing and business opportunities:

• Ethical businesses receive positive publicity in media, journals, and online
• Creates a positive brand image and reputation
• Attracts free publicity and good public relations

Customer attraction and loyalty:

• Attracts customers to the business
• Increases customer loyalty and repeat purchases
• Consumers actively seek out ethical brands
• Leads to increasing sales and profits
• Growing number of ethically-minded consumers who vote with their wallets

Employment relations:

• Improves productivity
• Better staff retention and lower turnover
• Reduced absenteeism rates
• Attracts talented employees who want to work for ethical companies
• Employees feel proud of their workplace

Financial benefits:

• Attracts more investors
• More appealing to stakeholders
• Enhances business reputation
• Potential for premium pricing

Consequences of unethical behaviour

Importance of government regulation

Government regulation relating to marketing is important because it:

Protects consumers:

• Prevents misleading and deceptive conduct
• Ensures product safety
• Provides remedies when things go wrong
• Protects vulnerable consumers (like children)

Protects businesses:

• Creates a level playing field
• Prevents unfair competitive practices
• Protects smaller businesses from being eliminated by larger competitors
• Rewards innovation and efficiency

Benefits the economy:

• Increases consumer trust and confidence
• Results in people buying more products
• Promotes competition and fair trade
• Benefits consumers, businesses, and the community
• Creates a more efficient marketplace

Encourages good behaviour:

• Provides clear standards for business conduct
• Creates penalties for non-compliance
• Encourages businesses to do the right thing
• Deters unethical practices

Promotes competition:

• Stimulates fair trade and competition
• Creates more equal playing field
• Prevents monopolies and cartels
• Benefits consumers through lower prices and better quality

Remember!