Chapter 13Chapter 13Consumer Consumer

Stakeholders: Stakeholders: Information Information

Issues and Issues and ResponsesResponses

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Consumer Spending

Consumer Expectations

•Consumers have decreased their spending in recent years.

•Businesses have to fight hard for customers.

Firms must pay careful attention to customer stakeholders and their fair treatment.

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The Consumer Movement

Consumer Expectations

•“Fair value” for money spent

•Product that meets “reasonable” expectations

•Full disclosure of product specifications

•Truthful advertising

•Safe products

•Removal of dangerous products

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Lessons From the Consumer Movement

1. Achieve a fair and just marketplace for all consumers.

2. Provide public oversight where:• Corporations lack the incentives to regulate their own

behavior.

• Issue of health, safety and other special concerns.

3. Provide resources, authority, and support for public watchdogs.

4. Intensify the fight for affordable goods and services, fair financial practices, and a chance at a decent standard of living.

5. Curb wasteful overconsumption that threatens the environment.

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Consumer Problems with Business

• High prices of products• Poor quality of products• Failure to live up to advertising claims• Hidden fees• Poor quality of after-sales service• Product breakage• Misleading packaging or labeling• Feeling that consumer complaints are a waste of

time• Inadequate guarantees and warranties• Failure of company complaint handling• Dangerous products• Absence of reliable product / service information• Not knowing what to do if something is wrong with

product5

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Advertising Issues

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Advertising Benefits

• The lifeblood of the free-enterprise system

• Stimulates competition

• Provides information for comparison buying

• Provides competitive information to competition

• Sales response provides a mechanism for immediate feedback

• Provides social and economic benefits

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Advertising Abuses

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Weasel Words

Weasel Words

•Are inherently vague so companies can claim they were not misleading consumers.

Help

Like

Virtually

Up to

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Concealed Facts

Concealed Facts

•The practice of not telling the whole truth or deliberately not communicating information the consumer ought to have access to in making an informed choice.

Hidden Fees

Product placement (“stealth advertising”)

Plot placement

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Exaggerated Product Claims

Exaggerated Claims•Cannot be substantiated by any kind of evidence.

1. Induce people to buy things that do them no good.

2. Result in loss of advertising efficiency as companies match puffery with puffery.

3. Drive out good advertising.

4. Result in consumer loss of faith in product claims.

Puffery•A euphemism for hyperbole or exaggeration that usually refers to the use of general superlatives.

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Psychological Appeals

Psychological Appeals•Designed to persuade on the basis of human emotions and emotional needs rather than reason.

•The products can seldom deliver what the ads promise.

Marketers appeal to all our senses, even sound, when making psychological appeals.

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Controversial Advertising Issues

Comparative advertising

Use of sex in advertising

Advertising to children

Marketing to the poor

Advertising of alcoholic beverages

Cigarette advertising

Health and environmental claims

Ad creep

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Warranties

• Initially used by manufacturers to limit the length of time they were responsible for products.

• Came to be viewed by consumers as mechanisms to protect the buyer against faulty or defective products.

Express Warranty

• Promise or affirmation of fact that the seller makes at the time of the sale.

Implied Warranty

• Unwritten promise that there is nothing wrong with the product and its intended use.

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Warranties (continued)

Full Warranty•Covers the entire product.

Limited Warranty•Certain parts or types of defects are not covered under the warranty.

Extended Warranty•Service plans that lengthen the warranty period and are offered at an additional cost.

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Other Product Information Legislation

Equal Credit Opportunity Act•Prohibits discrimination in extending consumer credit.Truth-in-Lending Act•Requires all suppliers of consumer credit to fully disclose all credit terms.Fair Credit Reporting Act•Ensures that consumer-reporting agencies provide information in a manner that is fair and equitable.Fair Debt Collection Practices Act•Regulates the practices of third-party debt-collection agencies.

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The Role of the FTC

• Seeks to ensure that the nation’s markets function competitively and are free of undue restrictions.

• Works to enhance the smooth operation of the marketplace by eliminating unfair or deceptive acts or practices.

• Efforts are directed toward stopping actions that threaten consumers’ opportunities to exercise informed choice.

• Undertakes economic analysis to support its law enforcement efforts and to contribute to the policy deliberations of government.

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