week 9
The Ethics of Manufacturing
and Marketing
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Questions for Thought
• What must manufacturers do to make their products
and services completely safe?
• What is the relationship between a business and its
customers? a contract, or is there more to it than that?
• How does the fact that companies usually know more
about their products than their customers impact their
duty to protect customers from injury or harm?
• What responsibility do businesses have for customer
injuries no one could practically have predict or
prevented?
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Ethical Criticisms of Manufacturing
• Poor service to consumers.
• Dangerous and risky products.
• Misleading selling practices.
• Poorly constructed products.
• Failure to respect warranties.
• Misleading and unpleasant advertising.
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Markets and Consumer Protection
• Firms that wish to be morally responsible in providing
products that meet a high standard of safety may face
problems competing against firms that make unsafe
products and sell these products at cheap prices.
• Producers must produce more safety products or they risk
losing customers to competitors.
• There are lots of cases about the injuries happen to the
consumers, each year some 20 million people suffer serious
accidental injuries and about 100.000 are killed, more than
half of them in accidents involving consumer products.
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Toyota case
• Faulty Pedals and Floor Mats – Toyota (2010)
In January 2010, Toyota is- sued a second
recall in three months for various models of
Toyota and Lexus cars due to problems with
faulty pedals and floor mats that, in some
cases, led to sudden and unintended
acceleration. The automaking giant recalled a
total of more than 9 million vehicles, and the
company faced congressional probes looking
into the matter.
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Markets and Consumer Protection
• Consumer advocates point out that each year
there are more than 500,000 injuries requiring
hospital treatment inflicted on youngsters and
adults using toys, nursery equipment, and
playground equipment; close to 290,000
people are mangled using home workshop
equipment; over 2,800,000 people need
emergency treatment for injuries involving
home furnishings; and over 3,000,000 people
require treatment for injuries involving home
construction materials
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Theories of Ethical Duties of Manufacturers
1. Contract Theory
2. Due Care Theory
3. Social Costs Theory
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1. Contract Theory
• Contract View of Firm’s Duties to Customer:
• The view that the relationship between a business firm and its
customers is essentially a contractual relationship, and the
firm’s moral duties to the customer are those created by this
contractual relationship.
• When a consumer buys a product, this view holds, the
consumer voluntarily enters into a “sales contract” with the
business firm. The firm freely and knowingly agrees to give the
consumer a product with certain characteristics, and the
consumer in turn freely and knowingly agrees to pay a certain
sum of money to the firm for the product.
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KANT AND RAWLS
• The contract theory of the business firm’s duties to its customers
rests on the view that a contract is a free agreement that imposes
on the parties the basic duty of complying with the terms of the
agreement.
• Kant justification: A person has a duty to do what the person
contracts to do because failure to adhere to the terms of a contract is
a practice that (a) cannot be universalized, and (b) treats the other
person as a means and not as an end.
• Rawls justification: An enforced system of social rules that requires
people to do what they contract to do will provide them with the
assurance that contracts will be kept. Only if they have such
assurance will people feel able to trust each other’s word and, on
that basis, to secure the benefits of the institution of contracts.
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John Rawls’s
‘Theory of Justice’
• Each person is to have an equal right to the most
extensive total system of basic liberties compatible
with a similar system of liberty for all.
• Social and economic inequalities are to be arranged
so that they are both:
• to the greatest benefit of the least advantaged;
• attached to offices and positions open to all under
conditions of fair equality of opportunity.
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Moral constraints
• 1. Both of the parties to the contract must
have full knowledge of the nature of the
agreement they are entering.
• 2. Neither party to a contract must
intentionally misrepresent the facts of the
contractual situation to the other party.
• 3. Neither party to a contract must be
forced to enter the contract under pressure or
excessive influence.
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1.1 Moral Duties to Consumers Under
Contractual Theory
1. Complying with the terms of the sales contract (Duty to
comply) . and apply the claims of:
– Reliability.
– Service life.
– Maintainability.
– Safety.
2. Disclosing the nature of the product (Duty of Disclosure).
3. Avoiding misrepresentation (Duty Not to Misrepresent).
4. Avoiding the use of force and unwanted influence (Duty
not to Coerce).
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1. Duty To Comply:
•is the duty to provide consumers with a product that respect the
claims that the firms expressly made about the product which led
the customers to enter the contract freely.
•The claims of :
•(a) Reliability
– The probability that the product will function as the
consumer is led to expect that it will function.
•(b) Service Life
– The period of time during which the product will function as
effectively as the consumer is lead to expect it to function .
The factor of obsolescence. Technological advances may render
some products obsolete when a new product appears that
carries out the same functions more efficiently.
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• (c) Maintainability:
– The ease with which the product can be repaired
and kept in operating condition; Warranty
• Eg. Whirlpool Corporation. During your first
year of ownership, all parts of the appliance
(except the light bulbs) that we find are
defective in materials or workmanship will be
repaired or replaced by Whirlpool free of
charge, and we will pay all labour charges.
• (d) Product Safety:
– The degree of risk associated with using a
product. Reasonable risk consumers have reason-
able opportunity to protect themselves
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• 1. Duty to comply: Example
– Eg. Winthrop Labs - marketed a painkiller that it
advertised as nonaddictive. A patient using the
painkiller became addicted to it and died of
overdose.
– Court found Winthrop responsible for the
patient’s death because
Although it had expressly stated that the drug as
non addictive Winthrop Labs
Had failed to respect its duty to comply with
this express contractual claim.
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2. The Duty Of Disclosure:
– An agreement is not obligatory unless both parties
to the agreement knows what they are doing and
freely choose to do it.
– The seller who intends to enter to contract with a
customer has a duty to disclose exactly what the
customer is buying and what the terms of the sale
are.
– The seller has a duty to inform the buyer of any
characteristics of the product that could affect the
customer’s decision to purchase the product.
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• For Example:-
– if the product the consumer is buying
possesses a fault that causes a risk to the
user’s health or safety, the consumer should
be so informed.
• Seller’s should also disclose a product’s components
or ingredients, its performance characteristics, cost
of operation, product ratings and any other
applicable standards.
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3. The Duty Not To Misrepresent:
– Misrepresentation makes freedom of choice
impossible.
– Misrepresentation is intimidating.
– A person who purposely misled, acts not as HE
would freely have chosen to act if he had known
the truth.
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Examples of Misrepresentation
• 1. A computer software or hardware manufacturer may
market a product it knows contains “bugs” without
informing buyers of that fact;
• 2. Give a product a name that the manufacturer knows
consumers will confuse with the brand name of a higher-
quality competing product;
• 3. Write wool or silk on material made wholly or partly of
cotton; 4. Mark a fictitious “regular price” on an article that
is always sold at a much lower “sale” price; a store may
advertise an object at an unusually low price,
• 5. A producer may solicit paid “testimonials” from
professionals who have never really used the product.
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4. Duty Not To Coerce:
– People act irrationally when under the influence
of fear or emotional stress.
– When a seller takes advantage of a buyer’s fear
or emotional stress to get authority to an
agreement that the buyer would not make if the
buyer was thinking rationally,
– the seller is using pressure or unwanted
influence to coerce.
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1.2 Criticisms of the Contractual Theory
1. Assumes makers of products deal directly with
consumers but they do not deal directly with them.
2. Sellers can remove all their duties to buyers by getting
them to agree to disclaimers of responsibility.
3. Assumes consumer and seller meet as equals, but seller
has more knowledge so consumer must rely on the
seller.
CAVEAT EMPTOR: Let the buyer beware.
CAVEAT VENDOR: Let the seller beware.
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What is Caveat Emptor?
• Caveat Emptor is a Latin phrase that is translated as
“let the buyer beware.” The phrase describes the
concept in contract law that places the burden of
due diligence on the buyer of a good or service.
Caveat emptor is a fundamental principle in
commerce and contractual relationships between a
buyer and a seller.
• Buyers must be confident about the product because
the seller will be under no obligation to provide a
refund for it.
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Information asymmetry
• Essentially, this means that in a transaction, the seller usually
has more information about the good or service being sold
than the buyer. This could be in terms of market value,
quality of a product, or any other details that are not readily
apparent to the buyer. The expectation is that the buyer
should use their own due diligence and research to determine
if they want to go ahead with the purchase.
• Thus, buyers should be aware of caveat emptor when
making a purchase and take certain steps to ensure they are
protected. These steps range from checking the quality of a
product and researching its market value to ensuring they
understand all the terms and conditions of a purchase.
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Is Caveat Emptor Wrong?
• Caveat emptor isn't necessarily wrong. It's just that it puts too
heavy a burden on ordinary consumers to understand the
intricacies of certain complex products and services.
• For example, most of those offered by financial institutions or
tech companies can't be readily understood or even
researched appropriately by the majority of individuals.
• Many people accept the principle of caveat emptor where
items sold in thrift shops and garage sales are concerned.
They understand that a seller in such circumstances might not
know the true condition of a product that has been used or
owned many times over by the time the seller obtained it.
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Buyer Beware: Examples of
Caveat Emptor
• Real Estate: A buyer is looking to purchase a house, and they have
found one that looks perfect. The buyer asks the seller about any
potential problems with the house. The seller tells them that the
house is mostly issue free with the exception of a slightly leaky
roof. The seller continues to inform the buyer that the leaks have
all been fixed but have a small chance of returning. The buyer does
not hire a professional inspector to examine the roof and decides
that it shouldn't be much of a problem. A large rainstorm hits a
month after the buyer moves into the house, and they discover
that the leaking has returned. In this case, because the buyer did
not take advantage of the opportunity to inspect the roof further,
they are bound by caveat emptor and must repair the roof
themselves.
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Caveat Emptor vs. Caveat Venditor
• As opposed to caveat emptor, caveat venditor
means "let the seller beware" and puts the
responsibility of any potential issues resulting
from a transaction onto the seller. This means
that sellers must provide accurate and correct
information about their product or service, as
well as make sure it meets certain standards.
If any problems arise due to
misrepresentation or negligence on part of
the seller, they are held responsible.
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Caveat Venditor example
• When purchasing a used car from a
dealership, the buyer would typically be
protected under caveat venditor.
• This means that the dealership would have to
disclose any mechanical issues the car has, as
well as guarantee that the car will be in
working condition. If any problems arise due
to misrepresentation or negligence, the buyer
can seek legal recourse against the dealership.
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UN Guidelines on Consumer
Protection
• Governments should develop or maintain a strong consumer
protection policy, taking into account the guidelines set out
below and relevant international agreements. In so doing,
each Government should set its own priorities for the
protection of consumers in accordance with the economic,
social and environmental circumstances of the country and
the needs of its population, bearing in mind the costs and
benefits of proposed measures.
• Source: United Nations 2003. United Nations Guidelines for
Consumer Protection (as expanded in 1999). New York: United
Nations Department of Economic and Social Affairs: 2–3.
[Link]
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2. Due Care Theory
• The view that because manufacturers are in a more
advantaged position and consumers must rely on
them, they have a duty to take special care to ensure
that consumers’ interests are not harmed by the
products that they offer them.
• They have a duty to exercise due care to prevent
others from being injured by the product, even if
they clearly disclaim such responsibility.
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Due Care Theory
• The “due care” view holds, that because consumers
must depend on the greater expertise of the
manufacturer, the manufacturer not only has a duty
to deliver a product that lives up to the express &
implied claims about it but also has a duty to
exercise due care to prevent others from being
injured by the product even if the manufacturer
explicitly disclaims such responsibility & the buyer
agrees to the disclaimer.
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Due Care Theory
• The doctrine of caveat emptor is replaced with the
doctrine of caveat vendor – let the seller take care
• Violation of this duty by the manufacturer -
negligence.
• Due care must enter into – the design of the
product, the choice of reliable materials for
constructing the product, the manufacturing
process, the quality control to test and monitor the
production and the warnings, labels and instructions
attach to the products.
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Due Care Theory
• According to this view, the manufacturer has a
positive duty to take whatever steps are
necessary to ensure that when the product
leaves the plant, it is as safe as possible, the
consumer has a right to such assurance.
Failure to take such steps is a breach of the
moral duty to exercise due care & the
violation of the injured person’s right to
expect such care.
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Due Care Theory
• According to due care theory, manufacturers
exercise sufficient care when they take adequate
steps to prevent injurious effects they can
foresee; they are not morally negligent when the
harm was not one that the manufacturer could
have possibly foreseen. Manufacturer cannot be
said to be negligent if possible steps have been
taken to protect the consumers.
• E.g. Car manufacturer
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2.1 Manufacturer’s Duties
in Due Care Theory
• In designing product:
– Research its risks in conditions of use.
– Design it so risks are minimized.
– Take capacities of users into account.
• In production:
– Use strict quality control to eliminate defects.
– Ensure materials and manufacturing do not add faults or
risk.
• In marketing:
– Provide users with information about using product safely.
– Warn of all dangers.
– Do not market to those unable to avoid risk.
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2.2 Criticisms of the Due Care Theory
1. Does not indicate who should pay for product injuries
that cannot be foreseen.
2. There is no way to determine when one has exercised
enough due care. Every product involves some small
risk.
3. The theory assumes that the manufacturer can indeed
discover all the risks attendant upon using a product
before it is actually used and this may not be possible.
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3. Social Costs Theory
• The view that a manufacturer should pay the costs
of any injuries caused by faults in the product,
even if the manufacturer exercised all due care in
designing, making, and marketing it, and the injury
could not have been foreseen (expected).
• Product injuries are external costs that should be
internalized as a cost of bringing the product to
market, this maximizes utility and distributes costs
more fairly.
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3.1 Criticisms of the Social Costs theory
1. Unjust to manufacturers since compensatory
justice says one should compensate (pay)
injured parties only if the injury was foreseeable
and preventable.
2. Falsely assumes that the social cost view
prevents accidents.
– Instead, it encourages consumer carelessness
by relieving them of responsibility for their
injuries.
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ETHICAL MARKETING
• [Link]
v=fo936CsKGI0&t=2s
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What is Code of Ethics for
Advertisement
• Code of Ethics define the legal as well as ethical rules and
norms of creating and broadcasting an ad. It restrains an
advertiser to promote any product/service through
unreliable, false, and immoral information.
• Such kind of language and information may damage
someone’s fundamental right, business reputation, and can
stain their honor and dignity. So, the law prevents any sort of
ad that infringes on public values, norms, and morality.
• Further, it also discourages creation of any sort of ad that
contains disrespectful comparison with other similar products
(either of same nature or different) to maintain fair
competition.
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Legality of Advertisement
• False or Misleading Information
• Inaccurate Testimonials
• Provoking Statements
• Offensive Materials
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Unethical advertisement
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Ethical Criticisms of Marketing
• Considering all of the management fields,
marketing has taken the most criticism and
carried the most doubt concerning moral and
social responsibility issues (Kennedy and
Lawton, 1993).
• Malliaris (2001) summarized the basic points
of criticism against marketing as follows:
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Ethical Criticisms of Marketing
• (1) It encourages materialism, hedonism, and
eudemonism (an ethical doctrine holding that
the value of moral action lies in its capacity to
produce happiness);
• (2) It generates stress on consumers for the
acquisition of goods;
• (3) It pollutes the natural environment;
• (4) It contributes to the exhaustion of natural
resources;
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Ethical Criticisms of Marketing
• (5) It creates an increase in the product’s final
price due to the high production cost, which
must be paid by the consumer;
• (6) It deceives consumers by projecting
imaginary or no quality differences on the
products;
• (7) It allures consumers into buying products
that they might not really need;
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Ethical Criticisms of Marketing
• (8) Advertising is many times of bad taste and
offends the masses;
• (9) The involvement of too many
intermediaries during product distribution
dramatically raises product prices;
• (10) Personal sales sometimes become too
pushy and oppressive, thereby compelling the
consumer to make buying decisions under
pressure.
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