ETHICAL SELLING, MARKETING, & ADVERTISING

Lesson 2 Business Ethics

OBJECTIVES

Identify and explain common ethical problems in advertising.

Identify and explain key ethical problems and principles of honest and ethical selling.

KEY TERMS

False advertising Puffery Bait and switch Telemarketing Price gouging Commission Straight commission

Code of ethics Substantiation Guarantee Warranty Testimonial False prizes

PROPAGANDA & ADVERTISING

ADVERTISING

Advertising – practice of attracting public attention to a product or business for the purpose of increasing sales.

How can people purchase a product if they don’t know about it?

Fine line between encouraging people to purchase a product and manipulating or deceiving people into purchasing a product.

ETHICAL PROBLEMS IN ADVERTISING

False Advertising Puffery Bait and Switch Advertising to Children Telemarketing

FALSE ADVERTISING

False advertising – practice of making statements about a product that the advertiser knows are not true.

May be about how product works, how it is made, or how it will affect people who buy or use it.

Unethical and dishonest Public reaction can be severe Example: Tobacco Industry

PUFFERY

Puffery – term used to describe statements that are not outright lies, but merely exaggerations.

Example: Amusement park claiming to be “the best time you’ll ever have in one day”.

Unethical? Illegal? Federal Trade Commission (FTC) regulates

advertising and advertisers. FTC allows puffery, defining it as “exaggerations

reasonably to be expected of a seller as to the degree of quality of his product, the truth or falsity of which cannot be determined.”

BAIT AND SWITCH

Bait and switch – the practice of advertising product at a low price while intentionally stocking only a limited number in hopes of luring shoppers to buy more expensive items.

Illegal, but sometimes hard to prove. No legally mandated minimum number of products that

must be kept in stock. Businesses must do the following:

Clearly state the number of products in stock Offer rain checks to customers who request them. Rain check – written guarantee that customers can have the

product at the discounted price when more are delivered to the store.

ADVERTISING TO CHILDREN

Vulnerable to deceptive advertising. Believe claims on TV. Children have difficulty differentiating

between fantasy and reality. Laws passed to protect children.

Prohibits creators/producers of children’s cartoon from advertising products related to the characters of that program during the broadcast.

Buy Me That http://youtu.be/d7VNFO4ksCE

TELEMARKETING

Telemarketing – practice of selling directly to individuals through unsolicited phone calls, e-mails, or faxes.

Technology has made this practice more common.

Many people feel that telemarketers are wasting their time.

Do not call lists.

ADVERTISING CODE OF ETHICS

American Adverting Federation’s (AAF) Code of Ethics:

Truth Substantiation Comparisons Bait advertising

Guarantees and warranties

Price claims Testimonials Taste and decency

TRUTH

Advertising shall tell the truth, and shall reveal significant facts, the omission of which would mislead the public.

Ethics starts with truth and fairness. Choosing not reveal important facts

about a product is a form of dishonesty.

SUBSTANTIATION

Advertising claims shall be substantiated by evidence in possession of the advertiser and advertising agency, prior to making such claims.

Requires more than believing a claim to be true. Substantiation – the validation of advertising

claims with objective data from independent research.

Advertiser must be able to prove all claims are true.

COMPARISONS

Advertising shall refrain from making false, misleading, or unsubstantiated statements or claims about a competitor or his/her products or services.

Making false claims about competitors is illegal.

Company may be sued for libel.

BAIT ADVERTISING

Advertising shall not offer products or services for sale unless such offer constitutes a bona fide effort to sell the advertising products or services and is not a device to switch consumers to other goods, or services, usually higher priced.

GUARANTEES AND WARRANTIES

Advertising of guarantees and warranties shall be explicit, with sufficient information to apprise consumers of their principal terms and limitations or, when space or time restrictions preclude such disclosures, the advertisement should clearly reveal where the full text of the guarantee or warranty can be examined before purchase.

GUARANTEES AND WARRANTIES (CONT.) Guarantee – an assurance attesting to

the durability or quality of a service or product.

Warranty – written promise to repair or replace a product if it breaks or becomes defective within a specified period of time.

Often explained in small print and complex language.

PRICE CLAIMS

Advertising shall avoid price claims which are false or misleading, or saving claims which do not offer provable savings.

Violations are hard to prove. People fail to notice the small print

containing disclaimers to the ad.

TESTIMONIALS

Advertising containing testimonials shall be limited to those of competent witnesses who are reflecting a real and honest opinion or experience.

Testimonial – an endorsement of a product by someone claiming to have benefited from its use.

Feature celebrities or experts Very effective sales technique

TASTE AND DECENCY

Advertising shall be free of statements, illustrations or implications which are offensive to good taste and public decency.

How many people must be offended for an ad to be considered offensive?

Pleasing everyone is impossible. Offending a particular group can have

huge consequences for a company.

LIMITATIONS OF THE ADVERTISING CODE OF ETHICS

For code to be effective, must be enforceable and actually enforced.

Membership in trade groups like the American Advertising Federation (AAF) is voluntary.

Don’t need a license to be an advertiser.

ETHICAL PROBLEMS AND CONCERNS IN SELLING

When income is based on ability to sell products, temptation is greater.

Salesperson may think the ends justify the means.

Most salespeople are honest. Small number of dishonest salespeople

give the profession a negative image.

PRICE GOUGING

The practice of pricing a product far above the normal market value on the basis that consumers have no other way to buy the product.

Example: Gas prices increasing on 9/11 to over $4.00/gallon.

Illegal in most states. Stores are monitored after disasters.

FALSE PRIZES

Winning a valuable prize such as a car or vacation and then told you must pay a service or delivery charge before you can collect the prize.

Prize doesn’t exist and money disappears. Loopholes usually explained in small print. May lure you in with prize to get you to listen

to a sales pitch on another product/service. Too good to be true? Probably is!

COMMISSION

Earning a percentage of the total sales that a person makes.

More you sell, more you earn. Straight commission – employee doesn’t

not get a salary or hourly wage; income is based solely on what they sell.

Motivates people to sell. Can encourage deceptive and dishonest

sales techniques.

PRINCIPLES OF ETHICAL SELLING

Think long term Elevate the goal Change the tactics Learn to listen

THINK LONG-TERM

Majority of unethical business decisions/actions are based on short-term thinking.

Acquiring money immediately which can lead to taking shortcuts/cutting corners.

Often forget about long-term consequences of their actions.

ELEVATE THE GOAL

Goal is to create a mutually beneficial relationship, not just selling a product.

No reason for manipulation or lying. Act for the customers’ best interests,

not making a buck.

LEARN TO LISTEN

Traditional model of selling Memorize key points Present information to customers Hope the pitch convinces customers Questions asked of customers lead to a decision

to buy Unsolicited questions are considered distractions

Put yourself in customers’ shoes Forget the sales pitch! Listen to your

customer!