Table of contents

Contents
Contents...................................................................................................1 Important Terms:......................................................................................3 5.2 Managing Reputation and Retaining Consumer Loyalty:...............10 The argument that all cost should be internalized is essentially utilitarian in that it presumes the efficiency of the application of market rationality to all decisions regarding the production and distribution of value:........................................................................18 5.4 The Ethics of Advertising:..............................................................20 5.5 Islamic Approaches to Capitalist Marketing Process: ....................25

The Ethics of Marketing Capitalist Business & the consumer

Letter of Acknowledgement
It has been a pleasure to be Mr. Mahboob Ul Hasans students. I would like to thank him for giving me the chance to prepare a business ethics report and presentation. His lectures have been very interesting and motivating. We are extremely grateful to his and appreciate his efforts for providing us full support, encouragement and valuable guidance.

The Ethics of Marketing Capitalist Business & the consumer

Important Terms:
The Consumer:
Consumer is a broad label for any individuals or households that use goods and services generated within the economy. The concept of a consumer is used in different contexts, so that the usage and significance of the term may vary.

The Market:
A market is any one of a variety of different systems, institutions, procedures, social relations and infrastructures whereby persons trade, and goods and services are exchanged, forming part of the economy.

Competition:
Competition in economics is a term that encompasses the notion of individuals and firms striving for a greater share of a market to sell or buy goods and services.

Capitalism:
Capitalism is an economic and social system in which capital, the non-labor factors of production, is privately controlled; labor, goods and capital are traded in markets; profits distributed to owners or invested in technologies and industries; and wages are paid to labor.

The Ethics of Marketing Capitalist Business & the consumer

Bazaar:
A bazaar (Persian/Urdu, Hindi, Turkish, Greek, Cypriot Greek and Turkish) is a permanent merchandising area, marketplace, or street of shops where goods and services are exchanged or sold.

Key Lines and Sentences from the chapter :

5.1 The Consumer, Competition The market
seen as

and
central

The Market has been traditionally institution of capitalist society. Illustration:

By this sentence the author means that as the capitalist society means that the non-labor factors of production, is privately controlled and owned by the owners and the people who have links with the company and the benefit the people should receive should be proportional to the contribution. Bazaars accept the social determination of the value of economic processes and of the products generated by these Illustration:
3

processes.

The Ethics of Marketing Capitalist Business & the consumer

Bazaar basically is a permanent merchandising area, marketplace, or street of shops where goods and services are exchanged or sold. This is the basis of the Christian or Islamic insistence that on the existence of the just price and on the regulatory role of the religious guild in price determination whereas markets on the other hand depend on the supply and demand of a particular product according to the rules of economics

The Ethics of Marketing Capitalist Business & the consumer

Markets fracture capitalist property into several specific formations, each called a firm Illustration Firm basically means any business entity such as a corporation, partnership, sole proprietorship, or "private equity" "investment organization". Over here the author explains that market breaks the capitalist property into small firms, where each firm seeks to maximize its values of the capital it holds and controls through getting the competitive edge in the mar Each firm makes its own decision about what to produce and Illustration: Each firm has the right to make the decision on what, when and how to produce as they are the main owners of the company and according to the Capitalist view the more they produce the more they must get the contribution. Firms cannot own or exchange slaves or hard drugs: Illustration: As the part of the ethical issue no firm is allowed to take own and exchange slaves and hard drugs as activites in which the judgement of the public representatives of capitalist order are likely to obstruct capital accumulation in the long run.
3

how

to

produce

The Ethics of Marketing Capitalist Business & the consumer

The capitalist state ensures the security and safety of capitalist Illustration: The use of state power is thus legitimating only to the extent that it is a means for preserving capitalist property. And as Locke argued that markets operationalise the natural right of the individual to participate in accumulation through the agency of capitalist property, authors such as Hyeks have held that though governments have a role in supporting market interference by governments in free market determination of prices and output is illegitimate in that it restricts the individuals natural rights to accumulate through participation in capitalist property. The consumer is the king in the market: property:

Illustration: The consumer is considered to be the most important person or group of people in the whole chain of market. As he is the person who that markets functions properly and all the transactions are taken place by him and for him. He is the one to determine which thing is the best valued price and which product is the high priced and low valued thing or product. Market completely depend on the consumer as if the consumer wants more of one good the demand of that good increase therefore the supplier or the producer have
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The Ethics of Marketing Capitalist Business & the consumer

to produce or supply more of it hence increasing the supply and as the supply and demand both increase prices go high. Market competition also ensures the survival and growth of the most efficient firms: Illustration: Market competition is one of the best thing to keep the firms working harder and harder to take the lead, and when this happens the product quality improves and productivity also increases and automatically the values of the product increases in terms of quality, therefore increasing the efficiency of the firms. Equilibrium is achieved in a perfectly competitive market at a point where average cost=marginal cost=average revenue-marginal Illustration: As in economics average cost, therefore the average cost incurred in producing all the units, marginal cost, the cost incurred for revenue:

producing a single unit, average revenue, the return from all the units produced and sold, marginal revenue, the return from one additional unit sold are all equal then equilibrium point can be achieved therefore making it a perfectly competitive market.

The Ethics of Marketing Capitalist Business & the consumer

Perfectly competitive markets not only generate fair prices and maximize utility; they also respect the rights of consumers Illustration: Perfectly competitive market ensure capitalist justice, maximize utility and recongnize capitalist rights for those within them. and sellers to enter contracts:

There is no conception of halal and haram in capitalist order and it is in this sense that the market is the Kingdom of the consumer where he exercises his sovereignty: Illustration: In the capitalist order there is no concept of halal and haram as in capitalist order the only fact that is condisdered that the favors must be divided on the basis of contribution

The Ethics of Marketing Capitalist Business & the consumer

5.2

Managing Reputation Consumer Loyalty:

and

Retaining

There is a symbiotic link between firms and consumers in capitalist Illustration: In the captilist order consumers and firms depend on each other as if any one of them is missing the other wont be able to survive. In Capitalist order by the reduction in the number of firms would react in the decrease in supply and therefore not meeting the requirement of the demand which will cause the equilibrium point to get displaced, therefore, affecting the economy. Profit is intrinsic good for the firm but an instrumental good of the consumers, they hope it will lead to order:

technological advances, lower cost and prices and increase production Illustration: Profit is the direct good for the producers of it as they get it directly when the consumers buy their product. This profit on the other side of the picture is the instrumental good therefore the indirect good for the consumers as they get the return by giving the profit to the producer, they will produce more of it and will produce in a higher quality, hence consumer is of the hope that his and consumption:

The Ethics of Marketing Capitalist Business & the consumer

standard of living will get better by the profit that he has given to the producer of it.

The Ethics of Marketing Capitalist Business & the consumer

Does it mean that firms in doing business should have the same moral standards as those prevailing in civil society generally? Illustration: As the moral standards here are that the producer must make the consumer fully aware of what is being given to him, therefore the defects of the product as well. As building and retaining customer loyalty pays in the long run as the customer will come back to him again and again therefore increasing the long term profits of the firm, whereas, Albert Z Carr thought that the business is like and poker card game where we decide the moral standards ourselves. This attitude ignores the main point that business is a capitalist act. Safeguarding the interests of the consumers is in the enlightened self interest of the corporation: Illustration: As discussed earlier giving a customer a good valued product, therefore, a product that is high in quality and the price is charged fairly, not ultimately affordable, then the consumer will become brand loyal and the customer loyalty is achieved, similarly it is the part of the capitalist society as well as business is the main activity of capitalist society.
3

Albert

Carr

thought

not:

The Ethics of Marketing Capitalist Business & the consumer

Contract Theories hold that when a firm fulfils these obligations it treats the customer as he wishes to be treated and recognizes him as a free and equal contractee: Illustration: Basically contract theory identitfies the following moral obligations of the firm as in the book: Complying with explicitly stated terms of the contract Not intentionally misinterpreting these terms Fully disclosing the characteristics of the product or services Avoiding dures and attempts to influence the customer

As according to these moral obligations one of the most important obligation is to provide the consumer the product or service that fully matches the consumers need

The Ethics of Marketing Capitalist Business & the consumer

Free Choice is also restricted by the intentional provision of misinformation by the firm: Illustration: As the fact the information must include Defects posing a risk to the customers health and safety The products components and ingredients Performance characteristics of the product Operation costs The product rating on applicable, acceptable standards.

Deliberate misinterpretation of the above facts of information is endemic in capitalist market. Such information takes the form of deliberate lies and false implications etc.

The Ethics of Marketing Capitalist Business & the consumer

5.3 Consumer Protection

It is therefore normal in capitalist markets to expect firms to go beyond the legal obligations they have incurred through Illustration: This is essential for retaining customers over the long run and for building the long run reputation of the firm. Deception and dishonoring of contracts is so widespread that it is routinely accepted as normal business practice. In actual capitalist markets the individual consumer is not sovereign in practice and cannot enter contracts as a knowledgeable free agent. The image of the consumer underlying contract theory is also highly idealist and unrealistic: formal contracts:

Illustration: Consumer basically goes to market to find and thing that perfectly maximizes his satisfaction and in least or valuable price. The consumer is supposed to be have well defined set of logically ordered preferences and to understand how particular choices impact preference fulfillment. Market regulation by the for consumer protection agencies, can be

undertaken

government

consumer
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The Ethics of Marketing Capitalist Business & the consumer

associations Illustration: Contract theory basically implies that the government main responsibility is the provision of support for the formulation and implementation of contracts in which contractees with by the firms themselves:

approximately equal bargaining power participate willingly and with full knowledge of the implication of entering tis contract. We have also seen that: Contracting parties, the firm and consumer, become

increasingly unequal as capitalism matures. Information is not available and cannot be assimilated easily by the average consumer of complex products

Growth of oligopolies restricts freedom of choice. and non-governmental agencies (NGOs)

Governments

intervene in the market to redress the balance in favor of the Illustration: Neo- Governmental theory says that such market intervention is necessarily ineffiecient and price distorting . Therefore the primary responsibilities for addressing market imperfections lies with firms themselves. consumer:

The Ethics of Marketing Capitalist Business & the consumer

Due Care theory identifies manufactures duties to offset consumers Illustration: According to this theory it is the manufactures duty to safeguard the interest of the consumer and must not harm them by their purchases. They must ensure that the consumers are not harmed by the products they purchase. Since the customer is dependant upon manufacturing firm , it is the firms duty to ensure that the customer is not harmed even if the firm has explicitly accepted these disclaimers. The following considerations must be vulnerability in capitalist markets:

entertained: The design of the product Selection of material and components The manufacturing process Quality control and production monitoring Labeling the instruction for use

Capitalist markets require that firms take into account the vulnerability of the consumer, his necessary dependence on Illustration: The weakness, vulnerability and dependence undermines the
3

the

firm:

The Ethics of Marketing Capitalist Business & the consumer

principle of consumer sovereignty and free choice on which capitalist order is based . It is the long run interest of the firm to ensure that this principle is based . it is the long run interest of the firm to ensure that this principle is safeguarded for assigning relative value to economic activities. The argument that all cost should be internalized is essentially utilitarian in that it presumes the

efficiency of the application of market rationality to all decisions regarding the production and

distribution of value: Illustration: As perfect competition becomes obsolete ther is little justicfication for expecting profit-maximizing behavior to result in the

maximization of social welfare, it is therefore argued that firms have a responsibility to take account of all consequences of their activities. They have the duty to compenstare for any injuries that arise out of the defects of products or as direct or indirect consequences of activities undertaken by that firm.
External costs generated by the operations of the capitalist systems of production and distribution have usually been borne by the state through taxation:

Illustration:

The Ethics of Marketing Capitalist Business & the consumer

If there is a decrease in the taxes imposed by the government it also decreases the ability of the government to bear the external cost that is generated by the firms. But if the things are done the other way round then this leads to a stagnation of or fall in average real wages throughout the economy and inevitability threatens corporation.

The Ethics of Marketing Capitalist Business & the consumer

5.4 The Ethics of Advertising:

Advertisements seek to create emotional and intellectual bonds between corporations and their customers:
Illustration: Making the bond with the customers is one the most important goal and how to do it is by emotionally linking with the customer. Through branding corporations attempts to create an emotional brand with the consumer instead of just showing off like a corporation or an emotionless being. By making it a human makes the corporation to be felt more like a human nature instead of just an emotionless being, therefore creating a strong bond. Large Corporations in capitalist countries have to demonstrate their social commitments and their right to be free of public regulation. For example McDonalds created Ronald McDonald to make the consumers feel that they are interacting with some living being not just an emotionless being.

The Ethics of Marketing Capitalist Business & the consumer

Fake advertising is regarded as unethical by both rule utilitarians and neo-Kantians:

Illustration: Fake Advertising or false claim is regarded as one the biggest unethical issues existing in the business world. False claims about the environmental impact of the product or policies damages the society less in the short run but its consequences appears in the long run. Advertising must also avoid what Buchannan calls

manipulation, indoctrination, propaganda, emotional pressures, irrational persuasion, temptation (and) seduction.

Policy makers are exhorted to avoid paternalism in assessing

Illustration: Paternalism is commonly interpreted as an attitude, which seeks to protect consumers from goods and services regarded as harmful by others. Paternalism is unacceptable among consenting adults since it over rules autonomy.

advertisements:

Should soft porn advertising be restricted on grounds enhances

Illustration:
3

of

utility

or

promoted

because

it

autonomous

behavior?

The Ethics of Marketing Capitalist Business & the consumer

Looking from both the cases universalizing casual extra marital sex has been principle means for promoting autonomy throughout the capitalist world. As Foucault shows a non-promiscuous capitalist society is a contradiction in terms. Soft porn advertising should be promoted for it has proved to be effective means for universalizing autonomous behavior in the form of increased causl sex among consenting adults. Now it the companys responsibility to decide whether to restrict or promote it.

Respecting individual autonomy requires that a firm does not take unfair advantage of its customers.
Illustration: As the information asymmetry exists when a person does not know a thing and the other person knows it, same is the case in the transaction. The producer knows the full defects and benfits of the product but the consumer is unaware of it. But when the seller is selling that it hides the defects and only mentions the benefit which is being discussed in this sentence. Advertisements targeting children are often criticized as taking advantage of childrens lack of knowledge and of their emotional and

intellectual immaturity.

The Ethics of Marketing Capitalist Business & the consumer

It is the customer who ultimately pays for the

advertisements as advertisements costs get added to sales prices: Illustration: The advertisement is made to attract customers and the charges that the advertisements are made from do not come from the producers pocket but it comes out of the buyers therefore consumers pocket. Consumer him self is paying for the

advertisements he pay one way or the other.

The Ethics of Marketing Capitalist Business & the consumer

Equally superficial is the view that advertising is wasteful: Illustration: It is the view that advertising are basically wasteful as they are not adding value to the product they are just promoting the same product. Spending on some thing that does not affect the quality of the product is wasteful according to Greyer. It is a selling cost which adds no value to the product. Advertising has also been criticized on the grounds that it contributes Illustration: Advertising also indirectly contribute in building the monopolistic market as the firm which have more to spend on adverting and promotion choose the best modes of advertising therefore making the consumer get attracted towards his product ultimately making the market a little bit of Monopoly. to the growth of monopoly power:

The Ethics of Marketing Capitalist Business & the consumer

5.5

Islamic Approaches Marketing Process:

to

Capitalist

The Aqil is he who obeys God and the ignorant is he who rebels Illustration: The orthodox Islamic approach rejects Enligtnemnet esiptemology and capitalist rationality. This is evident from Imam Ghazalis conception of aql which he regards as a means for obtiaing knowledge of what God has commanded and of what He has forebidden and a means for winning His favor. In Islamic order the most preferred form of consumption is infaq(charity) and its purpose is to win Gods pleasure: Illustration: Imam Ghazali argues over here that pleasure is the obejective of the devil to capture the heart of the men, filling ones stomach, even by halal food is major opening foe allowing the devil to enter mens heart for a filled stomach incites men seek pleasure and pleasure is a weapon wielded by the devil. against God

The Ethics of Marketing Capitalist Business & the consumer

Necessities household Illustration: These six necessities are considered to be the enough for the survival of the individuals requirement. Men should reduce their need for food. More food should not be stored than that which suffices for a day. Half a kilogram of grain suffices for one day. And in the alternate days the men must be fasting. Income and wealth are means for acquiring other necessities of life and income sufficient to acquire these necessities Illustration: To achieve wealth enough to satisfy all the needs is the main goal of an individual, when an amount sufficient for acquiring necessities for at most a year had been obtained . It is thus an orthodox Islamic teaching seeks to minimize and restrict is all that a man needs: are but six: food, family clothing, and dwelling, income:

equipment,

consumption. Wealth , money, land and property are doors by which Satan enters the heart of he(who) loves these (things): Illustration:

The Ethics of Marketing Capitalist Business & the consumer

The heart of the lover of wealth is the home of the Satan, The Prophet (SAW) has said the love of wealth and fame nourishes hypocrisy as water nourishes grass. The merchant enters the

market to enjoin good and to forbid evil- the time spent in the market should be strictly limited and the merchant and

manufacturer must continue to humn the praise of God while involved in trade - the trader must avoid the vices of avarice and covetousness - he should limit his desire for profit.

The Ethics of Marketing Capitalist Business & the consumer

Islam does not deny the market forces. The profit motive is acceptable to a reasonable extent:

Illustration: As illustrated above the example of the merchant as he should not earn more than requirement. The welfare objectives of capitalist order are fully endorsed on Islamic grounds.

Revisionist monopolistic Illustration:

Ulema

oppose

state

intervention

in

markets:

Monopolistic markets are opposed by Revisionist Ulema, the views of them on what the Islamic state cannot do with respect to market regulation are as follows: It cannot charge monopoly price It cannot levy customs duties or impose quantitative restirictions It cannot establish exhnage control It cannot levy consumption taxes

The Ethics of Marketing Capitalist Business & the consumer

It cannot levy income tax, corporate tax and any tax for the performance of state functions/ it cannot impose death duties It cannot levy any indirect taxes.

The Ethics of Marketing Capitalist Business & the consumer

5.6 Consumer Protection in Pakistan:

Consumer
Illustration: There are some acts or orders which are in favor of protecting and promoting the consumer interests in Pakistan, some of the them are as follows: 1. The Wafaqi Mohtasib Order 1983: 2. Regulation of Generation, transmission and Distribution of Electric Power 1997 3. Pakistan Telecommunication Act 1996 4. Natural Gas Regulation Authority 5. Pakistan Standards and Quality controls Authority 6. West Pakistan Pure Food Ordinance 1963 7. Pakistan hotel and restaurants acts 1976 8. Pakistan Penal code 1860 9. Drugs Act 1940 10. 11. Drugs Act 1976 Pakistan Environmental protection Act 1997
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Rights

and

Relevant

Legislation:

The Ethics of Marketing Capitalist Business & the consumer

12. 13. 14. 15. Contract Act 1972 Sale of Goods Act 1930 Fatal Accidents Act 1995 Motor Vehicles Acts 1969

Conculsion
In short the whole chapter of The ethics of marketing: capitalist business and the consumer explains how the business is considered to be capitalist and what are the areas which needs to be edited to make it ethical. Starting from the first section description of the important terms and there explanation in ethical boundaries. In the second section it is explained how to manage a reputation and retaining the consumer market in todays world. In the third section consumer protection has briefly been discussed, the responsibilities of the firm and other people for protecting the consumer, because they are the most important person in the chain of the business area. Fourth section explains the ethics in advertising, in which the ethical and non ethical advertisement is discussed in Pakistan and abroad. Section five explains the Islamic approaches to capitalist marketing process in terms of the

The Ethics of Marketing Capitalist Business & the consumer

orthodox view and revisionist view. The last section explains the steps taken for the consumer protection in Pakistan.