Read and reflect on the assigned readings for the week. Then post what you thought was the most important concept(s), method(s), term(s), and/or any other thing that you felt was worthy of your understanding in each assigned textbook chapter.Your initial post should be based upon the assigned reading for the week, so the textbook should be a source listed in your reference section and cited within the body of the text. Other sources are not required but feel free to use them if they aid in your discussion.
Also, provide a graduate-level response to each of the following questions:
Research how Toyota handled complaints that it received from 2008-2010 regarding runaway acceleration problems. Specifically, note how the company dealt with the vehicle problem, those directly impacted by acceleration issues, and its own shareholders and employees. Compare Toyota’s response to Johnson & Johnson’s response to the Tylenol crisis. Based on this comparison, evaluate Toyota’s response. What did the company do right? What should it have done differently? How could a company that had been held out as an exemplar of product quality produce over 8 million vehicles with safety issues?
Business & Society
Ethics, Sustainability & Stakeholder
Management
10th Edition
© 2018 Cengage
1
Chapter 13
Consumer
Stakeholders:
Information
Issues
© 2018 Cengage
2
Learning Outcomes
1. Describe the consumer movement and identify the consumer’s
2.
3.
4.
5.
6.
Magna Carta and explain its meaning.
Identify product information issues that are affected by business’s
social and ethical responsibilities. Identify major abuses of
advertising and discuss specific controversial advertising issues.
Describe the role and functions of the Federal Trade Commission
(FTC).
Explain recent consumer-related legislation that has been passed—
Credit Card Act (CARD) and the Consumer Financial Protection
Bureau (CFPB).
Discuss the strengths and weaknesses of self-regulation of
advertising.
Identify the three moral models and their likely perspectives on
consumer stakeholders.
© 2018 Cengage
3
Chapter Outline
• The Consumer Movement
• The Federal Trade Commission (FTC)
• Self-Regulation in Advertising
• Moral Models and Consumer Stakeholders
• Summary
• Key Terms
© 2018 Cengage
4
Consumer Stakeholders:
Information Issues
• As business seeks to come out of the worldwide
recession, the pace of consumer spending has
been stable to modestly higher over the last five
years.
• Consumers have become more cautious and
selective.
• Businesses need to pay careful attention to
customer stakeholders, and their fair treatment.
• Customer Relationship Management (CRM), the
ability of an organization to effectively identify,
acquire, foster, and retain loyal profitable
customers.
• “Satisfied customers tell three friends, but angry
customers tell 3,000.”
© 2018 Cengage
5
The Consumer Movement
Consumerism/Consumer Movement•
A social movement seeking to augment the
rights and powers of buyers in relation to
sellers.
•
In addition to the rights enumerated in The
Consumer’s Magna Carta (see next slide),
consumers today want:
•
Fair value for money spent
•
A product that meets reasonable expectations
•
One with full disclosure of its specs
•
Truthfully advertised – and safe
© 2018 Cengage
6
The Consumer’s Magna Carta
© 2018 Cengage
7
Ralph Nader’s Consumerism
• Ralph Nader is considered the father of
the modern consumer movement.
• The impact of his book, Unsafe At Any
Speed criticizing the auto industry and
General Motors 40 years ago, was
momentous.
• Nader’s book gave rise to auto safety
regulations and devices.
• Nader built a new era—that of the
consumer.
© 2018 Cengage
8
Consumerism Today
•
Many groups make up the loose
confederation known as the consumer
movement.
•
The power held by consumers is not the result
of organized groups lobbying; their efforts are
at the grassroots level.
•
Involves grassroots organizations, social
media activism, and the rise of nonprofit
organizations
•
Major issues fall into two groups:
•
Product/service information
•
Product/service itself
© 2018 Cengage
9
Consumer Problems with Business
•
•
•
•
•
•
•
•
•
•
•
•
•
•
High prices of products
Poor quality of products
Failure to live up to advertising claims
Hidden fees
Poor quality of after-sales service
Product breakage
Misleading packaging or labeling
Slack filling
Feeling that consumer complaints are a waste of time
Inadequate guarantees and warranties
Failure of company complaint handling
Dangerous products
Absence of reliable product/service information
Not knowing what to do if something is wrong with product
© 2018 Cengage
10
•
•
Product/Service Information
Issues
Companies understandably want to portray
their products in the most flattering light.
But efforts to paint a positive portrait of a
product can easily cross the line into
misinformation or deception—or absurdity:
•
•
•
An ad implores readers to switch to Verizon
high-speed internet at a price that will “never
go up.” But the fine print reveals, “rates
increase after two years.”
What part of “never go up” do they fail to
understand?
Product and service information is relayed by
advertising.
© 2018 Cengage
11
Advertising Issues
Arguments for Advertising
Arguments Against
Advertising
Informs consumers
It is wasteful and
inefficient—and decreases
our standard of living
Increases consumer
satisfaction
Raises the price of products
and is an unnecessary
business cost
Promotes efficiency in the
supply chain
Inefficient means of
distributing information
Effective at reaching
consumers
Ineffective
An economical means of
reaching consumers
High cost
© 2018 Cengage
12
Advertising Abuses
© 2018 Cengage
13
Specific Controversial Advertising Issues (1)
• Comparative Advertising – the practice of directly comparing
a firm’s product with the product of a competitor: Coke vs.
Pepsi, and Mac vs. PC.
• Use of Sex Appeal in Advertising – this has been an ongoing
ethical issue for decades. While ads using sex appeal work,
they can have a serious impact on the physical and mental
health of girls.
• Advertising to children – “Kid-vid” advertising: the average
child to sees 25,000–40,000 ads per year, including one
promoting “shopaholic best friends.” Lacking cognitive
development, children under the age of 8 are easy targets.
• Marketing to the poor – High interest rates yield significant
profits, but can bury the poor in debt.
• Advertising alcoholic beverages – A voluntary ban on
advertising hard liquor on TV has ended; youth exposure to
liquor ads has increased 30-fold; some products target
children
© 2018 Cengage
14
Specific Controversial Advertising Issues (2)
• Cigarette Advertising – many oppose advertising a
dangerous product, one that kills half its users; ads
target the young and less-educated markets
• Health and Environmental Claims – we are
environmentally aware and health-conscious, and
ads make health and environmental claims they
may not meet.
• Ad creep – advertising has crept everywhere, into
places that were once not considered acceptable
for advertisements, including school buses,
textbooks, doctors’ offices, movies and historical
monuments.
• Social Media Advertising – used in all of the
above. Controversial because of rapid growth and
questionable use.
© 2018 Cengage
15
Warranties and Guarantees – (1 of 2)
•
•
Initially used by manufacturers to limit the
length of time they were responsible for
products.
Came to be viewed by consumers as tools to
protect the buyer against defective products.
Implied Warranty •
Unwritten promise that there is nothing
wrong with the product and its intended use.
Express Warranty •
•
Promise or affirmation of fact that the seller
makes at the time of the sale.
Guarantee – a promise regarding product
quality, less likely to be written.
© 2018 Cengage
16
Warranties and Guarantees – (2 of 2)
• The Magnuson-Moss Warranty Act of
1975 set standards for what must be
contained in a warranty, and its ease of
being understood.
• Full Warranty – Covers the entire
product.
• Limited Warranty – Certain parts or
types of defects are not covered under
the warranty.
• Extended Warranty – Service plans that
lengthen the warranty period and are
offered at an additional cost.
© 2018 Cengage
17
Packaging and Labeling
Abuses in packaging and labeling were fairly
frequent before the passage of the:
Federal Packaging and Labeling Act of 1967
• Prohibits deceptive labeling on consumer
products
• Requires disclosure of certain important
information on consumer products
• The FTC and the Food and Drug
Administration (FDA) have responsibilities
under the Act.
© 2018 Cengage
18
Other Product Information Issues Other abuses led to passage of these laws:
Equal Credit Opportunity Act •
Prohibits discrimination in extending consumer
credit.
Truth-in-Lending Act •
Requires all suppliers of consumer credit to fully
disclose all credit terms.
Fair Credit Reporting Act •
Ensures that consumer-reporting agencies
provide information in a manner that is fair and
equitable.
Fair Debt Collection Practices Act •
Regulates the practices of third-party debtcollection agencies.
© 2018 Cengage
19
The Federal Trade Commission
• The government’s major instrument for
ensuring that business lives up to its
responsibilities.
Major Activities of the FTC 1. To prevent unfair methods of competition
and anticompetitive pricing
2. To protect consumers from unfair or
deceptive acts or practices
3. Administers consumer protection laws
© 2018 Cengage
20
The FTC in the 21st Century
•
•
•
•
•
Created the National Do-Not-Call Registry,
which forbids telemarketers from calling
consumers who sign up with the registry.
Required telemarketers to show their contact
information on consumers’ caller ID systems.
Sued firms that made misleading claims for
weight loss products, and recovered millions
in settlements.
FTC preference was that business self-regulate
when possible, and FTC action a last resort.
Current issues include robocalls, children’s
online privacy, and data brokers.
© 2018 Cengage
21
Consumer Financial Protection
Bureau –
•
Enforces consumer financial protection laws
•
Restricts unfair, deceptive, or abusive acts
•
Takes consumer complaints
•
Promotes financial education
•
Researches consumer behavior
•
Monitors financial markets
•
Enforces laws that outlaw discrimination
Credit Card Accountability, Responsibility, and
Disclosure Act of 2009 (CARD) –
•
Rates and fees more fair and transparent
© 2018 Cengage
22
Self-Regulation in Advertising
Self Regulation –
•
the control of business conduct by the business itself
or business associations.
The National Advertising Division’s Program –
• The most prominent organization for advertising
self-regulation by business.
• NAD was created to help sustain high standards of
truth and accuracy in national advertising.
•
Initiates investigations
•
Determines issues
•
Collects and evaluates data
•
Determines whether an advertisers claims are
substantiated.
© 2018 Cengage
23
Moral Models
and Consumer Stakeholders
• How would the three types of moral
managers models, discussed in Chapter 7,
view consumer stakeholders?
• The Moral Management Model best
represents the highest ethical standards of
consumer treatment, and is therefore the
recommended model for business to
follow.
© 2018 Cengage
24
Three Moral Management Models
© 2018 Cengage
25
Key Terms (1 of 2)
• accurate information
• ad creep
• adequate
information
• age compression
• ambient advertising
• ambiguous
advertising
• Children’s Television
Act (CTA)
• clear information
• comparative
advertising
• concealed facts
• Consumer Financial
Protections Bureau
(CFPB)
• consumerism
© 2018 Cengage
• Consumer’s Magna
Carta
• Credit Card Act of
2009
• Customer
Relationship
Management (CRM)
• exaggerated claims
• express warranty
• extended warranty
• full warranty
• green advertising
• green guides
• green marketing
• green fatigue
• green watchdogs
• Guarantees
• Implied warranty
26
Key Terms (2 of 2)
• limited warranty
• natural products
• organic food
• plot placement
• product
information
• product
placement
• psychological
appeals
• puffery
• pure selfregulation
© 2018 Cengage
• right to be heard
• right to be
informed
• right to choose
• right to safety
• Return fraud
• Returns policies
• self-regulation
• social media
advertising
• warranties
• weasel words
27
Business & Society
Ethics, Sustainability & Stakeholder
Management
10th Edition
© 2018 Cengage
1
Chapter 14
Consumer
Stakeholders:
Product and
Service Issues
© 2018 Cengage
2
Learning Outcomes
1. Describe and discuss the two major product issues:
quality and safety.
2. Explain the role and functions of the Consumer Product
Safety Commission (CPSC).
3. Explain the role and functions of the Food and Drug
Administration (FDA).
4. Outline business’s responses to consumer stakeholders,
including customer service programs, and quality
initiatives such as Total Quality Management (TQM), Six
Sigma, Lean Six Sigma, Kaizen, and ISO 9000.
© 2018 Cengage
3
Chapter Outline
• Two Central Issues: Quality and Safety
• Consumer Product Safety Commission
• Food and Drug Administration
• Business’s Response to Consumer Stakeholders
• Customer Service Programs
• Total Quality Management Programs
• Six Sigma Strategy and Other Process
• Summary
• Key Terms
© 2018 Cengage
4
Consumer Stakeholders:
Product and Service Issues
Sam Walton, founder of Walmart –
• “There is only one boss. The customer. And he
can fire everybody in the company…simply by
spending his money somewhere else.”
Takata, Japanese auto supplier, becoming
more well known. Many of today’s autos
have Takata air bags.
• In early 2016, bursting air bags linked to 10
deaths (9 in the U.S.) and dozens of injuries
worldwide.
• 29 million air bags recalled. Later another 40
million rupture-prone air bags were recalled.
Recall being called the biggest in U.S. History.
© 2018 Cengage
5
Two Central Issues The Issue of Quality •
•
•
Product quality means different things to different
people.
Service quality usually means that the service was
performed as expected and on time.
Interest in quality is driven by an increase in
family income and demand for good value.
The Issue of Safety •
•
Nearly all consumer products or services entail
some small degree of risk.
Today it is important that even financial services
do not cause damage or financial harm.
© 2018 Cengage
6
Critical Dimensions of Product Quality
© 2018 Cengage
7
Ethical Underpinnings of Quality
© 2018 Cengage
8
The Issue of Safety
• Who is liable for a defective product?
Historical Perspective • Caveat emptor – “Let the buyer beware.”
•
This doctrine assumed that the buyer had as
much knowledge of the product as the seller,
but this was not correct.
Modern Day • Caveat venditor – “Let the seller beware.”
• But how safe should a product be?
© 2018 Cengage
9
Top Ten List of Safety Principles
1. Build safety into product design.
2. Do product safety testing for all foreseeable
hazards.
3. Keep informed about and implement latest
developments in product safety.
4. Educate consumers about product safety.
5. Track and address products’ safety performance.
6. Fully investigate product safety incidents.
7. Report product safety defects promptly.
8. If a defect occurs, promptly offer a
comprehensive recall plan.
9. Work with the Consumer Product Safety
Commission to make sure your recall is effective.
10. Learn from mistakes—yours and others’.
© 2018 Cengage
10
Product Liability (1 of 3)
Reasons for the concern • The sheer number of cases where products
resulted in illness, harm, or death.
• The amount of the financial award.
Doctrine of strict liability •
Anyone in the value chain of a product is liable
for harm caused to the user if the product is
unreasonably dangerous because of a
defective condition.
• The U.S. is a litigious society.
© 2018 Cengage
11
Product Liability (2 of 3)
Extensions of the strict liability rule –
•
•
•
Courts in several states and some countries
have established a standard more demanding
than strict liability:
Absolute liability – A manufacturer could be
held strictly liable for failure to warn of a product
hazard, even if the hazard was scientifically
unknowable at the time of manufacture and sale.
Market share liability – Manufacturers who
made the product share in the liability for injury
according to their market shares. This doctrine
was applied in delayed manifestation cases, but
limited to those.
© 2018 Cengage
12
Product Liability (3 of 3)
Product Tampering and Product Extortion–
•
•
The Tylenol tampering cases of the 1980s are best
known. As a result, firms began to use tamperevident packaging.
Other cases include: Jell-O pudding, bottle water,
oranges, candy, baby food, and Girl Scout cookies.
Product Liability Reform –
• These issues have raised calls tor product liability
reform, also known as tort reform. Tort law
requires that the one causing injury pay the injured
party. Businesses seek tort reform; consumer
groups oppose it.
© 2018 Cengage
13
•
Consumer
Product Safety Commission An independent regulatory agency created by the
Consumer Product Safety Act of 1972, which works
to reduce the risk of injuries and deaths from
products by:
1. Developing voluntary standards with industry
2. Issuing and enforcing mandatory standards
3. Banning consumer products if no feasible standard
4.
5.
6.
would adequately protect the public
Obtaining the recall of products or arranging for
their repair
Conducting research on potential product hazards
Informing and educating consumers through
media, state and local governments, private
organizations, and by responding to consumer
inquiries
© 2018 Cengage
14
CSPC Strategic Plan, 2011-2016
Mission
Protecting the public against unreasonable risks of injury
from consumer products.
Vision
The CPSC is the recognized global leader in consumer
Product safety
Goal 1
Leadership in Safety
Goal 2
Commitment to Prevention
Goal 3
Rigorous Hazard Identification
Goal 4
Decisive Response
Goal 5
Raising Awareness
© 2018 Cengage
15
Food and Drug Administration (1 of 2)
Food and Drug Administration • Grew out of experiments with food safety
by Harvey W. Wiley in the late 1800s.
• The FDA resides within the Health and
Human Services Department.
© 2018 Cengage
16
Food and Drug Administration (2 of 2)
The FDA regulates •
Foods
•
Human prescription and non-prescription drugs
•
Vaccines, blood products, and other biologics
•
Medical devices
•
Electronic products
•
Cosmetics
•
Veterinary products
•
Tobacco products
© 2018 Cengage
17
Business’s Response to Consumer
Stakeholders
© 2018 Cengage
18
Customer Service Programs
Customer service or self service?
•
•
•
•
Retailers of all types have been pushing the
idea of self-service. We check out our own
groceries, pump our own gas, print our
boarding passes, and fix our cable tv,
following a computer voice.
Customers are frustrated with after-sale
problems not quickly and easily remedied.
Experts know that the key to customer
retention is customer service.
Building life-long devotion among customers
takes serious commitment and hard work.
© 2018 Cengage
19
Seven
Principles of Customer Service
1. Keeping your word is where it begins.
2. Always be honest and tell it like it is.
3. Always think proactively, looking around the
corner.
4. Deal with problems as best you can yourself, never
passing the buck.
5. Do not argue with a customer because it is a
lose/lose situation.
6. Accept your mistakes, learn from them, and do
not repeat them.
7. Consistency is the name of the game for lasting
success.
© 2018 Cengage
20
Creating a
Customer-Oriented Company
© 2018 Cengage
21
Total Quality Management – (1 of 2)
Has many characteristics, but essentially
means –
• All business functions are blended into an
integrated philosophy built around quality,
teamwork, productivity, and customer
understanding and satisfaction.
• TQM focuses on product quality and safety,
focuses on the customer, and uses
continuous improvement.
• The customer is the final judge of quality.
© 2018 Cengage
22
Total Quality Management – (2 of 2)
TQM emphasizes eight key elements 1. Ethics
2. Integrity
3. Trust
4. Training
5. Teamwork
6. Leadership
7. Recognition
8. Communication
© 2018 Cengage
23
Six Sigma Strategy and Other
Processes
Six Sigma • A development within TQM that has
become a way of life for many
corporations.
• Sigma is a statistical measure of variation
from the mean; higher values of sigma
mean fewer defects.
• Six Sigma level of operation is 3.4 defects
per million.
•
Most companies have 6,000 defects per
million.
© 2018 Cengage
24
Consumer-Stakeholder Satisfaction
Model
© 2018 Cengage
25
Key Terms
•
•
•
•
•
•
•
•
•
•
•
•
absolute liability
caveat emptor
caveat vendor
Caveat venditor
Consumer Product Safety
Commission (CPSC)
Consumer Product Safety
Improvement Act of 2008
consumer stakeholder
satisfaction model
contractual theory
delayed manifestation cases
doctrine of strict liability
due care theory
Food and Drugs Act of 1906
© 2018 Cengage
• Food and Drug
Administration (FDA)
• Food Safety Modernization
Act
• ISO 9000
• Kaizen
• Lean Six Sigma
• Market share liability
• Product extortion
• Product liability risk
management program
• Product (products) liability
• Six Sigma
• social costs view
• tort reform
• Total Quality Management
26
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