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Ethical Challenges in Marketing-I
D. P. Padmanabhan
THE IMPORTANCE OF ETHICS
When we look at the definition of ethics, we come very close to the concept of dharma, as given to us by our forefathers. Though there is no direct equivalent for dharma in the English language, it can partly be explained as righteousness or code of righteous conduct for individuals, family members, professionals, institutions, governments, and monarchy. It governs all activities, including warfare.
Dharma was practiced much before the Geneva Convention was put in place or the international human rights came into force. It is indeed ironic that we have given a go-by to these value systems and drifted so far that what at one time used to be followed by society as a matter of routine is now a topic for serious discussion. Be it as it may, I cannot over-emphasize the importance of ethics. No human activity can sustain without an adherence to a strong value system based on trust, transparency, truth, and a sense of equity. This is even true of a business enterprise. For an organization to grow, and sustain that growth over a period of time, it is vital, necessary and imperative that it has a strong ethics policy that permeates all its activities. Today, the buzzword heard in management circles is ‘value addition. Going up the value chain, what values does the individual bring to the table? Concepts of cost and price have given way to creating, sustaining and delivering value to our customers. I am glad that this concept is universally accepted because it reiterates the definition of ethics with which we started this discussion.
EXAMPLES OF UNETHICAL PRACTICES
We have just stated that ethics should permeate all aspects of business, but some functions of business are under greater pressure and hence, under greater strain when it comes to holding on to certain set of values. This is particularly true of marketing. With immense competition, the pressure on selling has increased multifold. Many organizations, in their anxiety to sell, cut corners and compromise on ethics. Let us examine how ethics is crucial and how it can be compromised in the various facets of marketing. The first facet of marketing that I would like to take up is product features and properties. It is extremely important that organizations communicate clearly what their products can or cannot do; for example, let them make known the limitations of usage, service life, installation and maintenance costs. There is no dearth of examples wherein manufacturers make exaggerated claim of performance or do not record the limitations of the product. For instance, several cholesterol-lowering drugs do have long-term side effects that are either underplayed or not spoken of at all. In the case of some two-wheelers or four-wheelers, exaggerated claims of mileage are made with a small asterisk in the ad ‘Under Standard Test Conditions’, which will have no bearing on or connection with the actual road conditions. In the case of electrical appliances like dryers or vacuum cleaners, the manufacturers’ claim of continuous operation of six hours is belied when the equipment overheats barely two hours after working. Today, the whole world is shifting towards Compact Fluorescent Lamp (CFL), the reasons for the purchase decisions being two-fold: the running energy cost is low and the life of the bulb is 500 hours, a fact that justifies the huge cost investment one has to make when one switches from incandescent to CFL bulbs (manufacturers claim that it saves 80 per cent energy and has six times longer life than the conventional bulbs). Now this entire economics goes out of the window if you buy the bulb, which according to the manufacturer has 500 hours of life and it is packed up within 150 hours. In all these cases, market could be misled in the short run, but the long-term market finds out the real position after which the product dies a natural death.
THE UNETHICAL PRACTICE OF COPYING
As a corollary to this product-features imbroglio, this has become the scourge of marketing today, especially in the small and medium enterprise (SME) sectors. I am talking about copying. To nullify product advantage of a competitor, especially when there is a strong market leader, the followers resort to a quick-fix method, that is, they straightaway copy the features. This phenomenon is unfortunately gaining currency. This attitude is further aided by the tardy implementation of the Intellectual Properties Act in this country. The imitators and copiers should understand that the present-day market will very soon determine who the leader is and will go for the original products. They would always be several steps behind the leader and would necessarily have to piggyback on them. This problem is widespread in the field of auto components and spare parts. Two years ago, Ford India's managing director jokingly said in one of the Madras Management Association (MMA) seminars that even before a new Ford model is launched in the US, spare parts are already available in Ludhiana. I believe it is a very poignant statement even though it is funny to hear. It is extremely sad. We at Eurocon have been at the receiving end with regard to this malaise. Our competitors fully copy our product, design and features; they also go to the extent of reproducing the brochure. This problem is made even more difficult for SMEs whose organizations and financial constraints make it very difficult to fight protracted legal battles.
THE NEED TO PUT IN PLACE INTELLECTUAL PROPERTY RIGHTS RULES
The spirit of innovation would suffer a serious setback if strong Intellectual Property Rights (IPR) rules, especially in the field of trademark, copyright and patent are not in place and implemented fairly and quickly. Otherwise, this land of ours will be filled with copycats and duplicates. Simultaneously, I think entrepreneurs should constantly innovate and always be a step ahead of the competitors, and establish a strong brand identity through a vigorous and sustained promotional campaign. That can be the only insurance against copycats and duplicators.
UNETHICAL PRACTICES IN DISTRIBUTION AND MARKETING
The next facet of marketing that is often subject to ethical pressures is in the field of distribution and pricing. In this area, two kinds of improprieties occur. The first is in the case of new products and concepts selling. Whenever a new product or concept has to be introduced in the market, the distributors or the dealers, in the initial stages, will have to put an enormous effort with little or no rewards in the short run. But the benefit accrues over a longer period. Some manufacturers allow the distributors to do all the hard work, but when the product is established and sales start picking up, they are shown the door. The other commonly seen unfair practice in the distribution sector is to favour select dealers with stocks and special discounts so that others in the field are at a disadvantage. Many a time, the promoters themselves or senior officials of the marketing department are hand in glove with select dealers. Organizations should have clear and transparent distribution policies based purely on market requirements and the efficiency of distributors, providing timely service to the customers, both during and after sales.
PLAY FAIR WITH THE DISTRIBUTOR
The distribution costs should be fair and in keeping with the service expected from the distributor. Any compromise would lead to an erosion of credibility, leading to negative long-term effects. Another serious concern connected with marketing, and something that directly violates ethical norms, is the recording of the sale transaction itself. To evade taxes and duties, manufacturers themselves or through their intermediaries, resort to what is called ‘cash transaction’. This phenomenon is dangerous to the economy in the long run, and in the short run, breeds unorganized trade. ‘Machinery and spare parts’ is an example in this category. The genuine manufacturers paying all the taxes and duties are at a serious disadvantage when confronted with this kind of competition. But my advice to them is to hold tight and not give in to despair. Times are changing, customers are wary of goods sold without bill. Besides, companies tend to get labelled as unorganized. Such a label can hardly be a prescription for longevity.
SERIOUS ISSUES CONNECTED TO SALES PROMOTION AND ADVERTISING
The other facet of marketing is sales promotion and advertising. The words ‘sales’ and ‘promotion’ encompass a vast array of activities, which cover legitimate activities, and promote and aid sales on one hand, and straightforward bribes and commissions on the other. Let me go through the spectrum with you. Dealers meet in sales conferences, which I feel are legitimate and necessary activities as they help in better appreciation and communication of companies’ policies. Next, let me take you through shades of grey and ultimately to the black—customer meets, fully paid holidays not only for the customer but for the family. The grey is getting darker. Rave weekend parties with liberal members of the opposite sex; it is getting close to black now. Loyalty bonuses and straightforward commission on sales, and a gamut of activities comes under the quote: sales promotion. While many industries are susceptible under these abbreviations, the service industry like health care, engineering consultancy and pharmaceuticals appear to be more vulnerable. These are serious issues that not only affect the sales of products and services but strikes at the very root of our societal value systems leading to permanent degradation. Ethically driven and genuine ‘sales promotion’ activities are necessary to support the sale of a product. But when the laxman rekha is crossed, one is on a long slippery slope.
THE NEED FOR ETHICS IN ADVERTISING
There is, of course, the need for ethics in advertising. But this is one area where maximum all-round damage is possible. Half-truths, and sometimes seriously misleading advertisements lead to substantial financial loss to the general public. The teakwood plantation scandal, the host of non-banking finance companies (NBFCs) and time-share companies that came and went 10 years ago are some of the examples that come to my mind. These things happened not very long ago. In our preoccupation with 8 per cent growth rate, we seem to have forgotten what happened seven years ago. With huge half-page ads for these teakwood plantations, the general public lost crores of rupees. Most of the promoters are facing criminal charges.
DESIDERATA FOR ETHICAL MARKETING PRACTICES
These are serious issues. All our projections such as, ‘by 2015 India will be this’, ‘by 2030 we will outdo the US economy’, will go out of the window if we do not set the systems right and address the issues here and now. Therefore, what needs to be done now is to correct the aberration: first, a free market economy with no governmental control providing a simple level playing field for all players. The ‘Permit License Quota Raj’, which was there in the pre-1990s, ensured a breed of entrepreneurs whose skill was entirely limited to bagging the licenses in Delhi, and thereafter ensuring there was no competition. The customer had little or no choice irrespective of the low quality or defects of the products. Enterprises knew how to manage the situation. Fortunately, now the government controls and shackles on industry have reduced but not eliminated. Still some sectors of our economy are government controlled. These need to go certainly over time.
The Laws Should Be Simple, Reasonable and Should Ensure Compliance
The patent laws of the country have to be simple and reasonable to ensure greater compliance. The government's move to introduce value-added tax (VAT) and the move towards grid support contract (GSC) is the way forward. Greater simplification and rationalization of direct and indirect taxes is the need of the hour. Today, the producer's duty is to provide a good or a service at an optimum cost, which ensures a good value proposition to the buyer who will be at liberty to choose from the best in the field. This is one essential prescription.
Customers Should Be Focused and Proactive
This aspect is even more crucial. An organization's survival is entirely in the hands of its customers. Customers should use this enormous power at their disposal to ensure that goods and services are procured from organizations that provide the best value proposition. Remember, the bill for outlandish ad campaigns and lavish sales promotional expenses are ultimately paid for by customers like you and me when we pay for the product across the counter. Therefore, it is necessary that the customer is aware of all the options in the market, product features, history of the company providing the goods and services, after sales service, and maintenance costs. Fortunately, now all information is available easily and quickly on the Internet. This knowledge should be utilized by the customers to ensure the elimination of the fat cats and encourage the providers of real value.
Producers Should Be Fair and Equitable to All Stakeholders
The third condition, and in my opinion a very crucial condition, is that the producers of goods and services should realize that the only way to sustain and grow over a period of time is to ensure that all the stakeholders—suppliers, workers, government, shareholders, financials, local population, dealers, distributors, transporters, and last but by no means least, the customers—are dealt with in an equitable, fair and transparent manner. Is this not the concept of vasudheva kutumbakam as told to us by our elders many moons ago? I think it is time we went back to our roots. These truths transcend time and they do make extremely good business!