Business: Social Criticisms of Marketing: Deceptive practices: Chapter 6

Marketing receives much criticism. Some of this criticism is justified; much is not.2 Social critics claim that certain marketing practices hurt individual consumers, society as a whole, and other business firms.

Marketing's Impact on Individual Consumers

 Consumers have many concerns about how well marketing and businesses, as a whole, serve their interests. Consumer advocates, government agencies, and other critics have accused marketing of harming consumers through high prices, deceptive practices, high-pressure selling, shoddy or unsafe products, planned obsolescence, and poor service to disadvantaged consumers.

• High Prices

Many critics charge that marketing practices raise the cost of goods and cause prices to be higher than they would be if clever marketing were not applied. They point to three factors: high costs of 'distribution, high advertising and promotion costs, and excessive mark-ups.

HIGH COSTS OF DISTRIBUTION.

A long-standing charge is that greedy intermediaries mark up prices beyond the value of their services. Critics charge either that there are too many intermediaries, or that intermediaries are inefficient and poorly run, provide unnecessary or duplicate services, and practice poor management and planning. As a result, distribution costs too much and consumers pay for these excessive costs in the form of higher prices. How do retailers answer these charges? They argue, first, that intermediaries do work that would otherwise have to be done by manufacturers or consumers. Second, the rising mark-up reflects improved services that consumers themselves want - more convenience, larger stores and more assortment, longer store opening hours, return privileges, and others. Third, the costs of operating stores keep rising, forcing retailers to raise their prices. Fourth, retail competition is so intense that margins are actually quite low: for example, after taxes, supermarket chains are typically left with barely 1 percent profit on their sales. If some resellers try to charge too much relative to the value they add. other resellers will step in with lower prices. Low-price stores and other discounters pressure their competitors to operate efficiently and keep their prices down.

 

HIGH ADVERTISING AND PROMOTION COSTS.

Modern marketing is also accused of pushing up prices because of heavy advertising and sales promotion. For example, a dozen tablets of a heavily promoted brand of aspirin sell for the same price as 100 tablets of less promoted brands. Differentiated products - cosmetics, detergents, toiletries - include promotion and packaging costs that can amount to 40 percent or more of the manufacturer's price to thy retailer. (Metrics charge that much of the packaging and promotion adds only psychological value to the product rather than real functional value. Retailers use additional promotions - advertising, displays, and competitions - that add even more to retail prices.

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J & J's concern for societal interests is summarized in a company document called 'Our Credo', which stresses honesty, integrity, and putting people before profits. Under this credo. Johnson & Johnson would rather take a big loss than ship a bad batch of one of its products. And the company supports many communities and employee programs that benefit its consumers and workers, and the environment. J & J's chief executive puts it this way: 'If we keep trying to do what's right, at the end of the day we believe the marketplace will reward us.'13 Consider the tragic tampering ease in which eight people died from swallowing cyanide-laced capsules of Tylenol, a Johnson & Johnson brand. Although J & J believed that the pills had been altered in only a few stores, not in the factory, it quickly recalled all of its products. The recall cost the company $240 million in earnings. In the long run, however, the company's swift recall of Tylenol strengthened consumer confidence and loyalty, and Tylenol remains the leading brand of pain reliever in the US market.

Marketers answer these charges in several ways. First, consumers ^ant more than the merely functional qualities of products. They also want psychological benefits - they want to feel wealthy, beautiful, or special. Consumers can usually buy functional versions of products at lower prices but are often willing to pay more for products that also provide desired psychological benefits. Second, branding gives buyers confidence. A brand name implies a certain quality and consumers are willing to pay for well-known brands even if they cost a little more. Third, heavy advertising is needed to inform millions of potential buyers of the merits of a brand. If consumers want to know what is available on the market, they must expect manufacturers to spend large sums of money on advertising. Fourth, heavy advertising and promotion may be necessary for a firm to match competitors' efforts. The business would lose 'share of mind' if it did not match competitive spending. At the same time, companies; ire cost-conscious about promotion and try to spend their money wisely. Finally, heavy sales promotion is needed from time to time because goods are produced ahead of demand in a mass-production economy. Special incentives have to be offered in order to sell inventories.

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EXCESSIVE MARK-UPS.

Critics also, charge that some companies mark up goods excessively. They point to the drug industry, where a pill costing 5p to make may cost the consumer 40p to buy. Or to the pricing tactics of perfume manufacturers, who take advantage of customers' ignorance of the true worth of a 50-gram bottle of Joy perfume, while preying on their desire to fulfill emotional needs. Marketers argue that most businesses try to deal fairly with consumers because they want repeat business. Most consumer abuses are unintentional. When shady marketers do take advantage of consumers, they should be reported to industry watchdogs and to other consumer-interest or consumer-protection groups. Marketers also stress that consumers often don't understand the reason for high mark-ups. For example, pharmaceutical mark-ups must cover the costs of purchasing, promoting, and distributing existing medicines, plus the high research and development costs of finding new medicines.

 

Deceptive Practices

Marketers are sometimes accused of deceptive practices that lead consumers to believe they will get more value than they actually do. Deceptive marketing practices fall into three groups: deceptive pricing, promotion, and packaging. Deceptive pricing includes practices such as falsely advertising 'factory' or 'wholesale prices or a large price reduction from a phony high retail list price. Deceptive promotion includes practices such as overstating the product's features or performance, luring the customer to the store for a bargain that is out of stock, or running rigged contests. Deceptive packaging includes exaggerating package contents through subtle design, not filling the package to the top, using misleading labeling, or describing size in misleading terms.

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Deceptive practices have led to legislation and other consumer-protection actions. Positive steps have already been taken, for example, with regard to European directives aimed at the cosmetic industry. Council Directive 93/35/EEC of 14 June 1993 introduced far-reaching changes to cosmetic laws. The legislation controls the constituents of cosmetic products and their associated instructions and warnings about the use and specifies requirements relating to the marketing of cosmetic products, which cover product claims, labeling, information on packaging, and details about the dying product's intended function. Where a product claims to remove 'unsightly cellulite or make the user! ook, '20 years younger', proofs must be documented and made available to the enforcement authorities. These laws also require clear details specifying where animal testing has been carried out on both the finished product and/or its ingredients. The EU has recognized increased public resistance to animal testing and has proposed a limited ban on animal testing for cosmetic ingredients from 1 January 1998. Similar directives are found to regulate industry practices in the United States. The Federal Trade Commission (FTC), which has the power to regulate 'unfair or deceptive acts or practices, has published several guidelines listing deceptive practices. The toughest problem is defining what is 'deceptive'. For example, some years ago, Shell Oil advertised that Super Shell petrol with a platform gave more mileage than did the same fuel without the platform. Now, this was true, but what Shell did not say is that almost all petrol includes a platform. Its defense was that it had never claimed that platform was found only in Shell petroleum fuel. But even though the message was literally true, the FTC felt that the ad's intent was to deceive. Marketers argue that most companies avoid deceptive practices because such practices harm their business in the long run. If consumers do not get what they expect, , they will switch to more reliable products

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