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Baby Needs a New Crib

 An on-line retailer that sells home and children’s items, such as children’s furniture, clothing, and toys, was seeking a way to reach a new audience and stop the declining sales and revenue trends it was suffering. A market research firm hired by the retailer identified a new but potentially risky market: lower-income single parents. The new market seemed attractive because of the large number of single parents, but most of these households were severely constrained in terms of their monetary resources.

The research firm proposed that the retailer offer a generous credit policy that would allow consumers to purchase up to $500 worth of merchandise on credit without a credit check, provided they signed up for direct payment of their credit account from a checking account. Because these were high-risk consumers, the credit accounts would carry extremely high interest rates. The research firm believed that even with losses, enough accounts would be paid off to make the venture extremely profitable for the on-line retailer.

Should the retailer pursue this new marketing strategy? Why or why not?

 Learning Activity #2

NEWS RELEASE:  Mar. 31, 2014. The makers of the popular web browser Firefox, is facing a media firestorm in protest of their recent promotion of Brendan Eich to CEO. Eich was an internal promotion for the company, having been CEO since 2005, but it’s Eich’s $1000 contribution to the 2008 anti-gay marriage “Proposition 8” that sparked the controversy. Mozilla, a nonprofit organization, is heavily committed to “keeping the web open” as well as to values of equality and inclusivity. In response to Eich’s promotion, a number of key employees and developer groups called for his resignation on Twitter and other social media sites. Eich responded in a personal blog post that he would continue Mozilla’s effort of “commitment to equality in everything we do.” Critics are largely unsatisfied by the response, demanding either a retraction and apology from Eich or his resignation. Complicating matters, three of Mozilla’s six board members resigned this week, citing their desire to hire an outsider with expertise in mobile computing.

Can a CEO have personal values that conflict with the values promoted by the organization and still be an effective ethical leader for the organization? (Focus on leadership qualities and factors rather than on the specific views expressed by the CEO.)

Chapter 12: The Selling Office: Advertising and Consumer Protection from The Business Ethics

Workshop was adapted by Saylor Academy and is available under a Creative Commons

Attribution-NonCommercial-ShareAlike 3.0 Unported license without attribution as requested by

the work's original creator or licensor. UMGC has modified this work and it is available under the original license.

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Chapter 12

The Selling Office: Advertising and Consumer

Protection

Chapter Overview

Chapter 12 "The Selling Office: Advertising and Consumer Protection" considers the ethics of selling by

examining advertising, and the ethics of buying by examining conceptions of the consumer.

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12.1 Two Kinds of Advertising

LEARNING OBJECTIVES

1. Define and characterize informational advertising.

2. Define and characterize branding advertising.

Old Spice

One reason guys like to have the controller when couples are watching TV is so they can flip the channel

fast when ads like this come on:

Viewed from the waist up, you see a perfectly bodied man wrapped in a low-slung towel. With

gleaming eyes locked on the camera he intones, “Hello, ladies, look at your man, now back to

me, now back at your man, now back to me.” While guys at home cringe, he comes to an

indisputable conclusion, “Sadly, he isn’t me.” After letting the reality sink in, he soothes his

female viewers with the information that “He could at least smell like me if he switched to Old

Spice body wash.” Next, he asks us to “Look down,” and while everyone’s eyes drop to his towel,

some green screen magic allows him to seamlessly appear on a romantic sailboat in the

Caribbean. His hand overflows with diamonds, then a bottle of Old Spice arises along with

them, and we learn that, “Anything is possible when your man smells like Old Spice.”

Advertising is about enticing consumers. It comes in many forms, but the two central strategies are (1)

informational and (2) branding.

Ads: Information and Branding

There are more and less sophisticated ways of enticing consumers. At the lowest level, there are product-

touting ads and comparisons giving straight information. When Old Spice set aside some money to sell

their body wash, they could have gone that route, they could’ve dabbed some product on a shirt and asked

random women to stop, take a sniff, and report on the scent. Then magazine spreads could be produced

announcing that “three out of four women like the Old Spice scent!” A bit more aggressively, women could

be given a blind sniff test featuring Old Spice and Axe products, or Old Spice and some “leading brand,”

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one probably chosen because it fares particularly poorly in the comparison test. In any of its forms, this

is informational advertising. It presents facts and hopes that reasonable consumers buying body wash will

choose Old Spice.

Other kinds of informational advertising include price comparisons (Old Spice costs less than Axe) and

quality comparisons (the Old Spice scent lingers eight hours after showering, and Axe is gone after only

six). Naturally, different kinds of products will lend themselves to different kinds of factual and

informational claims. Sometimes, finally, this kind of advertising is called transactional because it’s

directly about the exchange of money for a good or service.

Moving toward more sophisticated—or at least less rational and direct—advertising, there’s branding,

which is the attempt to convert a product into a brand. In the advertising and marketing world, the

word brand has a very specific meaning. It’s not the name of the company making the product, not the

words Old Spice or Kleenex. Instead, a brand is a product or company’s reputation; it’s what you think of

when you hear the name and it’s the feelings (good or bad) accompanying the name. Technically, a brand

is what a product or company is left with when you take everything away. Exemplifying this in the case of

Old Spice, imagine that tomorrow all their production factories burn down, their warehouses flood, and

their merchandise sells out at every store. Basically, the company has nothing left, no factories to make

product, no stock to ship out, and no items left to sell on any shelf. Now, if you were a wealthy investor,

would you buy this company that has nothing? You might.

You might because it still has its brand, it still has a reputation in people’s minds, and that can be worth

quite a bit. Frequently, when we visit a store and stand in front of shelves packed with different versions

of a single kind of item, we don’t have time or the patience to carefully go through and compare price per

ounce or to Tweet questions to friends about what they recommend. We choose one body wash—or one

style of underwear or Eveready batteries instead of Duracell—because of an idea about that product

planted in our mind. Maybe we don’t know exactly where the idea came from, or exactly what it is, but it’s

there and guides us to one choice instead of another. It makes a product seem like it’s our kind of product

(if it’s the one we end up buying) or not our kind of product.

The Old Spice commercial is an exercise in branding. It’s funny, sexy, embarrassing, and extremely

sophisticated. Looking at the commercial, the first question to ask is “in the most literal terms, what’s the

message?” Is it that Old Spice is a good value? No, there’s no talk about price. Is it that Old Spice smells

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good? No, the only claim is that it can make you smell like an attractive actor. Is it that the actor (and

former pro football player) Isaiah Mustafa uses Old Spice? No, he says he does, but that’s not the message.

If anything, his message to potential consumers is that, if he wanted to, he could steal their girlfriends.

This is not the kind of information that wins market share.

Fortunately for Old Spice, branding isn’t about facts or truths; it’s about producing an attitude and

connecting with a specific sense of humor and outlook on life. Like a style of clothes or a preference for a

certain kind of music, Old Spice is conveying a personality that you appreciate and like or, just as easily,

dislike. That’s why the whole commercial comes off as a kind of joke about a certain vision of attraction

and romance and sex. Do you enjoy the joke? If you don’t, then Old Spice is going to have to find a

different way to get into your (or your boyfriend’s) wallet. If you do like it, if the whole thing seems zany

and funny and you wouldn’t mind pulling it up on YouTube to watch again, then you’ve been branded. Old

Spice has found a way to get past all the defenses we usually set up when we see advertising, all the

skepticism and cynicism, and gotten us to feel like we’re part of something that includes that company’s

products.

In broad strokes, finally, there are two kinds of advertising, two strategies for influencing consumption

choices. One works by appealing to facts and provides information; the other appeals to emotions and

creates a lifestyle. Both kinds of advertising raise ethical questions.

1. Informational ads provoke questions about truth and lies.

2. Branding efforts provoke questions about the relation between our products and who we are as

individuals and a culture.

KEY TAKEAWAYS

 Informational advertising employs facts to persuade consumers.

 Branding advertising attempts to attach a personality and reputation to a product.

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REVIEW QUES TIONS

1. Can you think of an example of an informational ad? What information is provided, and how does it

persuade consumers?

2. Can you think of an example of a branding ad? What personality and attitude are attached to the

product? How might those characteristics persuade consumers?

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12.2 Do Ads Need to Tell the Truth?

LEARNING OBJECTIVES

1. Delineate different types and degrees of deceitful advertising.

2. Discuss legal and regulatory responses to deceitful advertising.

3. Map the ethical issues surrounding deceptive ads.

Types of Deceitful Advertising

An initial way to distinguish informational advertising from branding is by asking whether consumers are

supposed to ask whether the claims are true. In the case of the Old Spice body wash TV spot, there’s no

question. The actor asserts that “anything is possible with Old Spice” as diamonds flow magically from his

hands. But no one would buy the product expecting to receive diamonds. They wouldn’t because branding

ads are neither true nor false. Like movies, you enjoy them (or you don’t) without worrying about whether

it could really happen. Informational ads, on the other hand, derive their power from selling consumers

hard facts. When the ad claims the product costs less than similar offerings from rivals, the first question

is “really?” When the answer is “no,” the advertising is deceitful.

There are four ways that informational advertising can be deceitful:

1. False claims directly misrepresent the facts. For example, an Old Spice body wash ad could announce that

it costs less per ounce than Axe. When you go to the store, however, the opposite is true. It may be that the

manufacturer’s suggested retail price is less, or Axe is on a special sale, but if the ad says Old Spice is

cheaper and it’s not, that’s a false claim.

2. Claims that conceal facts are more common than directly false ones because they’re not flatly untrue and

so can’t be easily disproven. A body wash, for example, may conveniently leave out the fact that chemical

scents frequently react differently with different skin types and body temperatures, meaning a product

may smell great on one man but come off as nauseating when used by most others. Another set of

examples surround the infamous fine print on contracts. Every day, someone somewhere receives an offer

for a free issue of a magazine and sends the business reply card in. It’s not until a few months later;

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however, that they realize that getting the free one also committed them to buying a year’s worth. Another

example of a concealed fact is a juice made from “natural ingredients,” and it turns out the natural

ingredient is sugar, which is natural, but not the fruit juice from real oranges you were expecting.

3. Ambiguous claims resemble concealed facts in not being directly untrue. Where claims that conceal facts

manipulate consumers by leaving something out, ambiguous claims mislead by putting too much in. For

example, a body wash may announce that it “kills the smelly bacteria that women hate most,” and that

may be true, but the implication that only Old Spice does that is misleading because all soaps and washes

wipe out some bacteria. Just water washes a good bit away. Similarly, Viagra announces that before using

the product, men should check with their doctor to “ensure that you are healthy enough to engage in

sexual activity.” The misleading idea is that the rock and rolling will be so intense it could be life

threatening. The truth is that the drug itself may be dangerous for the unhealthy. Finally, cigarette

companies use a similar strategy when they advertise light cigarettes as (truly) containing less cancer-

causing tar, but they leave out the fact that the lower nicotine levels cause many smokers to light up more

often and so take in as much, or even more, than they otherwise would have. In every case, the ad’s claim

is technically true, but it leads consumers toward possibly false assumptions that just happen to make the

product more attractive.

4. Puffery is a technical term in the advertising world. It signifies expressed views that are clearly subjective

exaggerations or product slogans, and not meant to be taken literally. In the Old Spice ad, the actor’s

claim that “anything is possible with Old Spice” is actually an ironic joke about puffery: the ad is poking

fun at those other personal care products that in essence claim the women (or men) will come running.

Here are two standard examples of puffery: Budweiser is “The King of Beers” and Coke is “The Real

Thing.” More generally, any product labeled “The Finest,” and all services that announce them “Can’t be

beat!” are engaging in the practice. Of course these kinds of slogans can be harmless with respect to their

violation of strict truth telling, but they do place a burden on consumers to be wary.

Deceitful advertising, finally, is not the same as false advertising. All false ads are also deceitful, but there

are many ways of being deceitful that don’t require directly false claims.

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Legal Responses to Deceptive Advertising

Created in the early 1900s, the Federal Trade Commission (FTC) was originally tasked with enforcing

antitrust laws. With time, its responsibilities have expanded to include consumer protection in the area of

marketing and advertising. Today, many legal conflicts over truth and sales run through its offices.

The act authorizing the FTC to begin regulating advertising declares that “unfair and deceptive practices”

are illegal, and the agency is charged with the responsibility to investigate and prevent them. [1]

In judging

what counts as deceptive, two models are frequently used. The reasonable consumer standard is the

looser of the two. It presumes that protections should only be extended to cover advertising that would

significantly mislead a thoughtful, moderately experienced consumer. One advantage of this stance is that

it allows the FTC to focus on the truly egregious cases of misleading advertising, and also on those

products that most seriously affect individual welfare. Very close attention is paid to advertising about

things we eat and drink, while fewer resources are dedicated to chasing down garden-variety rip-offs that

most consumers see through and avoid.

One borderline case is the FTC v. Cyberspace.com. In that case, and according to their press release, the

FTC charged that the defendants

engaged in an illegal scheme to deceive consumers by mailing $3.50 “rebate” checks to millions

of small businesses and consumers. The check came with an attached form that looked like an

invoice and used terms like “reference number,” and “discount taken,” making it look like there

was a previous business relationship. By cashing the checks, the FTC alleged that many small

businesses and consumers unknowingly agreed to allow the defendants to become their Internet

Service Provider. After the checks were cashed, the defendants started placing monthly charges

of $19.95 to $29.95 on the consumers’ telephone bills. According to the FTC, the defendants then

made it very difficult to cancel future monthly charges and receive refunds. [2]

The judge sided with the FTC.

Whether or not these businesspeople should have seen through the free-money scam and thrown the

“check” in the trash, it’s certain that the FTC should have stepped in under

the ignorant consumer standard. Within this framework—which is much stricter than the reasonable

consumer version—consumers are protected even from those scams and offers that most people recognize

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as misleading. One point to make is that the “ignorant consumer” isn’t synonymous with dumb. Though

the category does catch some people who probably should’ve tried a bit harder in school, other ignorant

consumers may include immigrants who have little experience with American advertising practices and

customs. The elderly too may fall into this category, as might people in situations of extreme or desperate

need. One example would be late-night TV commercials appealing to people in deep debt. Some ads

promise that loan consolidation will lower their overall debt. Others imply that filing for bankruptcy will

virtually magically allow a start-over from scratch. Both claims are false, but when creditors are calling

and threatening to take your home and your car, even the most reasonable people may find themselves

vulnerable to believing things they shouldn’t because they want to believe so desperately.

The federal government, finally, through the FTC has the power to step in and protect these consumers.

Strictly from a practical point of view, however, their resources are limited. The task of chasing down

every ad that might confuse or take advantage of someone is infinite. That factor, along with good faith

disagreements about the extent to which companies should be able to shine a positive light on their goods

and services, means (1) the ignorant consumer standard will be applied only sparingly by government

regulators, and (2) borderline cases of advertising deceit will be with us for the foreseeable future.

The Ethics of Deceitful Advertising

One way to enter the ethical debate about dubious product claims is by framing the subject as a conflict of

rights. On one side, producers have a right to talk sunnily about what they’re selling: they’re free to

accentuate the positives and persuade consumers to reach for their credit card. On the other side,

consumers have a right to know what it is that they’re buying. In some fields, these rights can coexist to

some significant extent. For example, with respect to food and drink, labeling standards imposed on

producers can allow consumers to literally see what’s in their prospective purchase. Given the

transparency requirement, companies can make a strong argument that they should be allowed to

advocate their products with only minimal control because consumers are free to check exactly what it is

they’re buying.

Even these clear cases can become blurry, however, since some companies try to stretch labeling

requirements to the breaking point to suit their purposes. One example comes from breakfast cereal

boxes. On the side, producers are required to list their product’s ingredients from high to low. At the top

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you expect to see ingredients including flour or similar, as quite a bit of it goes into most dry cereals. At

the bottom, there may be some minor items added to provide a bit of flare to the taste.

One specific ingredient many parents worry about is sugar: they don’t want to send their little ones off to

school on a massive sugar high. So what do manufacturers do? They comply with the letter of the

regulation, but break the spirit by counting sugar under diverse names and so break up its real weight in

the product. Here are the first few lines of the ingredients list from Trix cereal:

Corn (Whole Grain Corn, Flour, Meal), Sugar, Corn Syrup, Modified Corn Starch, Canola

and/or Rice Bran Oil, Corn Starch, Salt, Gum Arabic, Calcium Carbonate, High Fructose Corn

Syrup, Trisodium Phosphate, Red 40, Yellow 6, Blue 1.

Sugar is sugar, corn syrup has a lot of sugar, high fructose corn syrup has even more sugar. We’d have to

get a chemist to tote up the final results, but it’s clear that a reasonable consumer should figure this is a

sugar bomb. Is it fair, though, to assume that an immigrant mother—or any mother not well versed in

sugar’s various forms—is going to stop and do (or be able to do) a comprehensive ingredient

investigation? The question goes double after remembering that the first image consumers see is the

product’s advertising on the box featuring a child-friendly bunny.

More generally, in terms of a pure rights-based argument, it’s difficult to know where the line should get

drawn between the right of manufacturers to sell, and the right of consumers to know what they’re buying.

The arguments for pushing the line toward the consumer and thereby allowing manufacturers wide

latitude to make their claims include the following:

1. Free speech. The right for people to say whatever they want doesn’t get suspended because someone is

trying to sell a product. Further, on their side, consumers are completely free to buy whatever they want,

they’re free to listen to pitches from competing merchants, and they can consult the Consumer Reports

web page and talk to friends. Ours is, after all, a free market, and advertisers participate in it. The right to

make whatever advertising claims one wishes is justified on principle, on the ideal of a liberal (in the sense

of free) economic world.

2. Marketers have a moral responsibility to do everything they possibly can to sell because they’re obligated

to serve their employers’ interest, which is to make money, presumably. In this case, deceitful advertising

may be morally objectionable but less so than failing to turn the highest profit possible.

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3. Within the context of an open market economy, one way to help it function efficiently, one way to get

products and services sent where they’re supposed to go in a way that benefits everyone, is by maximizing

the amount of information consumers have before they purchase. And one way to maximize information,

it could be argued, is by letting competing sellers advertise freely against each other. They can say

whatever they like about themselves and point out exaggerations and untruths in the claims of

competitors. This is similar to what happens in courtrooms where plaintiffs are allowed to say more or

less whatever they want and defendants can do that too. Both sides cross-examine each other, and in the

end, the jury weighs through it all and decides guilt or innocence. Returning to the economic realm, the

argument is that the best way to get the most information possible out to consumers is by allowing a

vibrant advertising world to flourish without restriction.

On the other side, distinct arguments are frequently proposed to defend the position that sellers should

operate within tight restrictions when advertising the virtues of their goods and services. The consumer

should be vigorously shielded; the reasoning goes, from claims that could be deceptive. Arguments

include the following:

1. Consumers have a fundamental ethical right to know what they’re buying, and even mildly ambiguous

marketing techniques interfere with that right. If a box of breakfast cereal is marketed with a harmless

and helpful bunny, then the ingredients of Trix cereal better be harmless and helpful (and not sugar

bombs). Everyone agrees, finally, that advertisers have a right to free speech, but that right stops when it

conflicts with consumers’ freedom to purchase what they really want.

2. Advertisers are just like everyone else insofar as they’re bound by an ethical duty to tell the truth. That

duty trumps their obligation to sell products and help companies make profits.

3. Both advertisers and the manufacturing companies are duty bound to treat everyone including consumers

as ends and not as means. The basic ethical principle here is that no one should be treated as an

instrument, as a way to get something else. There’s no problem with advertising a product and allowing

consumers to decide whether they want it, but when the advertising becomes deceptive, consumers are no

longer being respected as dignified human beings; they’re being treated as simply means to ends, as

ways the company makes money. Consumers become, in a sense, indistinguishable from the machines in

the factory, nothing more than cogs in the process of making owners wealthy.

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4. Purchasing a product is also the signing of an implicit contract between producer and consumer. The

consumer gives good money and expects a good product, one in line with the expectations raised by

advertising. Just as companies are right to apply drug tests to workers because those companies have a

right to a full day’s good labor for a full day’s pay, so too when the consumer pays full price for a product it

should fully meet expectations.

5. Though the idea of allowing marketers to say whatever they want may sound good because it allows

consumers to maximize information about the products that are out there, the theory only works if

consumers have massive amounts of time to study the messages from every producer before making every

purchase. In reality, no one has that much time and, as a result, advertisers must be limited to making

claims that are clearly true.

Conclusion. There’s a lot of space between truths and lies in advertising; there are many ways to not quite

tell the whole truth. Both legally and ethically, the limits of the acceptable can be blurry.

KEY TAKEAWAYS

 Deceitful advertising occurs along a range from exaggerations to direct falsehoods.

 Legal responses to deceitful advertising may be organized through the FTC.

 The degree of consumer legal protection depends on premises about the marketplace sophistication of

the consumer.

 Ethical debates concerning deceitful advertising pit the rights of marketers to sell against the rights of

consumers to know what they are purchasing.

REVIEW QUES TIONS

1. What’s the difference between deceitful advertising and direct falsehoods?

2. Define the reasonable consumer standard for consumer protection. How is it different from the ignorant

consumer standard?

3. What are two arguments in favor of granting marketers wide latitude to promote their products?

4. What are two arguments in favor of forcing marketers to stay very close to the pure truth when

promoting their products?

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[1] Section 5, Federal Trade Commission Act.

[2] “Bogus ‘Rebate’ Offers Violate Federal Law,” Federal Trade Commission, August 5, 2002, accessed June 2,

2011, http://www.ftc.gov/opa/2002/08/cyberspace.shtm.

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12.3 We Buy, Therefore We Are: Consumerism and

Advertising

LEARNING OBJECTIVES

1. Define consumerism.

2. Discuss the power and problems surrounding advertising that creates desires.

3. Consider special issues surrounding advertising and children.

4. Investigate the penetration of advertising in life.

What Is Consumerism?

The word consumerism is associated with a wide range of ideas and thinkers, ranging from American

economist John Kenneth Galbraith and his book The Affluent Society to the French postmodern

philosopher Jean Baudrillard. While definitions of the word and responses to it vary, consumerism in this

text is defined in two parts:

1. We identify ourselves with the products we buy. Consumerism goes beyond the idea that our brands

(whether we wear Nike shoes or TOM’s shoes, whether we drive a Dodge Charger or a Toyota Prius)

are symbols of who we are. Consumerism means our products aren’t just things we wear to make

statements. They are us; they incarnate the way we think and act.

2. If we are what we buy, then we need to buy in order to be. Purchasing consumer items, in other words,

isn’t something we do to dispatch with necessities so that we can get on with the real concerns of our

lives—things like falling in love; starting a family; and finding a satisfying job, good friends, and fulfilling

pastimes. Instead, buying becomes the way we do all those things. The consumption of goods doesn’t just

dominate our lives; it’s what we do to live.

The subject of consumerism goes beyond business ethics to include every aspect of economic life and then

further to cultural studies, political science, and philosophy. Staying within business ethics, however, and

specifically with advertising, the subject of consumerism provokes the following questions:

 Does advertising create desires (and is there anything wrong with that)?

 Do advertisers have a responsibility to restrain their power?

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 Should there be different rules for advertising aimed at children?

 Is advertising too intrusive in our lives?

Does Advertising Cre