MARKETING ETHICS & PRACTICES

Case Paper: Illustrating Six Ethical Values by Using Costco

Wholesale Corp.

Birten Yaprak Kulez

Due Midnight (PST) November 9, 2014

Ethical values are positive, universal qualities representing collective norms that
people find crucial and morally appropriate. These core values are expected and carried
on not only by society but also by professional organizations. The American Marketing
Association (AMA) seeks to maintain the highest standards of ethical norms and values
in business in order to improve the consumers confidence in the honesty of marketing. I
would like to explain these values more in detail using the example of Costco.
Costco Wholesale Corp. is one of worlds biggest global retailers that operates a
chain of membership warehouses based on the concept of offering a wide variety of
branded and private label products at considerably lower prices. Costco currently
operates 663 warehouses, including 468 in the United States and Puerto Rico. I will
illustrate six ethical values honesty, responsibility, fairness, respect, transparency, and
citizenship by using Costco as an example company.
Honesty: We can consider honesty as the most fundamental ethical value whose
purpose is to be truthful in all circumstances. Companies should offer the product or
service that they advertise and stand behind them in case they fail to provide the claimed
benefits. When we consider Costcos code of ethics, we can easily say that Costco
understands and implements this value very well. Costco offers to its members a 100%
satisfaction guaranteed warranty for every product or service it sells, including the
membership fee. The company receives every purchased product with a full refund
(except televisions, projectors, computers, cameras, camcorders, iPOD / MP3 players and
cellular phones purchased later than 90 days) without any hassle, which explains clearly
their 84% customer satisfaction. Moreover, costco.com refunds include shipping and
handling fees.

Responsibility: Being responsible means being in charge of our behaviors and

actions and taking the responsibility for their consequences for all the stakeholders especially for vulnerable market segments such as children, adolescents, seniors, the
poor, and the disadvantaged. In addition, a company should be aware of environmental
issues during the decision-making process. Costco is also good example of a responsible
company. It has more than 71 million members who are willing to pay a membership fee
in order to shop at their warehouses. Even though it has economic power, the company
never takes advantage of that and acts responsibly towards its stakeholders. Although
some criticize Costco about the generosity it shows towards its employees and customers,
the latters success shows that it is possible to prioritize the stakeholders and still do
extremely well. Costco adheres to the stakeholder theory, which claims that everyone
contributing to the operations of the companythe stakeholdersshould be put before
the shareholders. Morever, in order to run their business with an enviromentally and
socially responsible policy, Costco complies with all environmental laws and regulations.
For instance, the company has been using skylights in order to spend less electricity for
interior lighting since the mid 1980s. Similarly, Costco recycles cardboards since its
beginnings. Its all-metal buildings are made from 80% recycled steel and save energy by
being better insulated than regular concrete and block wall buildings.
Fairness: According to AMAs statement of ethics to be fair and to provide equity
between the needs of buyer and interest of vendor, companies should serve their products
or services with a good manner and avoid of deceptive or misleading advertising. They
should also avoid manupulations and sales methods which may destroy consumers trust
such as predotory pricing, price fixing and bait-and-switch tacticts. In addition they

should protect private information of their stakeholders. When we evaluate Costcos

fairness, we can say that the company also implements the requirements of that value.
Costco is the unique example of a company which has succeeded in growing without any
advertising. The company strategy is to save 2% of its budget by not advertising and
instead invest the money in employee pay and benefits. Costco has a marketing team and
also use direct mail marketing strategy, however; its primary marketing strategy is to
follow the word of mouth. Moreover as indicated the companys web site Costco
respect the privacy of their consumers and does not sell, rent, share or reveal personal
data to third parties withour costumers permission.
Respect: AMAs statement of ethics dictates that companies should respect their
consumers differences without discriminating them negatively. Companies should fulfill
the customers needs and always focus on improving their satisfaction. They should
respect not only the consumers but also suppliers, employees, and competitors and treat
them with deference. Costco considers customer service as an investment, and not as a
waste of money and thus makes an effort to satisfy its customers. Taking care of their
members and respecting their suppliers are part of Costcos code of ethics. In addition,
Costcos business strategy is distinguished from that of its competitors by its unique
approach towards the employees. Costco pays its employees by far better than its
competitors and also provides health insurance which covers 85% of its employees while
the industry average covers only 23% of employees. Costcos strong ethical norms and
great relationship with its stakeholders has been criticized. Bill Dreher of Deutsche Bank
Securities even claimed that at Costco, its better to be an employee or a customer than a
shareholder (qtd. in Comas). Ian Gordon of Sanford C. Bernstein & Co. feels similarly

and noted that whatever goes to employees comes out of the pockets of shareholders
(qtd. in Comas).
Transparency: To be transparent, companies should present themselves clearly
without causing any misunderstanding. They should inform the consumers regarding the
product and service risks in order not to mislead their purchase decisions. They should be
open to criticism by consumers and other stakeholders. Furthermore, companies should
make their list prices, terms of financing, and available price deals public. As a part of its
strategy, Costco avoids deceptive information and assures its members that every product
it sells offer the quality the company advertises. Costco gives an opportunity to its
members of trying samples of products while they walk through the store. This way,
customers decrease the risk of buying a product that they will not like. On the other hand,
since Costco is a company with stock that is traded publicly on the NASDAQ Stock
Market, it is very easy to access its financial reports (annual reports and proxy
statements), stock information, and SEC filings through its website.
Citizenship: Citizenship refers to a companys duty to fulfill economic, legal,
philantropic, and social responsibilities. A company should preserve the environment
while putting in action its marketing campaigns. Moreover, it should contribute to the
community through donations and volunteerism. A company should also serve the
reputation of marketing and work for its betterment. Finally, a company should ensure
fair trade including for producers in developing countries - by urging and controlling its
supply chain members. Costco pays attention to provide products that are sensitive
ecologically. In order to give back to communities, Costco contributes to United Way and
Childrens Hospitals through donations and volunteerism.

Works Cited
Shaw, Lisa, ed. SAGE Brief Guide to Marketing Ethics. London: Sage Publications, 2012.
Print.
Costco Wholesale. Costco. Web. 9 Nov. 2014.
Comas, Jordi. Stakeholders Theory Leads to Success. Business, Government and
Society Five. Web. 9 Nov. 2014.
Holistic Education Network. Universal or Core Ethical Values. Web. 9 Nov. 2014.