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Respond to the following in a minimum of 175 words: How has government regulation and oversight influenced health care products and services? Provide an example. Do you think this regulation and oversight does more to help or hurt health care? Please explain. 1114237 - Pearson Education Limited © 2 Consumer Well-Being Chapter Objectives When you finish reading this chapter you will understand why Christen wheels her cart down the grocery aisles, absent-mindedly throwing in the usual fill-ins she always buys on her weekly trip. She reaches for a box of Tide laundry detergent and is about to toss it into the cart when she stops herself in midair: She just remembered her resolution to think a little more about the environmental impact of the cleaning products and other groceries she brings into the house. When her son Jon came home from school and asked her how she was helping to preserve the world for the next generation, 2-1 Ethical business is good business. 2-2 Marketers have an obligation to provide safe and functional products as part of their business activities. 2-3 Consumer behavior impacts directly on major public policy issues that confront our society. 2-4 Consumer behavior can be harmful to individuals and to society. file://view/books/9780135200155/epub/OPS/xhtml/fileP700101546800000000000000000077B.html#P700101546800000000000000000077B file://view/books/9780135200155/epub/OPS/xhtml/fileP70010154680000000000000000007B7.html#P70010154680000000000000000007B7 file://view/books/9780135200155/epub/OPS/xhtml/fileP7001015468000000000000000000853.html#P7001015468000000000000000000853 file://view/books/9780135200155/epub/OPS/xhtml/fileP70010154680000000000000000008D4.html#P70010154680000000000000000008D4 1114237 - Pearson Education Limited © she was embarrassed that she couldn’t answer him. From the mouths of babes! Time for this 33-year-old to learn a lesson. Source: DmitriMaruta/Shutterstock. Might as well start with detergents—Christen thinks about that news report she saw last week about the excessive use of chemicals and other additives that are bad for the water supply, not to mention the huge amount of fresh water U.S. consumers waste just to wash their clothes. Christen has always bought Tide; it’s the same product her mother used for years. Now as she takes a closer look in the detergent section she notices a lot of other brands, including some “ecologically sound” ones she’s never seen before like Dropps, Ecos, Method, and Seventh Generation. When she looks at each box, Tracy notices that some carry different “ecolabels,” including one issued by the U.S. Environmental Protection Agency called DfE (Design for 1114237 - Pearson Education Limited © the Environment). Hmmm…Tide doesn’t have that on its box. On the other hand, the Tide package does recommend just using cold water instead of hot for the laundry, and Procter & Gamble (P&G) now sells a concentrated version that doesn’t require as much soap to do the wash. Christen also notices that the “green” brands seem to cost a bit more. Today every penny counts—how much of her precious grocery budget is worth sacrificing for a slightly less sudsy wash? All of these choices are really confusing. Maybe she should stick with what she knows and let others worry about the environment. Then again, what will she tell Jon the next time he asks about how “green” she is? 1114237 - Pearson Education Limited © Business Ethics and Consumer Rights Mainstream U.S. shoppers like Christen increasingly choose “green” products that are better for the environment. On the other hand, there has been a lot of hype about “the green revolution”; since the recession of 2008, consumers are a lot more cost-conscious. To add to the confusion, even well-intentioned shoppers have trouble figuring out which brands really are better. It’s practically a full-time job to sort out all the competing claims. One solution is for independent rating agencies to develop labeling systems that the shopper can use to decide among options—but even these systems can be overwhelming. There are 464 eco-label systems worldwide. The U.S. government is trying to encourage businesses and consumers to select green cleaning products; the Environmental Protection Agency (EPA) even signed a promotion agreement with NASCAR to raise awareness of the DfE label. In addition to DfE certification and other rating systems the cleaning industry sponsors, a few manufacturers and retailers even offer their own labels, such as SC Johnson’s Greenlist and Eco-Scale by the Whole Foods grocery chain. Other major brands, like P&G’s Tide, sell highly concentrated versions that are formulated to work with cold water. It’s tough to make apples-to-apples comparisons, and these competing systems threaten to “throw the baby out with the bath water” if consumers like Tracy throw up their hands and just stick to what they know. Ethical business is good business.OBJECTIVE 2-1 1 2 1114237 - Pearson Education Limited © Is it possible for marketers to “do good” and still “do well”; can they provide profits and still do what’s right for customers and the environment? The answer is simple: Ethical business is good business. A majority of consumers around the world say they are willing to pay more for products and services from companies that are committed to positive social and environmental impact. What is even more encouraging is that younger consumers express this preference even more strongly: About three- quarters of them feel this way, and 81 percent of them even expect their favorite companies to declare publicly what they are doing to make the world a better place. Business ethics are rules of conduct that guide actions in the marketplace; these are the standards against which most people in a culture judge what is right and what is wrong, good or bad. These universal values include honesty, trustworthiness, fairness, respect, justice, integrity, concern for others, accountability, and loyalty. Of course, notions of right and wrong differ among people, organizations, and cultures. Some businesses believe it is okay for salespeople to pull out all the stops to persuade customers to buy, even if this means they mislead them; other firms feel that anything less than total honesty with customers is terribly wrong. Because each culture has its own set of values, beliefs, and customs, companies around the world define ethical business behaviors quite differently. These cultural differences certainly influence whether business practices such as bribery are acceptable. Since 1977 the Foreign Corrupt Practices Act makes it illegal for U.S. executives to bribe foreigners to gain business. The Organization for Economic Cooperation and Development (OECD), to which most industrialized countries belong, also outlaws bribery. Still, these practices are common in many countries. In Japan, it’s called kuroi 3 1114237 - Pearson Education Limited © kiri (black mist); in Germany, it’s schmiergeld (grease money), whereas Mexicans refer to la mordida (the bite), the French say pot-de-vin (jug of wine), and Italians speak of the bustarella (little envelope). They’re all talking about baksheesh, the Middle Eastern term for a “tip” to grease the wheels of a transaction. Giving “gifts” in exchange for getting business from suppliers or customers is acceptable and even expected in many countries. Regardless of whether they do it intentionally, some marketers do violate their bonds of trust with consumers. In some cases, these actions are actually illegal, as when a manufacturer deliberately mislabels the contents of a package. Or a retailer may adopt a “bait-and-switch” selling strategy that lures consumers into the store when it offers inexpensive products with the sole intent to get them to switch to higher-priced goods. In other cases, marketing practices have detrimental effects on society even though they are not explicitly illegal. Some companies erect billboards advertising alcohol and tobacco products in low-income neighborhoods; others sponsor commercials that objectify women as they pander to male viewers. Needs and Wants: Do Marketers Manipulate Consumers? One of the most common and stinging criticisms of marketing is that companies convince consumers they “need” many material things, and that they will be unhappy and inferior people if they do not have these “necessities.” The issue is a complex one and is certainly worth 1114237 - Pearson Education Limited © considering: Do marketers give people what they want, or do they tell people what they should want? Who controls the market—companies or consumers? This question is even more complicated as new ways of buying, having, and being are invented every day. It seems that the “good old days” of marketerspace—a time when companies called the shots and decided what they wanted their customers to know and do—are dead and gone. Many people now feel empowered to choose how, when, or if they will interact with corporations as they construct their own consumerspace . In this new environment, individuals dictate to companies the types of products they want and how, when, and where (or even if) they want to learn about those products. In turn, companies need to develop and leverage brand equity in bold new ways to attract the loyalty of these consumer “nomads.” People still “need” companies—but in new ways and on their own terms. As we’ll see throughout this text, profound changes in consumer behavior are influencing how people search for product information and evaluate alternative brands. In the brave new world of consumerspace, we have much greater potential to shape our own marketing destinies. Do Marketers Create Artificial Needs? The marketing system has come under fire from both ends of the political spectrum. On the one hand, some members of the religious right believe that marketers contribute to the moral breakdown of society when they present images of hedonistic pleasure and encourage the pursuit of secular humanism at the expense of spirituality and the environment. A coalition of religious groups called the National Religious Partnership for the Environment claims that gas-guzzling cars and other factors that cause 4 1114237 - Pearson Education Limited © climate change are contrary to Christian moral teachings about protecting people and the Earth. On the other hand, some leftists argue that the same deceitful promises of material pleasure function to buy from people who would otherwise be revolutionaries working to change the system. According to this argument, the marketing system creates demand—demand that only its products can satisfy. A Response. As we saw in Chapter 1 , a need is a basic biological motive; a want represents one way that society has been taught to satisfy the need. For example, thirst is a biologically based need. Marketers teach us to want Coca-Cola to satisfy that thirst rather than, say, goat’s milk. Thus, the need is already there; marketers simply recommend ways to satisfy it. A basic objective of marketing is to create awareness that needs exist, not to create needs. Is Marketing Necessary? More than 50 years ago, the social critic Vance Packard wrote, “Large-scale efforts are being made, often with impressive success, to channel our unthinking habits, our purchasing decisions, and our thought processes by the use of insights gleaned from psychiatry and the social sciences.” The economist John Kenneth Galbraith charged that radio and television are important tools to accomplish this manipulation of the masses. Because consumers don’t need to be literate to use these media, repetitive and compelling communications can reach almost everyone. This criticism may even be more relevant to online communications, where a simple click delivers a world of information to us. 5 6 7 8 1114237 - Pearson Education Limited © 1114237 - Pearson Education Limited © The American Association of Advertising Agencies created this ad to counter charges that ads create artificial needs. Source: Used with permission of the American Association of Advertising Agencies. Some people charge that marketers arbitrarily link products to desirable social attributes, so they foster a materialistic society where what we own defines our value as a person. One influential critic even argued that the problem is that we are not materialistic enough: We do not sufficiently value goods for the utilitarian functions they deliver but instead focus on the irrational value of goods for what they symbolize. According to this view, for example, “Beer would be enough for us, without the additional promise that in drinking it we show ourselves to be manly, young at heart, or neighborly. A washing machine would be a useful machine to wash clothes, rather than an indication that we are forward-looking or an object of envy to our neighbors.”9 1114237 - Pearson Education Limited © A poster for Westin Hotels’ Well-Being Movement. Source: Courtesy of Starwood Hotels & Resorts Worldwide, Inc. A Response. Products meet existing needs, and marketing activities only help to communicate their availability. The economics of information perspective regards advertising as an important source of consumer learning. This view emphasizes the economic cost of the time we spend to search for products. Accordingly, advertising is a service for which consumers are willing to pay because the information it provides reduces their search time. Do Marketers Promise Miracles? 10 11 1114237 - Pearson Education Limited © Advertising leads us to believe that products have magical properties; the things we buy will transform our lives. We will be beautiful, successful, perhaps even live forever. In this respect, advertising functions as mythology does in primitive societies: It provides simple, anxiety-reducing answers to complex problems. A Response. Marketers simply do not know enough about people to manipulate them. Consider that the failure rate for new products ranges from 40 to 80 percent. Although people think that advertisers have an endless source of magical tricks and scientific techniques to manipulate them, in reality the industry is successful when it tries to sell good products and unsuccessful when it sells poor ones.12 1114237 - Pearson Education Limited © Consumers’ Rights and Product Satisfaction Fifty-four million dollars for a pair of missing pants? A judge in Washington, D.C., made headlines a decade ago when he filed a $54 million lawsuit against his neighborhood dry cleaner because it lost a pair of his pinstriped suit pants. He claimed that a local consumer protection law entitled him to thousands of dollars for each day over nearly four years in which signs at the shop promised “same day service” and “satisfaction guaranteed.” The suit dragged on for several months, but at the end of the day the plaintiff went home with empty pockets. And some people claim we have too many lawsuits in this country! If you’re not happy with a product or service, what can you do about it? You have three possible courses of action (though sometimes you can take more than one): 1. Voice response—You can appeal directly to the retailer for redress (e.g., a refund). 2. Private response—You can express your dissatisfaction to friends and boycott the product or the store where you bought it. Marketers have an obligation to provide safe and functional products as part of their business activities. OBJECTIVE 2-2 14 15 1114237 - Pearson Education Limited © 3. Third-party response—Like the pantsless judge, you can take legal action against the merchant, register a complaint with the Better Business Bureau, or write a letter to the newspaper. These comments can be effective, especially when others join in. Cover Girl ran an advertising campaign targeted at female football fans that depicted a model wearing a Baltimore Ravens jersey with the tagline, “Get Your Game Face On.” At about the same time, a prominent Ravens player made headlines in a series of allegations about NFL players who physically abused their wives and girlfriends. Protestors went online and altered the ad to make it look like the model had a black eye. When enough people band together to express negative marketplace sentiments through activist organizations such as Greenpeace or in social media mass protests such as the one Cover Girl ran into, dramatic changes can result. The Tangled Web From ihatestarbucks.com to boycottwalmart.meetup.com/, irritated customers have launched hundreds of gripe sites to air their grievances against companies. The practice is so widespread that some firms proactively buy unflattering domain names to keep other people from buying them. Xerox, for example, registered xeroxstinks.com, xeroxcorporationsucks.com, and ihatexerox.net. About 20,000 domain names end in “sucks.com.” About one- third of these sites are registered to none other than the companies they slam: owners include Walmart Stores, Coca-Cola, Toys “R” Us, Target, and Whole Foods Market. 16 17 13 1114237 - Pearson Education Limited © In one study, business majors wrote complaint letters to companies. When the firm sent a free sample in response, this action significantly improved how the students felt about it. This didn’t happen, however, when they only received a letter of apology—but no swag. Even worse, students who got no response reported an even more negative image than before. This shows that any kind of response is better than none. Mass protests can sometimes bring about change. Source: ZUMA Press, Inc./Alamy Stock Photo. A number of factors influence which route we choose. People are more likely to take action if they’re dissatisfied with expensive products such as household durables, cars, and clothing than for problems with inexpensive products. Ironically, consumers who are satisfied with a store in general are more likely to complain if they experience something bad; they take the time to complain because they feel connected to the store. And, if a 18 19 1114237 - Pearson Education Limited © company resolves the problem, customers feel even better about it than if they hadn’t complained in the first place! The moral: Although nobody likes criticism, organizations should encourage people to complain for these reasons: 1. They get the chance to correct the situation. 2. They will avoid an escalating problem that results when consumers take to social media to let others know they’ve been treated badly. People are more likely to spread the word about unresolved negative experiences to their friends than they are to boast about positive occurrences. 3. They collect valuable insights about customers’ experiences that will (hopefully) help them to improve for future customers. 4. If consumers do not believe that the store will respond to their complaint, they will be more likely to simply switch than fight as they just take their business elsewhere. Companies that score high in customer satisfaction often benefit from a big competitive advantage—especially when so many firms skimp on the attention they pay to customers. A five-year study of customer satisfaction in the Canadian banking industry provides typical results: Banks that provided better service commanded a larger “share of wallet” than did others (i.e., their customers entrusted them with a larger proportion of their money). Even so, more than half of the chief marketing officers (CMOs) who participated in a large survey reported that their companies do not reward their employees if customer satisfaction improves. More than one-third said they have no way to track word-of-mouth among customers, and fewer than three in ten said their firms are good at resolving customers’ complaints. What is wrong with this picture? 20 21 22 1114237 - Pearson Education Limited © Consumers get creative when they want to vent their feelings about companies they don’t like. Source: Michael Matthews/Alamy Stock Photo. When a product doesn’t work as we expect or turns out to be unsafe (like the spate of hazardous products from China, ranging from toothpaste to dog food), it’s the understatement of the year to say we’re not satisfied. In these situations, marketers must immediately take steps to reassure us, or they risk losing a customer for life. If the company confronts the problem truthfully, we are often willing to forgive and forget. But if the firm seems to be dragging its heels or covering up, our resentment grows. This is what happened during the BP oil spill in the Gulf of Mexico or during the infamous “Poop Cruise,” when a disabled Carnival cruise ship sat at sea while 4,200 passengers and crew suffered through five days with no plumbing or electricity, and little food, under the glare of an unrelenting media spotlight. Market Regulation 23 1114237 - Pearson Education Limited © The subprime mortgage meltdown that led to the collapse of major investment banking and insurance companies such as Bear Stearns, Lehman Brothers, and AIG, as well as triggering the Great Recession of 2008 (and beyond), illustrates why many people look to governments and industry watchdogs to provide oversight and regulation rather than relying strictly on businesses to police themselves. Some members of the business community regard this level of government oversight as excessive, and the Trump administration has aggressively unraveled many rules that relate to product safety and the environment. Still, concern for the welfare of consumers has been an issue since at least the beginning of the 20th century, and activists continue to voice concerns about a range of issues such as child labor, exploitative advertising, and genetically engineered food. Partly as a result of consumers’ efforts, the U.S. government established many federal agencies to oversee consumer-related activities. These include the Department of Agriculture, the Federal Trade Commission, the Food and Drug Administration, the Securities and Exchange Commission, and the EPA. After Upton Sinclair’s 1906 book The Jungle exposed the awful conditions in the Chicago meatpacking industry, Congress was prompted to pass important pieces of legislation—the Pure Food and Drug Act in 1906 and the Federal Meat Inspection Act a year later—to protect consumers. A summary of some important consumer legislation enacted since that time appears in Table 2.1 . You can find other information about consumer-related issues at consumerreports.org and cpsc.gov (the Consumer Product Safety Commission). Table 2.1 Sample of Federal Legislation to Enhance Consumers’ Welfare Year Act Purpose 1953 Flammable Prohibits the transportation of flammable fabrics 24 25 1114237 - Pearson Education Limited © Fabrics Act across state lines. 1958 National Traffic and Safety Act Creates safety standards for cars and tires. 1958 Automobile Information Disclosure Act Requires automobile manufacturers to post suggested retail prices on new cars. 1966 Fair Packaging and Labeling Act Regulates packaging and labeling of consumer products. (Manufacturers must provide information about package contents and origin.) 1966 Child Protection Act Prohibits sale of dangerous toys and other items. 1967 Federal Cigarette Labeling and Advertising Act Requires cigarette packages to carry a warning label from the Surgeon General. 1968 Truth-in- Lending Act Requires lenders to divulge the true costs of a credit transaction. 1969 National Environmental Policy Act Established a national environmental policy and created the Council on Environmental Quality to monitor the effects of products on the environment. 1114237 - Pearson Education Limited © 1972 Consumer Products Safety Act Established the Consumer Product Safety Commission to identify unsafe products, establish safety standards, recall defective products, and ban dangerous products. 1975 Consumer Goods Pricing Act Bans the use of price maintenance agreements among manufacturers and resellers. 1975 Magnuson- Moss Warranty- Improvement Act Creates disclosure standards for consumer product warranties and allows the Federal Trade Commission to set policy regarding unfair or deceptive practices. 1990 The Nutrition Labeling and Education Act Reaffirms the legal basis for the Food and Drug Administration’s new rules on food labeling and established a timetable for the implementation of those rules. 1998 Internet Tax Freedom Act Established a moratorium on special taxation of the internet, including taxation of access fees paid to America Online and other Internet Service Providers. 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act Prompted by the recession that began in 2008, intends to promote the financial stability of the United States by improving accountability and transparency in the financial system, to end “too big to fail,” to protect the American taxpayer by ending bailouts, and to protect consumers from abusive financial services practices. The Trump Administration is working to repeal this Act. 1114237 - Pearson Education Limited © 2016 Consumer Review Fairness Act of 2016 Passed in response to a number of incidents where companies tries to stifle negative online user reviews by including a “gag clause” in a contract that threatens legal action or monetary damages when customers say bad things about the company. The bill allows the FCC and individual states to take action against companies that try this tactic. Table 2.2 lists major U.S. regulatory agencies and what they do. One of the most important ones for consumers is the Food and Drug Administration (FDA); it polices advertising claims as well as the contents of edible products and pharmaceuticals. For example, as part of an FDA crackdown on consumer drug advertising, Bayer HealthCare Pharmaceuticals launched a $20 million corrective advertising campaign for Yaz, the most popular birth control pill in the United States. This term means that the company must inform consumers that previous messages were wrong or misleading. The TV commercials, which ran during prime-time shows such as Grey’s Anatomy and on cable networks, warned that nobody should take Yaz hoping that it will also cure pimples or premenstrual syndrome. Bayer was required to run these ads to correct previous messages after regulators decided the earlier ads overstated the drug’s ability to improve women’s moods and clear up acne. Table 2.2 U.S. Regulatory Agencies and Responsibilities Regulatory agency Responsibilities Consumer Product Safety Commission (CPSC) Protects the public from potentially hazardous products. Through regulation and testing programs, the CPSC helps firms make sure their products won’t harm customers. 26 1114237 - Pearson Education Limited © Environmental Protection Agency (EPA) Develops and enforces regulations aimed at protecting the environment. Such regulations have a major impact on the materials and processes that manufacturers use in their products and thus on the ability of companies to develop products. Federal Communications Commission (FCC) Regulates telephone, radio, and television. FCC regulations directly affect the marketing activities of companies in the communications industries, and they have an indirect effect on all firms that use broadcast media for marketing communications. Federal Trade Commission (FTC) Enforces laws against deceptive advertising and product labeling regulations. Marketers must constantly keep abreast of changes in FTC regulations to avoid costly fines. Food and Drug Administration (FDA) Enforces laws and regulations on foods, drugs, cosmetics, and veterinary products. Marketers of pharmaceuticals, over-the-counter medicines, and a variety of other products must get FDA approval before they can introduce products to the market. Interstate Commerce Commission (ICC) Regulates interstate bus, truck, rail, and water operations. The ability of a firm to efficiently move products to its customers depends on ICC policies and regulation. Advertisers, retailers, and manufacturers typically try to police themselves to ensure that their messages and products are not harmful or inaccurate. In addition to good intentions, they have a practical reason to do so: They don’t want governments to do it for them. Indeed, sometimes these efforts 1114237 - Pearson Education Limited © even seem to go a bit over the top. Consider, for example, a ruling by the National Advertising Division (NAD) of the Council of Better Business Bureaus, which is one of these industry watchdogs. Acting on a complaint by rival Kimberly-Clark, P&G must add little flecks of cartoon toilet paper to the backsides of its Charmin cartoon bears in future ads for its toilet paper. Although P&G supported its claim that Charmin leaves “fewer pieces behind” than the Cottonelle brand (and showed the results of its test on the brand’s website), the NAD decided that the test “did not accurately reflect the results consumers normally see and experience.”27 1114237 - Pearson Education Limited © Consumerism …