Chapter 3 The Marketing Environment, Ethics, and Social Responsibility 45

CHAPTER 3

THE MARKETING ENVIRONMENT, ETHICS, AND SOCIAL

RESPONSIBILITY

CHAPTER OVERVIEW

Change is a fact of life for all people, including marketers. Change can be felt from a number of
factors, many well out of the control of marketers. This includes not only the inevitable economic
ups and downs, but environmental concerns, consumer safety issues, weather emergencies, and
public health issues. Adapting to change in an environment as complex and unpredictable as the
one dealing with avian flu is perhaps the supreme challenge.

Although some change may be the result of sudden crises, more often it is the result of gradual
shifts and emerging trends in lifestyle, income, population, and other factors. But technology can
trigger a sudden change in the marketplace: In one fell swoop, it appeared that Internet music
downloads had replaced traditional CDs. And within mere months of offering its iPod, Apple
introduced its iTunes.

So marketers learn to anticipate and plan for change. They set goals to meet the concerns of
customers, employees, shareholders, and members of the general public. There will always be
external forces outside the marketing manager’s control. But decision makers need to consider
those influences together with the variables of the marketing mix. They then develop—and
occasionally modify—marketing plans and strategies that take these environmental factors into
consideration.

This chapter begins by describing five forces in marketing’s external environment—competitive,

political-legal, economic, technological, and social-cultural. It identifies them as the foundation for
making decisions that involve the four marketing mix elements and the target market. These forces
provide the frame of reference within which all marketing decisions are made.

The second focus of this chapter is marketing ethics and social responsibility. That section
describes the nature of marketers’ responsibilities both to business and to society at large.

Changes in the 13th Edition

The chapter has been updated and revised, with new profiles featuring a number of issues in
contemporary marketing. New information has been added on the competitive environment and the
nature of monopoly, oligopoly, and the deregulation movement.

Also included are several new features:

 The Opening Vignette and Evolution of a Brand looks at the expansion of international
business and increase in world travel along with exposure to serious or contagious disease.
The threat of avian flu, which originated in Asia, affects business travelers and the travel
industry itself, but much beyond that. Hawaii officials worry that migrating birds might carry
the flu. The CDC has required airlines to report arriving passengers with flu symptoms. A
vaccine must be made at just the right time by only certain firms—most outside the U.S.—
under tight quality and quantity restrictions, and under threat of contamination. The medical
46 Part 1 Designing Customer-Oriented Marketing Strategies

and marketing headaches can multiply and a public health issue can quickly evolve into an
economic one, in “Risky Business: Avian Flu and the Marketplace.”

 Solving an Ethical Controversy asks a straightforward question: Should corporate

criminals teach business ethics in the classroom? Not all instructors may agree on this, but
like it or not, it’s happening in colleges and universities across the country where the guest
speaker is a mastermind of business fraud, an inside trader, a thieving accountant, a
convicted felon. What can be learned from these speakers? Anything? Do they have a
place in the classroom at all? The pros and cons are presented in “Corporate Criminals in
the Classroom.”

 Marketing Failure features a retailing giant’s reaction to minimum insurance standards for
employees. Wal-Mart’s idea was to comply with this huge requirement for its 1.3 million
workers in 3,800 stores, but within its own cost-cutting plans. Then it faced criticism for
slashing benefits to workers. How much can legislation force businesses to provide
insurance? How much can one corporation do? The question remains: “Healthcare
Legislation: Do Wal-Mart Workers Win or Lose?”

 Etiquette Tips for Marketing Professionals gives advice on what to do when asked in the
workplace to donate to a particular charity or not-for-profit organization. Among other things,
it suggests looking into the organization to better understand its goals, recognizing that
donations are not required, and keeping your decision confidential, in “To Give or Not to
Give—at the Office.”

 Chapter Case 3.1 profiles an alarming trend that threatens the privacy of millions.
“Information brokers” can now gather personal information about consumers and sell it to
anyone willing to pay. And where do they get this hot info? It comes from private cell phone
logs. Despite the Telecommunications Act of 1996—which prohibits falsely obtaining
someone’s financial information but does not specify phone records per se—consumer’s call
records and even cell phone numbers can be sold by cellular companies and used for
potentially any purpose. But consumer advocacy groups are fighting back, along with the
FCC and FTC, in “The Selling of Cell Phone Logs.”

 Collaborative Learning Exercises are provided in several areas related to the marketing
environment, business ethics, and social responsibility—Types of Competition, Government
Regulation, Economic and Social Environments, Ethics and Legality, and Ethics and Profits.

 Video Case 3.2 Synopsis includes a detailed overview of the video featuring the farmer-
owned cooperative, Organic Valley.

Lecture Outline

Opening Vignette and Evolution of a Brand—Risky Business: Avian Flu and the Marketplace. Beyond the
obvious health risks, list all the economic and marketing issues that may be affected by the avian flu threat.
You might begin with the travel and airline industries.

Chapter Objective 1: Identify the five components of the marketing environment.

Key Terms: environmental scanning, environmental management, strategic alliances
PowerPoint Basic: 1-3
PowerPoint Expanded: 1-3
1. The five components of the marketing environment:
Chapter 3 The Marketing Environment, Ethics, and Social Responsibility 47

a. The competitive environment

b. The political-legal environment
c. The economic environment
d. The technological environment
e. The social-cultural environment
Figure 3.1 Elements of 2. Environmental scanning and environmental management
the Marketing Mix a. Environmental scanning is the process of collecting information
Within an about the external marketing environment to identify and interpret
Environmental potential trends
Framework. Choose
i. The goal is to analyze the information and decide whether
one of the elements
these trends represent opportunities or threats to the
and discuss its
company
relationship to
decision making. ii. The firm can then determine the best response to a
particular environmental change
b. Environmental management is the attainment of organizational
objectives by predicting and influencing the five components of the
marketing environment
c. Environmental scanning is a vital component of effective
environmental management
d. Strategic alliances (partnerships with other firms in which
resources and capital are combined) are often used to create
competitive advantages in a new market

Assessment check questions

1. Define environmental scanning. Environmental scanning is the process of

collecting information about the external marketing environment to identify and
interpret potential trends.

2. How does environmental scanning contribute to environmental management?

Environmental scanning contributes to environmental management by providing
current information about the five different environments so marketers can predict
and influence changes.

Chapter Objective 2: Explain the types of competition marketers face and the steps necessary for
developing a competitive strategy.
Key Terms: competitive environment, monopoly, deregulation movement, antitrust, temporary monopoly,
oligopoly, direct competition, indirect competition, competitive strategy, time-based competition
PowerPoint Basic: 4, 5
PowerPoint Expanded: 4-6
1. The competitive environment
a. The interactive exchange between organizations and consumers
creates the competitive environment
b. Marketing decisions by each firm influence consumer responses
and also affect the marketing strategies of competitors
c. All firms must continually monitor the marketing activities of
competitors (products, distribution, prices, and promotional efforts)
2. Monopolies
a. A monopoly means that a firm is the sole supplier of a good or
service in the marketplace
i. Monopolies are rare today—government regulators
48 Part 1 Designing Customer-Oriented Marketing Strategies

carefully monitor monopolies

ii. The deregulation movement has ended total monopoly
protection for most public utilities (such as long-distance
telephone companies, cell phone providers, and even
electric utilities)
b. Some firms still can achieve temporary monopolies
i. Drug firms enjoy monopoly protection, in the form of
patents, on new drugs for up to seven years
ii. Some drug companies are trying to effectively extend the
life of their patents through various means
iii. Some companies try to dominate markets without creating
illegal monopolies
iv. An antitrust case may be filed to determine whether a firm
has become a monopoly
Note: Ask students for
several examples of c. An oligopoly is an industry in which there are only a limited number
oligopolies— of sellers and where entry costs deter newcomers from entering
automobiles, airlines, the industry
etc.—and ask the 3. Types of competition: marketers face three types of competition
question whether or a. Direct competition occurs among marketers of similar products
not students believe
b. Indirect competition involves products that are easily substituted
oligopolies need to be
regulated. c. The final type of competition occurs among all organizations that
compete for consumers’ purchases
i. Traditional analysis of competition views it as a battle
among firms in the same industry (direct) or among
suitable goods and services (indirect)
ii. But marketers must be aware that all firms compete for a
Note: Ask students to limited amount of discretionary buying power
think of examples 4. Developing a competitive strategy
where firms were able
a. Developing a competitive strategy involves answering three
to establish strong
questions:
competitive positions
in the marketplace i. Should the firm compete?
simply by being first ii. If so, in what markets should it compete?
with an innovative iii. How should it compete?
good or service.
b. The answer to the first question depends on the firm’s resources,
objectives, and expected profit potential
c. Answering the second question requires an acknowledgment of a
firm’s limited resources
i. Resources should be allocated to the areas of greatest
opportunity
ii. Acquisitions or mergers often allow firms to gain access to
markets or new technologies
d. The answer to the third question requires that marketers make
product, pricing, distribution, and promotional decisions that give
the firm a competitive advantage in the marketplace
5. Time-based competition
a. Time-based competition is the strategy of developing and
distributing products more quickly than competitors
b. The flexibility and responsiveness of time-based competitors
enables them to improve product quality, reduce costs, and
expand product offerings
Chapter 3 The Marketing Environment, Ethics, and Social Responsibility 49

Assessment check questions

1. Distinguish between direct and indirect competition and give an example of

each. Direct competition occurs among marketers of similar products, such as
auto manufacturers or gas stations. Indirect competition involves products that are
easily substituted. Pizza could compete with fried chicken or tacos. Busch Gardens
could compete with a trip to a baseball game.

2. What is time-based competition? Time-based competition is the strategy of

developing and distributing goods and services more quickly than competitors.

Chapter Objective 3: Describe how marketing activities are regulated and how marketers can
influence the political-legal environment.
Key Terms: political-legal environment, Federal Trade Commission (FTC)
PowerPoint Basic: 6, 7
PowerPoint Expanded: 7-12
1. The political-legal environment
a. The political-legal environment essentially sets the rules of the
marketing game
b. Ignorance of the political-legal environment can result in fines,
negative publicity, and expensive civil damage suits
c. Numerous laws and regulations—at the federal, state, and local
levels—exist, some of which are vaguely stated and inconsistently
enforced by different authorities
2. Government regulation: the four phases
a. The first phase was the anti-monopoly period of the late 19th and
early 20th centuries
i. The Sherman Antitrust Act, the Clayton Act, and the
Federal Trade Commission Act were all passed during this
period
ii. The purpose of these laws was to maintain a competitive
environment and reduce the trend toward increasing
concentration of industry power in the hands of a small
number of firms
iii. These laws still affect business today (used to break up
the old AT&T in the 1980s and pursue Microsoft today)
b. The second phase aimed at protecting competitors
i. This phase emerged during the Depression and attempted
to protect independent merchants against competition
from larger chain stores
ii. An example is the Robinson-Patman Act
c. The third regulatory phase was a series of laws designed to
Table 3.1 Major protect consumers
Federal Laws Affecting i. The objective of consumer protection underlies most laws
Marketing. Think of
one consumer issue ii. Examples include the Sherman Act, FTC Act, and Federal
(involving safety, Food and Drug Act
health, children, etc.) d. The fourth phase involved industry deregulation
and determine which i. Begun during the 1970s and continues today
law or laws may have ii. The government has sought to increase competition in
affected it. industries such as telecommunications, transportation,
50 Part 1 Designing Customer-Oriented Marketing Strategies

and financial services

iii. Firms are permitted to expand service offerings into new
markets
e. The newest regulatory frontier is cyberspace
i. Federal and state regulators are looking for ways to police
the Internet and online services
ii. Issues of concern include privacy issues, child protection,
identity theft, and scams
3. Government regulatory agencies
a. The Federal Trade Commission
i. The Federal Trade Commission (FTC) has the broadest
power of any agency to influence marketing activities
ii. It regulates unfair business practices and can take action
to stop false or deceptive advertising
iii. Along with the U.S. Justice Department, the FTC can stop
Marketing Failure: mergers
Healthcare Legislation: b. Other federal regulatory agencies:
Do Wal-Mart Workers i. Consumer Products Safety Commission
Win or Lose? What
ii. Federal Power Commission
steps did Wal-Mart
take to develop a plan iii. Environmental Protection Agency
for its workers’ iv. Food and Drug Administration
healthcare costs? 4. Other regulatory forces
What compromises
a. Public and private consumer interest groups that seek to protect
did it make? How did
consumers in many areas of health and safety—such as MAAD
some of these actions
result in disrupting the b. Special interest groups that advance the rights of minorities, senior
plan rather than citizens, and others—such as AARP
boosting it? c. Self-regulatory groups—such as the Better Business Bureau and
the Direct Marketing Association
5. Controlling the political-legal environment
a. Most marketers comply with laws and regulations
b. However, many marketers fight regulations that they consider to
be unjust

Assessment check questions

1. Identify the four phases of U.S. government regulation of business. The four
phases of government regulation are the antimonopoly period, protection of
competitors, consumer protection, and industry regulation. The newest frontier is
cyberspace.

2. Which federal agency wields the broadest regulatory powers for influencing
marketing activities? The Federal Trade Commission (FTC) has the broadest
regulatory authority.

Chapter Objective 4: Outline the economic factors that affect marketing decisions and consumer
buying power.
Key Terms: gross domestic product (GDP), economic environment, business cycle, prosperity, recession,
depression, recovery, inflation, unemployment, discretionary income, demarketing
PowerPoint Basic: 8, 9
PowerPoint Expanded: 13-16
Chapter 3 The Marketing Environment, Ethics, and Social Responsibility 51

1. The economic environment

a. The overall health of the economy influences how much
consumers spend and what they buy
b. This works the other way also—what consumers spend and buy
affects the status of the economy
c. The gross domestic product (GDP) is the sum of all goods and
services produced by a nation in a year
d. Consumer spending in the U.S. accounts for nearly 70 percent of
the country’s GDP
e. Marketing’s economic environment is made up of factors that
influence consumer buying power and marketing strategies,
including the stage of the business cycle, inflation and deflation,
unemployment, income, and resource availability
2. Stages in the business cycle
a. The business cycle refers to periodic times of expansion and
Note: Cite some contraction in economic activity that have occurred historically
recent examples of
firms that have b. The four stages are:
continued to i. Prosperity
“downsize” even in the ii. Recession
face of improving
iii. Depression
economic conditions.
iv. Recovery
v. No depression has occurred since the 1930s due to the
use of various economic policies by the government to
control fluctuations in the business cycle
c. Consumer buying differs in each stage of the business cycle
Note: Does the theory i. During periods of prosperity, consumer spending
about recession partly maintains a brisk pace and buyers are willing to spend
explain why Wal-Mart more for premium versions of well-known brands
and Target seemed to
ii. During times of recession, consumer spending patterns
prosper even during
emphasize basic, functional products with low price tags
the recent recession?
iii. Consumer spending sinks to its lowest level during a
depression
iv. In periods of recovery, purchasing power increases, but
consumers remain cautious—businesses have to earn
profits while trying to gauge uncertain consumer demand,
so many cope by trying to reduce costs
3. Inflation and deflation
a. Inflation is defined as a period of rising prices
b. Causes of inflation:
i. Excess demand for goods and services
ii. Rising prices in raw materials, components parts, or
human resources
c. Inflation tends to accelerate during economic expansions and
decelerate during recessions
d. During the 1930s prices actually fell (this is known as deflation)
4. Unemployment
a. Unemployment refers to the proportion of people in the economy
who are actively seeking work but do not have jobs
b. Unemployment tends to fall during economic recovery and rise
during recessions
52 Part 1 Designing Customer-Oriented Marketing Strategies

c. As with inflation, unemployment tends to alter consumer behavior

Etiquette Tips for (example: when people are worried about losing their jobs, they
Marketing tend to postpone “large” purchases such as new cars)
Professionals—To 5. Income
Give or Not to Give at a. Income is an important determinant of marketing’s economic
the Office. What is environment because it influences consumer buying power
considered an
i. Through the study of income statistics and trends,
appropriate way to
marketers can estimate market potential and develop
handle a request for
plans for targeting specific market segments
donation within the
workplace? What is ii. Marketers are most interested in discretionary income—
considered the amount of money that people have available to spend
inappropriate? after buying necessities
b. Periods of major innovation have been accompanied by dramatic
increases in living standards and rising incomes
6. Resource availability
a. Resources are not unlimited and shortages require marketers to
Figure 3.2 Goods Still
reorient their thinking
Manufactured
Primarily in the U.S. b. Demarketing is the process of reducing consumer demand for a
Based on this product to a level that the firm can reasonably supply (utilities often
information, what advertise methods for conserving energy)
types of items can be c. A shortage requires that firms allocate limited supplies, deciding
considered commonly whether to spread them over all customers or limit purchases by
“made in America” and some customers so that the firm can completely satisfy others
what industries are 7. The international economic environment
most often involved in
a. Marketers must monitor the economic environment in other
their production?
nations since international sales make up a significant portion of
total sales for many firms
b. Changes in foreign currency exchange rates also affect marketing
decisions
c. If the value of the dollar rises, relative to foreign currencies, U.S.
exports become more expensive and imports become less
expensive

Assessment check questions

1. Identify and briefly describe the four stages of the business cycle. During
periods of prosperity, consumer spending maintains a brisk pace and buyers are
willing to spend more for premium versions of well-known brands. Consumer
spending sinks to its lowest level during a depression. During recessions,
consumer spending patterns emphasize basic, functional products that carry low
price tags. In the recovery stage, consumer purchasing power increases, but
consumers often remain cautious. The recovery stage is a difficult stage for
businesses since it requires them to earn profits while trying to gauge uncertain
consumer demand; many cope by trying to reduce costs.

2. Explain how inflation and income affect consumer buying decisions. Inflation
devalues money and therefore may restrict some purchasing, particularly goods
and services that are not considered necessary. Income also influences consumer
buying power—the more discretionary income a household has, the more goods
and services can be purchased.

Chapter Objective 5: Discuss the impact of the technological environment on a firm’s marketing
activities.
Chapter 3 The Marketing Environment, Ethics, and Social Responsibility 53

Key Terms: technological environment, VoIP, Internet Protocol Multimedia System (IPMS)
PowerPoint Basic: 10
PowerPoint Expanded: 17-19
1. The technological environment
a. The technological environment represents the application to
marketing of knowledge based on discoveries in science,
inventions, and innovations
b. Some impacts of technology:
i. Technology can lead to new goods and services
ii. It can improve existing products and customer service
iii. It can reduce prices through new production and
distribution methods
iv. It can rapidly make existing products obsolete
v. It can help address social concerns (example: the
development of more fuel-efficient cars)
c. Industry, government, colleges and universities, and other not-for-
profit institutions all play roles in the development of new
technology
d. The federal government, including the Department of Defense, is
often involved in the development of technology—air bags, digital
computers, the microwave, even the Internet were initially created
for military use
2. Applying technology
a. Creative applications of technology can give a firm a definite
competitive edge while benefiting society
b. VoIP (voice over Internet protocol) is an alternative to traditional
telecommunications, allowing phone service while connected to a
computer rather than a traditional phone jack
c. The Internet, cell phones, and Wi-Fi are allowing communications
in ways never before imagined, but their networks aren’t yet
compatible
d. Engineers are working on a new standard to allow all new
technological networks to connect with a common interface, called
Internet Protocol Multimedia System (IPMS)

Assessment check questions

1. What are some of the consumer benefits of technology? Technology can lead
to new or improved goods and services, offer better customer service, and can
often reduce prices. It can also address social concerns.

2. Why must marketers monitor the technological environment? Marketers need to

monitor the technological environment in order to stay current with – and possibly
ahead of—competitors. If they don’t, they may wind up with obsolete offerings.

Chapter Objective 6: Explain how the social-cultural environment influences marketing.

Key Terms: social-cultural environment, consumerism, consumer rights
PowerPoint Basic: 11
PowerPoint Expanded: 20, 21
1. The social-cultural environment
a. As a nation, the U.S. is becoming older, more affluent, and more
54 Part 1 Designing Customer-Oriented Marketing Strategies

culturally diverse
b. Many people have concerns about the environment, pollution, and
health and safety issues
c. They also value their time and have concerns about balancing
work and personal time
d. Many issues affect consumers’ values, beliefs, and lifestyles
2. The social-cultural environment refers to the relationship between the
marketer and society and culture
Note: Think about all
a. The U.S. population is getting older and more diverse, and
the products now
birthrates are falling
targeted toward the
Hispanic market. Bring b. To remain competitive, marketers must be sensitive to society’s
in advertising demographic shifts and changing values
examples of products 3. An important social-cultural consideration is cultural diversity
and services aimed at a. The U.S. is a diverse society composed of various sub-markets,
Hispanic populations. each with its unique values, cultural characteristics, consumer
preferences, and purchase behaviors
b. Many firms specifically target these sub-markets
4. The social-cultural context often exerts a more pronounced influence on
marketing decision making in the international sphere
a. It is critical that marketers learn about cultural and societal
differences among countries
b. Marketers often redesign packages and modify products and
advertising messages to suit the tastes and preferences of
different cultures
5. Consumerism
a. Consumerism is defined as a social force within the environment
that aids and protects the consumer by exerting legal, moral, and
economic pressures on business and government
b. In recent years, marketers have witnessed increasing consumer
activism
c. Firms, however, must carefully weigh consumer demands and
profit objectives—the choice between pleasing consumers and
remaining viable is a difficult dilemma
6. President John F. Kennedy offered some rules of thumb that explain basic
consumer rights:
a. The right to choose freely
b. The right to be informed
c. The right to be heard
d. The right to be safe
e. These rights have formed the conceptual framework of much of
the legislation passed in the first 40 years of the consumer rights
movement
7. Some firms have created a new position—manager of public policy
research—to study the changing societal environment’s future impact on
their organizations

Assessment check questions

1. Define consumerism. Consumerism is a social force within the environment

that aids and protects the buyer by exerting legal, moral, and economic pressures
Chapter 3 The Marketing Environment, Ethics, and Social Responsibility 55

on business.

2. Identify the four consumer rights. The four consumer rights are as follows: the
right to choose freely, the right to be informed, the right to be heard, and the right
to be safe.

Chapter Objective 7: Describe the ethical issues in marketing.

Key Terms: ethics, marketing ethics, U.S. Sentencing Guidelines for Organizations
PowerPoint Basic: 12-15
PowerPoint Expanded: 22-28
Figure 3.3 Ethical 1. Ethical issues in marketing
Questions in a. Because marketing is closely connected with various public
Marketing. Discuss issues, it invites constant scrutiny by the public
how each element of
b. Marketing acts as an interface between an organization and the
the marketing mix
society in which it operates, so marketers carry much of the
raises its own set of
responsibility for dealing with social issues that affect their firms
ethical questions.
c. Marketing operates outside the firm—it reacts to that environment
and, in turn, is acted upon by environmental influences
Figure 3.4 Ten Steps
d. The diverse social issues faced by marketers can be divided into
for Corporations to
two major categories:
Improve Standards of
Business Ethics. i. Marketing ethics
Choose one step and ii. Social responsibility
discuss how it would 2. Marketing ethics
apply to a familiar
a. Ethics refers to matters of right and wrong: the responsibility of the
business or product.
individual and the firm to do what is morally right
b. Marketing ethics refers specifically to marketers’ standards of
Solving an Ethical conduct and moral values
Controversy:
i. The U.S. Sentencing Guidelines for Organizations
Corporate Criminals in
provides a framework for evaluating misconduct in
the Classroom.
business activities
Should convicted
criminals be allowed in ii. Ensuring ethical practices means promising customers
the classroom? If so, and business partners not to sacrifice quality and fairness
should they be for profit
compensated for their c. People develop standards of ethical behavior based on their own
time? What, if systems of values
anything, can students i. Values help people deal with ethical questions in their
learn from them that personal lives
they couldn’t learn
elsewhere? ii. However, the workplace may generate conflicts between
individual ethics and the employer’s ethical standards
3. Ethical problems in marketing research
Figure 3.5 Test Your
Workplace Ethics. a. Invasion of personal privacy is a critical issue in marketing
Discuss with other research
classmates any b. A particularly problematic ethical issue is the promise of cash
questions to which you rewards or free offers in return for information that can then be
answered “yes.” sold to direct marketers
c. Privacy issues have grown rapidly with the growth of the Internet,
and they rank high among the concerns of online shoppers
4. Ethics in product strategy
a. Issues include product quality, planned obsolescence, brand
similarity, and packaging
b. Competitive pressures have often forced some marketers into
56 Part 1 Designing Customer-Oriented Marketing Strategies

packaging practices that may be considered misleading,

deceptive, or unethical
5. Ethics in distribution
a. There are two ethical issues concerning a firm’s distribution
strategy:
i. What is the appropriate degree of control over the
distribution channel? (this typically arises in relationships
between manufacturers and franchise dealers)
ii. Should a company distribute its products in marginally
profitable outlets that have no alternative sources of
supply? (this concerns marketers’ responsibility to serve
unsatisfied segments even if profit potential is slight)
b. Firms need to understand both sides of the ethical issues involved
in distribution strategy
6. Ethics in promotion
a. Promotion raises many ethical questions because it’s the most
direct link between a firm and its customers
b. Personal selling has always been a target of criticism
c. But promotion includes a broad range, including advertising and
direct marketing, giving rise to many ethical questions
d. Truth in advertising is the bedrock of ethics in promotion
e. Marketing to certain groups has led to some concerns
i. Marketing to children has been under especially close
scrutiny
ii. Promoting to college students by certain industries can
also pose ethical questions
7. Ethics in pricing
a. Pricing is probably the most regulated aspect of a firm’s marketing
strategy
b. Unethical pricing behavior is often illegal
c. Other ethical issues concerning pricing:
i. Should some consumers pay more if distribution costs are
higher?
ii. Do marketers have an obligation to warn consumers of
impending price changes?

Assessment check questions

1. Define marketing ethics. Marketing ethics refers to the marketer’s standards of

conduct and moral values.

2. Identify the five areas in which ethics can be a problem. The five areas of
ethical concern for marketers are marketing research, product strategy,
distribution, promotion, and pricing.

Chapter Objective 8: Identify the four levels of the social responsibility pyramid.
Key Terms: social responsibility, cause marketing, ecology, planned obsolescence, green marketing
PowerPoint Basic: 16, 17
PowerPoint Expanded: 29-31
Figure 3.6 The Four- 1. Social responsibility in marketing
Step Pyramid of Social a. Companies can do business in a way that everyone benefits—the
Chapter 3 The Marketing Environment, Ethics, and Social Responsibility 57

Responsibility. Think customers, the company, and society as a whole

of a company that has b. Ethics are important, but social responsibility takes a company’s
been in the news behavior a step further
recently due to a lapse
2. Social responsibility consists of marketing philosophies, policies,
in one of these areas.
procedures, and actions that have the enhancement of society’s welfare as
Keep in mind that the
a primary objective
economic and legal
areas have long been a. It demands that marketers accept an obligation to give equal
recognized, but the weight to profits, consumer satisfaction, and social well-being in
last two have become evaluating their firm’s performance
important only in b. Government legislation can mandate or promote socially
recent years. responsible actions
c. Consumer activism can also promote social responsibility
d. The four dimensions of social responsibility:
i. Economic
ii. Legal
iii. Ethical
iv. Philanthropic
e. The first two dimensions have long been recognized, but ethical
obligations and the need for marketers to be good corporate
citizens have increased in recent years
3. Marketing’s responsibilities
a. The traditional concept of social responsibility only extended to
customers, employees, and stockholders—rarely did the concept
extend to the government or general public
b. Today, corporate responsibility has expanded to cover the entire
societal framework
i. This extends domestically as well as internationally
ii. Marketers must also take into account the long-term
effects of their decisions
c. Methods through which marketers can help their companies
behave in a socially responsible manner:
i. Cause marketing is one channel through which companies
can promote social causes
ii. Socially responsible marketing campaigns can be used to
encourage people to adopt socially beneficial behaviors—
such as conserving energy or protecting the environment
iii. Communities can benefit from socially responsible
investing
4. Marketing and ecology
a. Ecology
i. Ecology—the relationship between organisms and their
natural environment—has become a driving force in
influencing how businesses operate
ii. Environmental protection is a major challenge for today’s
businesses and ecological issues influence all areas of
marketing decision making
iii. One concern relates to products that incorporate planned
obsolescence (the practice of intentionally designing
products with limited life and durability)
iv. Public concern about pollution has resulted in recycling
efforts
58 Part 1 Designing Customer-Oriented Marketing Strategies

b. Green marketing
i. Green marketing deals with the production, promotion,
and reclamation of environmentally sensitive products
ii. This movement has grown since the early 1990s and
consumers have responded by buying these goods
iii. Example: the organic food industry is one booming market
area that often involves green marketing

Assessment check questions

1. Identify the four levels of the social responsibility pyramid. The four levels of
social responsibility are economic, legal, ethical, and philanthropic.

2. What are the benefits of green marketing? Green marketing, which responds to
consumers’ growing concerns about ecological issues, offers high-quality products
without health risks or damage to the environment. Marketers who engage in
green marketing may find themselves in a booming industry such as organic foods.

ANSWERS AND TEACHING NOTES TO CHAPTER EXERCISES

Chapter 3 Assurance of Learning Review

1. Why is environmental scanning an important activity for marketers?

Environmental scanning is the process of collecting information about the external marketing
environment to identify and interpret potential trends. It’s important to marketers because it helps
them analyze information and decide whether these trends represent opportunities or threats to the
company. They can then determine the best response to a particular climate change or
environmental shift.

2. What are the three different types of competition? Give an example of each.

Direct competition occurs among marketers of similar products (examples: GE vs. Sony clock
radios, Kenmore vs. Sharp microwaves, Time vs. Newsweek, Cannondale vs. Trek bicycles).
Indirect competition involves products that can be easily substituted (examples: designer apparel
vs. knock-off imitation, butter vs. margarine, copper pipe distributor vs. PVC pipe distributor). The
last type is competition among all organizations that compete for consumer purchases (examples:
frozen vs. canned sweet corn, Barcalounger recliner vs. Ikea chaise lounge, backyard swimming
pool vs. Disney World vacation).

3. What are the three questions marketers must ask before deciding on a competitive strategy?

They need to ask themselves these simple yet revealing questions: Should the firm compete? If
so, in which markets should it compete? And how should it compete?

4. What is the function of the Federal Trade Commission? The Food and Drug Administration?

The Federal Trade Commission (FTC) has the broadest powers of any agency to influence
marketing decisions—it regulates unfair business practices, takes action to stop false or deceptive
advertising, can require firms to provide additional information or give a refund, and (along with the
U.S. Justice Department) has the power to stop mergers. The Food and Drug Administration has
Chapter 3 The Marketing Environment, Ethics, and Social Responsibility 59

the authority and responsibility to regulate food, dietary supplements, drugs, and cosmetics, plus
medical biological devices.

5. Describe an industry or firm that you think might be able to weather an economic downturn and
explain why.

During economic downturns, consumers usually focus on basic necessities and functional products
while putting off purchases related to travel, vacations, entertainment, or restaurant meals. Though
this is not a hard-and-fast rule, it would indicate that firms providing basic goods are more likely to
weather an economic storm than those offering high-end goods or nonessential services. Based on
this theory, firms that would maintain profits even during recessions might include certain grocery,
pharmaceutical, apparel, and hardware manufacturers and retailers, as well as those in industries
that supply everyday needed goods and services such as oil companies, gas and electric utilities,
or transportation systems.

6. Why do marketers monitor the technological environment?

The technological environment affects marketing because it represents the application of

knowledge based on discoveries in science, inventions, and innovations. It can address social
concerns and environmental issues and allow for new design, increased speed, and improved
efficiency in many areas of manufacturing. Advances need to be monitored because technology
can lead to new goods and services or improve existing ones, and can reduce prices through
improved production and distribution—but it can also make existing products quickly obsolete.

7. How might marketers make the most of shifts in the social-cultural environment?

The socio-cultural environment influences marketing activities in many ways—affecting the

readiness of society to accept a new marketing idea, the public’s trust and confidence in business
as a whole, the enactment of legislation and regulation, and the creation of trade barriers and
international restrictions. Marketers can benefit by monitoring these shifts, anticipating the future
trends and consumer preferences that may result from them, then rethinking target markets and
adjusting marketing strategies based on this information.

8. Describe the importance of consumer rights in today’s marketing activities.

Consumer rights are a result of consumerism—the social force within the environment that aids and
protects consumers by exerting legal, moral, and economic pressures on business and
government. Consumer rights in the U.S. include the right to choose freely, to be informed, to be
heard, and to be safe. Marketers must consider all of these when making decisions or creating
strategies, since they form the legal and ethical framework for consumer protection and safety.
Informing consumers, listening to their concerns and ideas, giving them choices, and protecting
their safety come into play in almost any marketing strategy. But while worrying about satisfying
consumers, marketers must also carefully weigh their demands and wishes against profit objectives
and the need to maintain a financially healthy organization.

9. Why is it worthwhile for a firm to create an ethics program?

Marketing ethics refers to a firm’s standards of conduct and moral values in its decision making and
production of goods and services. Creating an ethics program can be complicated and time
consuming, but the final product provides a solid framework and set of realistic guidelines—both
legal and moral—for all employees to follow. It also informs partners, suppliers, and the public of
the firm’s intentions and beliefs. It spells out a company’s policies, provides support, and gives
60 Part 1 Designing Customer-Oriented Marketing Strategies

sound advice for dealing with ethical dilemmas, weighing options, making decisions, and doing
what’s right.

10. How can social responsibility benefit a firm as well as the society in which it operates?
Social responsibility involves accepting the obligation to consider several broad and sometimes
conflicting elements—profit, customer satisfaction, and societal well-being—as being equal in value
when evaluating the performance of the firm. It allows a firm to demonstrate its philosophies and
values by supporting a not-for-profit, donating to a cause, or showing respect for the environment.
While contributing to society, social responsibility benefits a firm by building its reputation as a
trusted institution, creating positive PR and media attention, and winning public support.

Projects and Teamwork Exercises

1. Have students share their competitive strategies for one of the suggested firms. Students may
vary in their reports as they chose to focus on various aspects of the marketing mix. Some may
focus on product development, design, innovation. Others may focus on manufacturing and
distribution operations. Others may focus on customer service, tech support, or online options.
Have them share their ideas and look at the differences in their strategies. A few suggestions:
a. Home Depot and Lowe’s—target markets, inventory, store design and layout

b. Apple and Dell—technological innovations, Internet shopping capabilities, tech service

c. Busch Gardens and Six Flags—target audiences, package deals, air and hotel deals

d. Visa and MasterCard—target markets, accessibility, special services

e. Honda and Ford—technology, latest fuel efficiency and hybrid technology, design, price

f. Sara Lee and Kraft Foods—nutrition, labeling, convenience foods, snack foods

2. Have students share how they tracked their own consumer purchasing decisions as they relate
to income. When they compared decisions during the college year and the summer, what
differences did they see? How did a summer job affect income and related purchase decisions?
Did the school year lead to any shifts in those decisions? Were they surprised by some of their
findings?

3. Ask students to share their strategies for one of those competitors of the U.S. Postal Service—
such as UPS, FedEx, or DHL. What types of services might these businesses begin to offer that
surpass the functions of this vast federal agency? It could be that more specialized services might
be the best choice, those aimed at certain types of geographic regions areas (such as rural areas)
or certain customers (such as small businesses).

4. Students will have much to say about whether the U.S. should enact advertising restrictions in
the future (or whether current restrictions are appropriate) for one of the suggested products. What
were their arguments for or against imposing regulations on ads for these products? A few
suggestions of possible restrictions will start the discussion:

a. alcoholic beverages—restrictions on targeting teens and young adults, on TV

commercials during day or early evening hours
Chapter 3 The Marketing Environment, Ethics, and Social Responsibility 61

b. tobacco—similarly, restrictions on targeting teens and young adults, on TV commercials,

on ads for light cigarettes, health information that can be misinterpreted

c. casinos—restrictions on type of ads, content of ads, and target audiences

d. prescription medications—restrictions on wording and labeling, claims of benefits or uses,

product names and categories or names that can be easily confused with others

5. There is much information available on these well-known cases involving unethical and illegal
activities by executives. They might start with company Web sites to get their own view of things,
then check the sites of trusted news sources. Have students share what they found on charges
made and outcomes for Enron, Tyco, MCI, Martha Stewart Living Omnimedia. Start a discussion
by asking if they were fairly charged and punished, or if they got off easy. Make sure they can back
up their opinions with facts.

Critical-Thinking Exercises

1. Suppose you and a friend want to start a company that markets frozen fish dinners. What are
some of the questions about the competitive environment that you would like to have answered
before you begin production? How will you determine whom your customers are likely to be? How
will you reach them?

To complete the exercise students need to answer the three questions posed in the chapter.

First, do we compete? Consider the availability of firm resources, connect this activity to the firm’s
overall objectives, and project profit potential.

Second, in what markets do we compete? Consider the resources identified earlier and determine
how they can be most effectively allocated.

Finally, how do we compete? Determine which elements of the marketing mix are most critical to
creating competitive advantage.

2. Emissions standards for motorcycles took effect in 2006 under rules adopted by the
Environmental Protection Agency. There were no previous emissions controls for motorcycles at
all, but even under the new laws, “dirt” bikes for off-road use will be exempt, and manufacturers
producing fewer than 3,000 vehicles a year were allowed an extra two years to comply. The new
standards add about $75 to the average cost of a motorcycle according to the EPA, but $250
according to the Motorcycle Industry Council. Why do you think motorcycle makers have not
adopted voluntary emissions standards? Should they have done so? Why or why not?

Student opinions will vary. Motorcycle companies were not likely wanting to increase the price of
their product and were equally unwilling to absorb the costs themselves.

3. The social-cultural environment can have a strong influence on the decisions marketers must
make. In recent years, animal rights groups have targeted the manufacture and sale of foie gras, a
European food delicacy made from goose and duck liver. Activists cite the cruel treatment of these
birds, while chefs and restaurant owners claim otherwise. Animal rights groups are pressuring
restaurants to stop serving foie gras. Others argue that consumers should be allowed a choice.
What aspects of the social-cultural environment are affecting the marketing of foie gras? Which of
the other components of the marketing environment may come into play, and how?
62 Part 1 Designing Customer-Oriented Marketing Strategies

The primary issue here seems to be a change in values—just like we see increased concerns about
the environment and pollution, we see increased concerns about the treatment of animals. Other
components of the marketing environment that can come into play here include the political-legal
environment and competitive environment. The social-cultural environment can sometimes
influence the political-legal environment. For example, the City of Chicago has passed an
ordinance against the sale of foie gras. Competitors may be able respond to these social-cultural
concerns in a way that gives them a competitive advantage.

4. Nearly 400 million rebates—worth about $6 billion—are offered to U.S. consumers by marketers
every year. But do consumers like them? Often rebates require more effort than a consumer is
willing to make to receive the cash back. Critics of the promotional effort say that marketers know
this—and are banking on consumers’ not redeeming them. One expert estimates that this translates
to about $2 billion of extra income in the pockets of retailers and manufacturers. Do you think
rebate programs are ethical? Why or why not?

Student opinions will vary. Keep in mind that any sales promotion program has significant costs
associated with it. Also, retailers have started to better facilitate the rebate process by offering
extra copies of receipts and rebate forms to consumers right at the checkout line. Finally, firms
stand to gain significant insight into their customer base when rebates are actually redeemed.

5. The disposal of nuclear waste has been an ongoing public safety issue, one with which
marketers who work for nuclear power companies must deal. This material is currently stored at
126 sites around the nation. The U.S. Department of Energy (DOE) is obtaining a license to
proceed with the construction of a single nuclear repository at Yucca Mountain in Nevada.62
Supporters of the site argue that Yucca Mountain is critical to building America’s nuclear power
capacity, while critics are skeptical of its safety and usefulness. As a marketer, how would you
approach this issue?

Student opinions will vary. The marketer should be able to focus on the top two stages of the
pyramid of corporate social responsibility. They should ensure that practices are in place to avoid
harming the surrounding area in any way and they should determine what kind of philanthropic role
they might be able to play in the surrounding community.

Ethics Exercises

Some retail firms protect their inventory against theft by locking their premises after hours even
though maintenance and other workers are inside the stores working all night. Employees have
charged that they are forbidden to leave the premises during work hours and that during an
emergency. Employers assert that managers with keys are on the premises (or minutes away) and
that locking employees in ensures their own safety as well as cutting down on costly “shrinkage.”

1. Under what circumstances, if any, do you think locking employees in at night is appropriate?

2. If you feel this practice is appropriate, what safeguards do you think should be put into effect?
What responsibilities do employers and employees have in such circumstances?

The situation described in the exercise is controversial. On the one hand, locking employees in at
night (and making it difficult for them to leave) seems unreasonable if not downright dangerous. On
the other hand, retail firms have the right to protect their inventory. Try to get students to see both
sides and see if some compromise can be worked out.
Chapter 3 The Marketing Environment, Ethics, and Social Responsibility 63

Internet Exercises

1. Developing a competitive strategy.

Review the material in the chapter on how companies develop a competitive strategy, including the
key questions that must be answered. Go to Web sites for the suggested companies and answer
the questions.

a. Proctor & Gamble or Colgate—Pick one of the company’s products and analyze how the
firm answered each of the key questions when it developed a competitive strategy for the
product you selected

Answers will vary. Be sure that students are doing their best to address the following: First,
do we compete? Consider the availability of firm resources, connect this activity to the
firm’s overall objectives, and project profit potential. Second, in what markets do we
compete? Consider the resources identified earlier and determine how they can be most
effectively allocated. Finally, how do we compete? Determine which elements of the
marketing mix are most critical to creating competitive advantage.

b. Gatorade or Powerade—Visit each product’s Web site and compare and contrast the
competitive strategies used by both companies to build their respective brands.

Answers will vary. In this question, students should focus on that last question involved in
developing a competitive strategy: How should we compete? Which elements of marketing
are being used to each firm’s competitive advantage.

c. Google search—Using Google or another search engine, identify a product that has
recently been discontinued. Research the product and the company that produced it, and
write a brief report summarizing the reasons behind the decision

Answers will vary. Students will be able to find a wide variety of discontinued products by
doing a basic search online, but finding the story behind it can be a challenge. Make sure
they plan ahead and have time to consult with you if they have trouble with their research.

2. Ethics and social responsibility.

Many companies use the Web to highlight their ethical standards and social responsibility. Visit
each of the following Web sites and prepare a brief summary of what you found.

a. Green marketing and environmentalism: Ford Motor Company

b. Coffee producers and fair trade: Starbucks

c. Ethical standards and credo: Johnson & Johnson

Answers will vary. A good framework for students to use when structuring their analysis is
the “Pyramid for Corporate Social Responsibility” presented in the text.

Case 3.1 “The Selling of Cell Phone Logs”—Questions for Critical Thinking
64 Part 1 Designing Customer-Oriented Marketing Strategies

1. In what ways is the political-legal environment important to marketers who work for cell phone
companies? Do you agree with the implementation of stricter legislation against the sale of cell
phone records? Why or why not?

The political-legal environment can be used to facilitate customer orientation by the cell phone
companies. Student opinions will vary regarding the stricter legislation proposed.

2. Describe some additional ethical steps that cell phone companies might take to protect the
privacy of their customers.

Training for customer service representatives, limited access within the organization to cell phone
records, work with others in the telecommunications industry to bring privacy issues out in the open.

COLLABORATIVE LEARNING EXERCISES

Types of Competition

Purpose:
To help students better understand different sources of competition

Background:
The ability to understand and identify direct and indirect competition can give students a key
competitive advantage in the job market. This exercise is designed to help them develop
that skill.

Relationship to Text:
Types of Competition

Estimated Class Time:

About 10 minutes

Preparation/Materials:
None needed

Exercise:
Divide your students into small teams. Challenge the teams to brainstorm examples of direct
and indirect competition, with a two-minute time limit on each category. After you call time,
ask one person from each group to bring the lists to the front and read them aloud. Here is
the key rule: If more than one group has the same example, everyone needs to cross that
example from their lists. After several moments, each group will have a unique list of
examples. The winner in each category, of course, is the team with the longest remaining
list. A few extra credit points for the winning teams will usually make the competition more
engaging for everyone.

Questions for Reflection:

 Why does the source of competition matter?
 What are the risks of underestimating indirect competition?
 What companies (or industries) have been causalities of indirect competitors?
Chapter 3 The Marketing Environment, Ethics, and Social Responsibility 65

Government Regulation

Purpose:
To provide context for the current debate regarding whether or not the Internet should be
regulated
Background:
Both state and federal regulators are currently investigating ways to control e-fraud and
other ethical issues on the Web. With so many students on the Internet for both business
and pleasure, they typically provide a wealth of information about how the Web can be used
in ethically shaky ways. This brief, discussion-based exercise is designed to use that
knowledge as a springboard to highlight key ethical issues.

Relationship to Text:
Government Regulation, Ethical Issues in Marketing

Estimated Class Time:

About 10 minutes

Preparation/Materials:
None needed

Exercise:
Ask your students to brainstorm specific ways that the Web could be used for e-commerce
in a fraudulent or unethical manner. You may be surprised (possibly even shocked) at what
they come up with. Examples: searching for misspelled entries on E-Bay (e.g. “Playstation”
listed mistakenly as “Raystation”), buying at rock-bottom prices and immediately selling for
top dollar. Recognizing how easy it could be to cheat others, many savvy students have
become increasingly wary about buying and selling online.

Discussion Questions: Does your class believe that Internet security is getting better or
worse? How many feel uncomfortable sharing personal information (and credit card
information) online? What precautions would make them feel more comfortable? How
could businesses best reassure their customers? Finally, what role should government play
in regulating the Web?

Questions for Reflection:

 Given that the Internet is global, who should be responsible for policing fraud? Why?
 How does online shopping compare to “on-ground” shopping in terms of security? Why?

Economic and Social-Cultural Environments

Purpose:
To highlight the role of trust in the external marketing environment

Background:
A recent Newsweek article pointed out that the level of trust within a culture correlates
strongly with national economic health: the higher the trust, the stronger the economy. One
reason may be that with more trust people are more willing to invest and save, and quicker
to work with others.* This exercise, taken from a description in the article, is designed to
vividly demonstrate the level of trust between individuals, and the economic benefits of a
higher level of trust.
66 Part 1 Designing Customer-Oriented Marketing Strategies

Relationship to Text:
The Economic Environment, The Social-Cultural Environment

Estimated Class Time:

About 15 minutes

Preparation/Materials:
Try to get your hands on about $1,000 in play money of various denominations (Monopoly
money works great). Even without play money, the game is effective, but you will definitely
need a whiteboard and at least three markers.

Exercise:
Introduce this exercise as a way to learn more about the role of trust in the economic and
social environments. Then, choose nine students and have them come to the front of the
room. Be sure to choose both passive and assertive people, both men and women. Divide
them into three groups of three, and ask each group to appoint person A, B, and C. Then
explain the game. The objective of the game is for each person to earn as much money as
possible. Persons A and B are players, and Person C is a mediator. The game has ten
rounds.
 In each round, Person A begins with $10. He can invest that $10 with Person B, or
keep it.
 If Person A chooses to invest with Person B, then Person B will receive triple the
money.
 Person B can either keep the money, or return any portion of it to Person A.
 The job of Person C is to keep track—using the whiteboard—of who has how much
money at the end of each round (if you are using play money, person C actually
awards the dollars).
Before you begin, give each player a moment or two to develop a strategy. When the tenth
round is finished, ask the Cs to tally the results and report to the class. As you lead a
discussion on the winners and losers, be sure your class understands that trusting your
partner generates stronger results for both of you. If A kept all the money, B would have
nothing, but A would never go above $10 per round. If B didn’t return more than $10, A
would stop investing. In fact, A would probably stop investing if B returned less than half of
the money, because A would feel betrayed. Follow-up discussion is usually rich and
spontaneous. Who earned the most money? Why? How hard was it to trust your partner?
Were there differences between men and women?

Questions for Reflection:

 How does trust on a societal level relate to a stronger economy?
 How can governments encourage (or discourage) trust?
 Is trust in general growing or declining in current U.S. culture?
 If you have international students, you may want to ask how their home cultures
compare to American culture.

* Source: Adler, Jerry, “Mind Reading,” Newsweek, July 5, 2004

Ethics and Legality

Purpose:
To clarify the difference between ethical and legal behavior
Chapter 3 The Marketing Environment, Ethics, and Social Responsibility 67

Background:
Many students have never thought about laws as the “floor” for ethical behavior; some, in
fact, regard laws as the standard rather than the base. This issue is especially important
from a marketing perspective, since marketing activities often affect the public far beyond
the organization itself. This exercise is designed to clarify the difference between legal and
ethical approaches, and in doing so, to help students articulate their own personal ethical
standards.

Relationship to Text:
Ethical Issues in Marketing

Estimated Class Time:

About 10 minutes

Preparation/Materials:
None needed

Exercise:
Ask your class to identify examples of the following behaviors. You might find it helpful to
present the categories on the board as quadrants, and to fill each quadrant with the
examples that your students surface.
 Illegal and unethical behavior (e.g., embezzling money, price discrimination, sexual
harassment)
 Illegal and ethical behavior (e.g., providing rock-bottom prices only to struggling
wholesalers in an underserved rural area)
 Legal and unethical behavior (e.g., promoting R-rated movies to young teens,
engaging in employee favoritism)
 Legal and ethical behavior (e.g., leading by example, contributing to the local
community, protecting whistleblowers)
You may find that simply categorizing behaviors triggers a vibrant discussion.

Questions for Reflection:

 What tools could companies use to ensure that they market in an ethical manner?
 How involved should the government be in this arena? Are there limits to the
effectiveness of government regulation?
 What are examples of self-regulation (e.g., the movie rating system, alcohol advertising
limits in network TV)? How effective are these efforts? Why?

Ethics and Profits

Purpose:
To explore the relationship between ethics and profits

Background:
A well-known CEO recently said, “There’s no incompatibility between doing the right thing
and making money.” While virtually all students would agree, some question whether they
could make even more money by stretching ethical limits. This exercise is designed to help
students develop their personal ethical perspective by exploring these boundaries.

Relationship to Text:
Ethical Issues in Marketing
68 Part 1 Designing Customer-Oriented Marketing Strategies

Estimated Class Time:

About 10 minutes

Preparation/Materials:
None needed

Exercise:
Ask your students if they believe that ethical behavior leads to higher profits. Most classes
respond with a resounding “yes!” But regardless of their responses, share with them the
story of the Vice Fund. This is a mutual fund, launched toward the end of 2002, which
specializes in “vice” stocks: gambling, defense, alcohol, and tobacco. In the five years prior
to launch, Vice Fund stocks went up 53 percent, while the S&P 500 went up 12 percent and
the Domini index of socially responsible companies went up 5 percent. Some argued that
this was the result of an economy in recession, but even in the stronger economy of 2003,
the Vice Fund went up 34 percent while the S&P 500 and the Domini index both increased
by 28 percent.

How will your students respond to this information? Guide them in a discussion of reasons
for ethical decision making that go beyond profitability. Do ethics differ from person to
person? How does this impact decision making? Most students conclude that the most
important consideration is for each person to act—within the law—according to his or her
own values. They quickly understand that the best way to make this happen is to completely
understand their own values, both right now and as they evolve and move into a career.

Questions for Reflection:

 How would you react if your values were different from those of your boss or manager?
When is this most likely to be an issue for you personally?
 How would you feel about marketing a product that you don’t believe in?

Sources: Maranjian, Selena, “Good vs. Evil Mutual Funds,” posted May 11, 2004, The Motley Fool,
www.fool.com; Harris, Dan, “Vice is Nice,” posted October 7, 2002, www.abcnews.com.