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Ethical/Legal Issues in Business: Selective Marketing and Price Discrimination Essay Sample

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Ethical/Legal Issues in Business: Selective Marketing and Price Discrimination Essay Sample

Introduction

            Selective marketing or market exclusion not only deprives potential customers of the much needed product but also creates concern on moral issues associated with discrimination. Discrimination goes further into the issue of price discrimination. Selective marketing as well as price discrimination have been classified as unethical practices by businesses meant to oppress customers while maintaining their profit maximization goals. Most businesses today have embarked on writing down an ethics statement meant to control ethical behavior of their employees. Even when the statement is not written down, there are always those laws that guide employee code of behavior either enforced by law or by humanity and moral conduct (McCalley, 1996). In marketing first among the priorities is maximizing client value and maintaining integrity and honesty during marketing endevours. These two are just a tip of the ice berg and the list of legal and ethical issues in marketing can almost be endless. To name but a few more examples, deceptive advertising, supply of unsafe products, creating artificial shortages to hike prices, dumping and exposing confidential information consist of unethical behaviors by marketers.

            Customer oriented companies must always make sure that their employees follow the correct code of ethics and legal obligations of the country. Marketing is one sensitive area where a case of poor customer relations can cause the complete downfall of the business. Customers are the major assets that the business has and therefore they should capitalize on the customer’s ability to buy their product. This however does not mean that the business should not take care of other ethical issues like taking care of the environment, social responsibility, maintaining privacy policy and integrity. Ethical issues are important for any business to train their employees on to avoid future conflicts with the law and the society as well.

Analysis

            As a marketer, I expect that in future I will be faced with ethical situations which I will need to address in the working environment. Marketing involves dealing with people from different backgrounds. Usually there are many ethical issues that are associated with marketing and to filter one of them, I will discuss the issue of selective marketing and price discrimination. First to define the terms, selective marketing is the situation whereby demand from certain undesired populations is discouraged through exclusion even though these populations need the product and can afford it.

Take an example of clothes companies in America not providing an option for the so called plus-size people and concentrating on slender people markets that they think are more desirable and profitable. This raises an issue of concern about ethical responsibilities of the companies. Is it really fair that this market segment does not get to enjoy the new classes of fashion that come with dressing? Don’t they demand these products and if fashion houses made their clothes, wouldn’t they gain profit out of the business? Discriminative marketing is an ethical issue that every business needs to avoid. To get more personal would be to ask the marketer, “how would you feel when you need something but the seller will not give it to you because you fall under a certain segment of the market yet you can afford it?” As for me, I would say that every customer has a right to a product as long as he or she can afford it. It therefore comes automatically that all companies should treat all customers equally and address their demands.

            When it comes to price discrimination, almost the same principals apply. However unlike in selective marketing where the market is discriminated against, price discrimination involves charging different prices by the same supplier on different products. The similarity between the two is that they both discriminate one group of customers as opposed to the other. Price discrimination is usually practiced where there is a case of different classes of income or where monopoly exists. The companies will tend to make people with a higher income pay a higher fee for the goods or products while the lower income group is charged lower prices. The meaning of this is that marketers will tend to offer the same goods but with different prices to different people. This can be evidenced by the expensive stores where you find that the goods are overpriced just because the class of people who visit that store are rich or can afford to spend more. Price discrimination in provision of electricity in most countries is common. Domestic consumers are mostly favored by these prices while the industrial consumers have to deal with the high prices charged on them. It proves unfair to give the same commodity at different prices to different customers.

            A form of selective advertising that businesses are taking advantage of is targeting the vulnerable groups such as the elderly and children. This is however an indirect method of selective marketing. Marketers have capitalized on the influence of children and the elderly so that instead of marketing to their parents they target the children. Children have a high influence on the family purchases in any given society. According to Jennings (2005), about 70% of household purchases are influenced by children. In their quest to please and keep their children comfortable, parents are bound to make purchases that children demand or recommend and at certain times going beyond their means leading to stress and depression. The old due to their sensitivity receive a lot of care from their children and loved ones who do not want them to miss a thing. Marketers are increasingly taking advantage of such vulnerable groups to influence purchases. This has proved unethical because sometimes the pressure put on parents by their children is too much for them to contain. Using children as a target group is guaranteed of attracting sales and therefore marketers continue to do it as much as it is unethical (Werhane, 2008).

            Before giving my opinion on these two items that many refer to as unethical, I would like to establish why businesses opt for selective marketing and price discrimination. To aid me in my discussion, I will examine the following case displaying these issues. The Boyeng Company, an international company dealing with manufacture of pharmaceutical and sanitary product has recently introduced a new department for the supply of Anti retroviral drugs to hospitals and to HIV/AIDS patients in China. After conducting a great deal of research, Mang’ Huan the head of marketing in the organization and his team have concluded that their products will sell due to the high prevalence of HIV/AIDS in the world. The sales team aimed at maximization of sales has come up with a marketing plan identifying the various markets they are going to target. Major cities are the main targets that the company has listed. According to Mang’ Huan, these are most profitable and since they can achieve their sales and profit target with this population, there is no need to explore the rural markets.

            The issues at hand in China is that there are many people living in rural China who are suffering from HIV mostly due to the high population density in these areas that causes high spread of the disease. Joeng a sales representative has raised this issue to Mang’ Huan since he comes from one of these rural areas and understands that these patients too need drugs. A conclusion however is made that it would be expensive to the company to take the products there while they could make the same profits from the urban market. Mang’ Huan argued that the rural population could get the drugs from the pharmacies in the major towns. Supply and marketing has therefore been concentrated in the towns and the team is making the desired goals.

            From the above case, Mang’ Huan is being insensitive to the needs of the customers. Instead of giving equal opportunities to all customers who need the drugs, he advocates for selective marketing targeting towns only. This brings us to the question of the reasons why businesses will want to do selective marketing. Most businesses are profit oriented and will always want to invest where they maximize their profits while at the same minimize their costs. According to McCalley (1996), exclusive marketing gives the company direction and helps it to maintain a certain target market thereby leading to a constant market and profits. This is an advantage to the company; what about its effect to the people? Mang’ Huan does not consider the fact that people in the rural areas need the products as well but only calculates the costs to be involved in marketing in the rural areas. Keith (2006) also points out that selective marketing is meant to establish a strong relationship with a certain audience or group of customers. This way, they develop the trust of a few customers instead of making many sales in a large area and not establish strong relationships with the customers.

            Just how unethical is selective marketing and price discrimination? The law may not prohibit such business practices by giving sanctions on marketing procedures. Morally though, it proves unfair to the minority group being discriminated against. This is so especially considering that these individuals have the desire to obtain the product in question and have the ability to pay for it. Furthermore, demand should invoke a spark in the company’s marketing department to acquire more sales. The minority group could no doubt be a good source of market but the fact that they are excluded deprives the company of the income it could have obtained.

            What therefore is the impact of these ethical issues to the business and stakeholders such as retailers, manufacturers and customers? Price discrimination gives the same utility to different people while charging different prices. It sounds unreasonable to have to purchase something that others are getting at a cheaper price just because you are of a certain class of income.  Price discrimination involving suppliers and retailers leads to unfair competition with those that are favored by the manufacturer making more profits (Goo and Van den, 2008). In certain cases, they may set lower prices because they have bought the products cheaply.

This encourages unfair competition because those who bought at a higher price cannot sell at the same price thus they get few or no customers. They can also be forced to sell their goods at a price below their profit level so as to equal their rivals. This may eventually lead to liquidation of the business. Price discrimination has been used by big firms to conduct what is known as predatory pricing or dumping. To do this, the company drastically reduces prices in order to drive other players out of the business. Such companies go to great extents to sacrifice profits for the time being with the hope that after the other firms have exited the markets then they will be able to practice monopoly and regain the lost profits. The effect of this is great given the powers associated with monopolies. This could mean high prices for goods and services, low quality and limited choice to consumers which can only be available in the case of fair competitive markets.

            To the community, selective marketing causes inequality in access to goods supplied in selected markets or certain groups only. Referring to the example presented earlier, the fashion market in the United States had for a long time ignored the plus-size minority by not manufacturing for them clothes that go with the fashion. As much as the group wished to have the clothes that were in fashion and were prepared to part with money for them, they could not because they could not get the right sizes. This could raise issues of discrimination against peers and cases of depression knowing that one cannot access such goods because of their size. The statistics right now indicate that the plus-size community in the United States accounts for twenty percent of the total fashion market.

This is an indication that they have a potential to create markets for the companies only that the companies do not wish to exploit this opportunities. To the business therefore, selective marketing leads to unexplored markets where the business could make a lot of money. Selective marketing targeting the vulnerable groups such as the old and children has put a lot of pressure on parents and guardians. Marketers will use the influence that children have on their parents’ buying decisions to influence them to buy their products. This could put undue pressure on them leading them to spend more than they want to satisfy their children’s demands. According to Warhane (2008), this is a new way that marketers have adopted to force people to purchase their products. It therefore deprives them of the opportunity to spend the money on other things as they strive to satisfy their children’s needs.

            Legality of price discrimination is still questionable since firms and especially monopolies continue to exploit people in the name of differences in delivery and selling in the different markets. The Robinson-Patman Act adopted in 1936 in the United States is still considered a controversial law. The law according to Schlegelmich (1998) was intended to protect small developing companies from discrimination by suppliers who gave huge discounts to the big firms and hence the small firms could not effectively compete. However, the law has been under a lot of criticism with critics saying that it aims more on protecting competitors than at regulating competition. Currently, the Robinson-Patman Act is not being enforced by the Federal Trade Commission (FTC) and this leaves room for firms to exploit others even more. California enacted the Gender tax Appeal Act in 1995 requiring businesses not to discriminate against gender with respect to prices. Traditionally, human beings have been known to treat men with superiority and hence marketers are prone to charging more on men than they would charge women largely due to the fact that the men are expected to have more money than the women. This is a case of discrimination as well as selective marketing putting customers at a disadvantage due to their gender.

            In order to correct instances of selective marketing and price discrimination, the best solution would be to introduce laws that prohibit such kind of behaviors by different companies. Law ensures a coordinated action while limiting activities of the firm. Left on their own, firms will exhibit a high degree of unfair competition practices ranging from slicing each other in business to pushing other businesses to exit the market. Whenever businesses are designing their marketing plans, they should put into consideration that their activities affect people in different ways. Just to be fair, they should mind the welfare of their would be customers by providing them with what they require without discriminating against them using prices and supply as in the case of selective marketing. Coping with the case of selective marketing and price discrimination proves to be a difficult endevour due to the fact that every business has its own goals and objectives. It would therefore prove hard to control each and every business so as to ensure that they do not discriminate against different customers or in prices. The law may not especially be able to follow cases of selective marketing as it would be hard to trace where the goods were sold.

            Ethical issues will always affect business practices and it is therefore the duty of companies and business men to keep their businesses free of unethical practices. Unethical practices lead to loss of customers as well as conflict with the law. Businesses that do not mind the welfare of customers as well as the welfare of their fellow counterparts are generally irresponsible. I believe that businesses could do better if they engage in good ethical practices. Right now am not working in the marketing field but I will probably find myself in this work environment where I will be in constant contact with ethical issues. Armed with this kind of knowledge on legal and ethical issues, I will try as much as possible to maintain the highest possible level of ethical behavior. As a civilian, I can understand what the society goes through as a result of unfair pricing practices and selective marketing.

Revisiting the Boyeng Company example, what I realize is that businesses are more interested in maximizing profits and therefore they may not care much about the consequences of their actions (Jennings, 2005). They may not also consider other market segments as long as they can achieve their sales targets in the most convenient market segments.  From this discussion, I could conclude that unethical practices have great effects on the society and the businesses as well. The case of price discrimination causes unfair competition to businesses leading to collapse of some of the firms. When monopolies arise out of these actions, it is the consumer who suffers due to the high prices imposed by monopolies. Selective marketing has been seen as discriminatory and denies the customers a right to enjoy the products and services that they could afford but cannot access them due to discrimination. Selective marketing or market exclusion not only deprives potential customers of the much needed product but also creates concern on moral issues associated with discrimination. Control of price and market discrimination would come in handy in eliminating the evils associated with these unethical practices.

REFFERENCES

Goo, S. & Van den, B. J. (2008). Ethics Management at a Cross border Enterprise. Hong Kong:            University of Hong Kong.

Heine, B. (2007). Selective pricing in the pharmaceutical industry: Case study of Boyeng International. Essex UK: Pearson.

Jennings, M. M. (2005).Business: Its Legal, Ethical, and Global Environment. US: Cengage Learning

Keith, G, (2006). Ethics In Work place. US: Cengage learning.

McCalley, R. W. (1996). Marketing channel management: people, products, programs, and markets.     Westport, Connecticut: Greenwood Publishing Group.

Schlegelmilch, B. B. (1998). Marketing Ethics: An International Perspective. US:  Cengage Learning    EMEA

Werhane, P. (2008). Ethical Issues in Business: A philosophical Approach. Saddlre River, N.J: Prentice Hall.

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