Advertising and market power
For many decades, Nicholas Kaldor and others have claimed that the massive advertising campaigns of modern manufactures enable them to achieve and maintain a monopoly power over their markets. Monopolies lead to higher consumer prices. He argued that large manufacturers have the financial resources to mount massive and expensive advertising campaigns to introduce their products. These campaigns create in consumers ‘loyalty’ to the brand name of the manufacturer. Small firms are then unable to break into the market because they cannot finance the expensive advertising campaign that would be required to get consumers to switch their brand loyalties. As a result, a few large oligopoly firms emerge in control of consumer markets from which small firms are effectively barred.
The criticism of advertising based on its social effects are inconclusive. They are inconclusive for the simple reason that it is unknown whether advertising has the capacity to produce the effects that the criticisms assume it has.
ADVERTISING AND CREATION OF CONSUMER DESIGNS
.John K. Galbraith and others have long argued that advertising is manipulative: it is the creation of desires in consumers for the sole purpose of absorbing industry output. He distinguished two types of desires: those that have a ‘physical basis’, such as desires for food and shelter; and those that are ‘psychological in origin’ , such as the individual’s desires for goods that ‘give him a sense of personal achievement, accord him a feeling of equality with his neighbours, direct his mind from thought, serve sexual aspirations, promise social acceptability, enhance the subjective feeling of health, contribute by conventional canons to personal beauty, or are otherwise psychologically rewarding’ The physically based desires originate in the buyer and are relatively immune to being changed by persuation. The psychic desires, however , are capable of being managed, controlled, and expanded by advertisement.
The most common criticism of advertising concerns its effects on the consumer’s beliefs. Most criticisms of advertising focus on the deceptive aspects of
Modern advertising. An advertisement can misrepresent the nature of the product by using deceptive mock-ups, using untrue paid testimonials, inserting word guarantee where nothing is guaranteed, quoting misleading prices etc.
ETHICAL ISSUES IN MARKETING
Marketing consists of the performance of business activities that direct the flow of goods and services from producer to consumer or user.Marketing includes a number of distinct functions like product development, distribution, pricing, promotion and sales
Consumer rights
The burden of protecting the interest of consumers falls primarily on concumers themselves.They have the responsibility for acquiring the information needed to make rational choices.” The number-one rule in market exchanges is thus caveat emptor , or buyer beware. The burden of protecting their own interests is too heavy for consumers to bear, especially in view of the unequal relation between buyers and sellers in present-day markets.
Packaging and labeling.
Consumers need a certain amount of information to make rational choices, and often this information is not easily obtained. Without information on the label, consumers have no practical means for determining the size of the frozen pie, the ingredients used, the nutritional content etc.
The Fair Packaging and Labeling Act enable consumers to make meaningful value comparisons. Specifically, the act requires that each package list the identity of the product; the name and location of the manufacturer, packer, or distributor; the net quantity; and, as appropriate, the number of servings, applications and so on.
The Nutrition Labeling and Education Act further requires that the labels on packaged food products contain information about certain ingredients expressed by weight and as a percentage of the recommended daily diet in a standardized serving size.
Pricing.
The proliferation of products at different price makes it difficult for consumers to compare even those from the same manufacturer. Price code that can be understood only by sales personnel put consumers at a disadvantage. The use of a Universal Product Code that can be machine read has raised concern about the accuracy of posted prices, and some retailers attempt to reduce cost by not making prices on individual packages. As a result, some local and state governments now require retailers to mark the price on each product, and the FTC has investigated the accuracy of the price posted on products.
The disclosure of information.
Sellers are not obligated to provide complete information but only to avoid misrepresentation, although buyers are entitled to rely on any representations that are made and to make minimal assumptions about the quality of goods and their suitability. These are referred to in law as implied warranties of merchantability and fitness for use. However, beyond the obligations to be truthful and fulfill warranties, both expressed and implied, caveat emptor is the rule of the market place.
An alternative rule that underlies much consumer protection legislation is that manufacturers have an obligation to provide relevant information that consumers cannot reasonably obtain for themselves.
Deceptive and manipulative marketing practices.
Marketing practices are deceptive when consumers are led to hold false believes about a product. Examples of some common deceptions are markdowns from a ‘suggested retail price’ that is never charged, ‘introductory offers’ that incorrectly purport to offer a savings, and bogus clearance sales in which inferior goods are brought in. Packaging and labeling are deceptive when the size or shape of a container, a picture or description, or the use of terms such as economy size and new and improved mislead consumers in some significant way.
Manipulation is distinguished from deception in that it typically involves no false misleading claims. Instead, it consists of taking advantage of consumer psychology to make a sale. More precisely, manipulation is noncoercively shaping the alternatives open to people or their perceptions of those alternatives so that they are effectively deprived of a choice. A more objectionable form of manipulation is ‘bait and switch,’ a generally illegal practice in which a customer is lured into a store by an advertisement for a low-cost item and then sold a higher priced version. Often the low-cost item is not available, but even if it is, the advertised product may be of such quality that customers are easily ‘switched’ to a higher priced product. Bait and switch is manipulative not only because consumers are ticked into entering the store but because they enter into a frame of mind to buy.
The moral case against deceptive and manipulative marketing needs little explanation, because it rests on the requirement that markets be free of force and fraud. The difficult ethical questions in this area concern the definition of deception and manipulation and the dividing line between acceptable and unacceptable marketing practices.
Marketing Research
One set problems for marketing research conducted by outside agencies concerns the relation between researchers and clients, including integrating in undertaking research as a immense and honesty in interpreting data and presenting research. Marketing research has been misused to make sales pitches or to generate list of sales prospects in a practice known as ‘sugging’.
Anticompetitive marketing practices.
The major anticompetitive marketing practices are:
Price fixing.
It is an agreement among two or more companies operating in the same market to sell goods at a set price. It occurs not only when there is an explicit agreement among competitors to charge similar prices but also when the same result is achieved by other means.
Resale price maintenance
This is a practice where by products are sold on the condition that they be resold at a price fixed by the manufacturer or distributor. It is thus a form of vertical price fixing. As a form of price fixing, resale price maintenance prevents prices from being set by the forces of a competitive market.
Price discrimination.
Sellers engage in price discrimination when they charge different prices or offer different terms of sale for goods of the same kind to different buyers. This occurs when buyers are located in different geographical regions or vary in size or their access to other sellers. It can be practiced not only by sellers but also by large buyers.
Reciprocal dealing, tying arrangements, and exclusive dealing.
Reciprocal dealing involves a sale in which the seller is required to buy something in return, as when an office supply firm agrees to buy a computer system only on the condition that the computer firm agrees to purchase supplies from the office supply firm.
A tying arrangement exists when one product is sold on the condition that the buyer purchase another product as well. An example of a tying arrangement is an automotive supply firm that requires us a condition for selling tires to a service station that the buyer also purchase batteries from the seller.
In an exclusive dealing agreement, a seller provides a product-a brand of sports wear, for eg:-on the condition that the buyer not handle competing brands.
