INTRODUCTION TO
MARKETING

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Lars Perner, Ph.D.
Assistant Professor of Clinical Marketing
Department of Marketing
Marshall School of Business
University of Southern California
Los Angeles, CA 90089-0443, USA
(213) 740-7127

NEW! Dr. Perner's new book Delightful Reflections:
Quips, Conjectues, and Pontifications
is now avilable on Amazon.com!

Social Responsibility in Marketing

Ethical responsibilities and constraints. Businesses and people face some constraints on what can ethically be done to make money or to pursue other goals. Fraud and deception are not only morally wrong but also inhibit the efficient functioning of the economy. There are also behaviors that, even if they are not strictly illegal in a given jurisdiction, cannot be undertaken with a good conscience. There are a number of areas where an individual must consider his or her conscience to decide if a venture is acceptable. Some “paycheck advance” loan operators charge very high interest rates on small loans made in anticipation of a consumer’s next paycheck. Depending on state laws, effective interest rates (interest rates plus other fees involved) may exceed 20% per month. In some cases, borrowers put up their automobiles as security, with many losing their only source of transportation through default. Although some consider this practice unconscionable, others assert that such loans may be the only way that a family can obtain cash to fill an immediate need. Because of costs of administration are high, these costs, when spread over a small amount, will amount to a large percentage. Further, because the customer groups in question tend to have poor credit ratings with high anticipated rates of default, rates must be high enough to cover this.

Sustainability. Sustainability is a notion that proposes that socially responsible firms will somehow financially outperform other less responsible firms in the long run. This might result from customer loyalty, better employee morale, or public policy favoring ethical conduct. Empirical results testing this hypothesis are mixed, neither suggesting that more responsible firms, on the average, have a clear financial advantage nor a large burden. Thus, a useful approach may be to determine (1) specific circumstances under which a firm may actually find the more responsible approach to be more profitable, (2) under which circumstances responsible behavior can be pursued without an overall significant downside, and (3) the ethical responsibilities that a firm faces when a more responsible approach may be more costly.

The individual, the firm, and society. Different individuals vary in their ethical convictions. Some are willing to work for the tobacco industry, for example, while others are not. Some are willing to mislead potential customers while others will normally not do this. There are, however, also broader societal and companywide values that may influence the individual business decision maker. Some religions, including Islam, disfavor the charging of interest. Although different groups differ somewhat in their interpretations of this issue, the Koran at the very least prohibits usury—charging excessive interest rates. There is some disagreement as to whether more modest, fair interest rates are acceptable. In cultures where the stricter interpretation applies, a firm may be unwilling to set up an interest-based financing plan for customers who cannot pay cash. The firm might, instead, charge a higher price, with no additional charge for interest. Some firms also have their own ethical stands, either implicitly or explicitly. For example, Google has the motto “Do no evil.” Other firms, on the other hand, may actively encourage lies, deception, and other reprehensible behavior. Some firms elect to sell in less developed countries products that have been banned as unsafe in their own countries.

Making it profitable for the tobacco industry to “harvest.” Many see the tobacco industry as the “enemy” and may not want to do anything that can benefit the industry. However, in principle, it may actually be possible to make it profitable for the tobacco industry to “harvest”—to spend less money on brand building and gradually reduce the quantities sold.  The tobacco industry is heavily concentrated, with three firms controlling most of the market. Some other industries are exempt from many antitrust law provisions. If the tobacco companies were allowed to collude and set prices, the equilibrium market price would probably go up, and the quantity of tobacco demanded would then go down. It is been found that among teenagers, smoking rates are especially likely to decrease when prices increase. The tobacco companies could also be given some immediate tax breaks in return for giving up their trademarks some thirty years in the future. This would reduce the incentive to advertise, again leading to decreased demand in the future. The tax benefits needed might have to be very high, thus making the idea infeasible unless the nation is willing to trade off better health for such large revenue losses.

“Win-win” marketing. In some cases, it may actually be profitable for companies to do good deeds. This may be the case, for example, when a firm receives a large amount of favorable publicity for its contributions, resulting in customer goodwill and an enhanced brand value. A pharmacy chain, for example, might pay for charitable good to develop information about treating diabetes. The chain could then make this information on its web site, paying for bandwidth and other hosting expenses that may be considerably less than the value of the positive publicity received.

“Sponsored Fundraising.” Non-profit groups often spend a large proportion of the money they take in on fundraising. This is problematic both because of the inefficiency of the process and the loss of potential proceeds that result and because potential donors who learn about or suspect high fundraising expenses may be less likely to donor. This is an especially critical issue now that information on fundraising overhead for different organizations is readily available on the Internet.

An alternative approach to fundraising that does not currently appear to be much in use is the idea of “sponsored” fundraising. The idea here is that some firm might volunteer to send out fundraising appeals on behalf of the organization. For example, Microsoft might volunteer to send out letters asking people to donate to the American Red Cross. This may be a very cost effective method of promotion for the firm since the sponsor would benefit from both the positive publicity for its involvement and from the greater attention that would likely be given a fundraising appeal for a group of special interest than would be given to an ordinary advertisement or direct mail piece advertising the sponsor in a traditional way.

One issue that comes up is the potential match between the sponsor and sponsee organization. This may or may not be a critical issue since respondents are selected for the solicitation based on their predicted interest in the organization. Microsoft—directly or indirectly through the Bill and Melinda Gates Foundation—has been credited with a large number of charitable ventures and has the Congressional Black Caucus as one of its greatest supporters. In many cases, firms might volunteer for this fundraising effort in large part because of the spear heading efforts of high level executives whose families are affected by autism.

Commercial Comedy. Another win-win deal potential between industry and non-profit groups involves the idea of commercial comedy. Many non-profit groups are interested in finding low cost, high quality entertainment for fundraising events. After all, money spent on buying entertainment reduces the net proceeds available for the organization’s program. Firms, on the other hand, have difficulty getting current and potential customers to give attention to advertising in traditional media. If firms were able to create some high quality entertainment involving their mascotss—e.g., the Energizer Bunny, the Pillsbury Doughboy, and the AFLAC Duck—the audience at a fundraising event would give attention for an extended period of time. Good will would also be generated, and it is likely that the act would receive considerable media coverage.