Business Responsibility to the Consumer

Like other groups in the economy, the majority of Americans in business are honest, hard-working men and women who want to treat consumers fairly. They are concerned about earning a profit for their efforts, but they also are concerned about their responsibilities to consumers. Such responsibility, or business ethics, goes hand in hand with concern for profits. Sooner or later con­sumers will identify irre­sponsible firms and refuse to trade with them. By contrast, those firms that acquire a reputation for high quality, informative and convenient packaging, careful label­ing, consumer safety, and environmental sensitivity are likely to profit.

Product Quality. A consumer has the right to expect uniform product quality. That means if a company makes and sells a product today and again tomorrow, the two products should have the same quality. The consumer also has the right to expect that the product will do what it is advertised to do for a reasonable length of time. Once a standard of quality has been established by a company, it should not be lowered, and it is the responsibility of workers and managers in that company to see that it is not. Firms that pay close attention to quality and develop procedures for monitoring the quality of their products and services are likely to be more suc­cessful than those who don't.

Product Packaging. Packaging can perform sever­al valuable functions. It can protect the product from the time that it is manu­factured until it is sold. It can inform the con­sumer about the quantity and quality of the contents. And it can enhance the appearance of the product to increase sales. Critics of modern American marketing techniques say that fancy packaging only raises product price. What counts is what is inside, they say, not the fancy wrappings. Defenders say that quite the opposite is true: packaging that serves to increase sales reduces prices. Greater sales, they argue, reduce production costs for each item, enabling manufacturers to sell their products for less. (Chapter 7 discusses the effect of large-scale production on unit costs.)

Product Labeling. Some products carry informa­tional labels or testing labels from trusted, private, consumer testing organizations. Good Housekeeping magazine tests products that appear in its advertis­ing. It guarantees consumer satisfaction if the product is used properly.

Underwriters Laboratories tests electrical products for potential fire hazards and shocks. To many shop­pers the UL label is a statement of potential con­sumer satisfaction.

Consumer relations departments make sure their companies' statements are accurate. Misrepresen­tations about a product or service are illegal.

Consumer Safety. "Product responsibility" is another name for consumer safety. Every company has the responsibility to safeguard consumers from undue hazards in the storage and use of the product. A company even has a responsibility to warn against product misuse. During production, keeping prod­ucts free from defects best ensures consumer safety. Companies must warn against potential hazards in using their products. The producer has the obligation to understand and follow regulations of the Food and Drug Administration and other federal offices. Food, chemicals, electrical products, and children's toys require especially careful protection planning.

Environmental Sensitivity. Naturally, consumers want and expect the products they buy to be safe, accurately labeled, and conveniently packaged. But today, more and more consumers also expect busi­nesses to demonstrate their respect for the environ­ment through their products and business methods.

They do this in two ways. The first, and most obvi­ous, is to produce products that are biodegradable or recyclable. Many companies are working to achieve this goal; for example, the major producers of soap and laundry detergents all offer phosphate free products. "Sprays," once available only in aerosol cans, are now sold in "pump" dispensers, and other products are printed on recyclable paper or pack­aged in recyclable plastics because of what con­sumers want and expect. Labels on products such as motor oil and paint now include specific instructions for disposal.

Equally or more importantly, many businesses are also working to reduce the environmental impact of their business operations. For example, Northrop cut hazardous waste byproducts in its B-2 bomber program and saved $1.4 million in waste disposal fees. Dow Chemical cut emissions at one plant dra­matically by reprogramming its computer controls, and countless other companies are taking the same approach. They have learned that reducing pollution and waste is often very good business.

Unilever Canada is representative of many other businesses in the U.S. and around the world. It stat­ed in its 1989 annual report, "We recognize the need to go beyond just meeting the regulatory require­ments in the marketing of our products, and will strive to ensure that those products are safe not only for our workforce and the consumers, but also for the environment." Certainly, much remains to be done to reduce waste and pollution, but responsible businesses are learning that concern for the environ­ment is also good for business.

The History of Economic Thought

Thorstein Veblen (1857-1929). In 1899 conventional economics wasjolted with the publication of Veblen's The Theory of the Leisure Class. A professor of economics at the University of Chicago, Veblen said much about contemporary economics and social behavior that angered and upset his col­leagues.

In what may be his most famous contribution, Veblen challenged the assumptions built into the laws of supply and demand. One of these assumptions was that of "consumer sovereignty." Veblen questioned the assertion that the consumer was a king who demand­ed and received the best goods and services at the lowest prices. Instead, he argued, consumers were subject to all kinds of social and psychological pres­sures that led them to make some unwise decisions.

To illustrate, he coined the term conspicuous con­sumption to describe the tendency of the "leisure class" (the wealthy) to buy goods and services simply to impress others. This, in turn, led middle class con­sumers, and even the poor, to imitate the wealthy by buying goods for similar purposes. When that occurred, it was possible for the Jaw of demand to be reversed. Quantity demanded increased at a high price rather than at a low one. For example, the demand for a $1 an ounce bottle of perfume is likely to be less than the same perfume selling for $15 an ounce.

As for the other side of the market, Veblen argued that the desire for profits drove business interests into doing unscrupulous things. Some of these includ­ed efforts to eliminate competition, restrict output, build ever-larger combinations of existing firms, and separate those who owned America's corporations from those who managed them. This, he predicted, would result in wasted resources and the inability of the economy to reach its full potential. From these observations, Veblen concluded that laissez-faire cap­italism was probably destined to be replaced in the long run with a system more attuned to the needs of the people.

Frank Knight (1885-1972). Also a professor of economics at the University of Chicago, Frank Knight advocated free enterprise and laissez-faire pol­itics. Knight pointed out that -except for the basic necessities of life - the purchase of any­thing could be described as "conspicuous consumption." He asked - since even Veblen would have conceded that people need more than the bare necessities -who decides which purchases are reasonable? Should the government or some other higher authority decide what will be offered for sale? Of course not, Knight concluded. Consumer demand ought to determine what goods and services will be provided.

Turning to the supply side of the market, Knight defended profits as the driving force behind business. The quest for profit would move business to produce whatever the economy wanted. Meanwhile, the inescapable punishment of financial loss awaited those firms that failed to meet the market's demands. In his famous work, Risk, Uncertainty and Profit (1921), Knight answered critics who, like Veblen, had questioned the legitimacy of profits.

Profits, he said, were the reward earned by business for accepting the uncertainties of the market. In this he distinguished between risk (which can be predict­ed and against which one can be insured) and the uncertainty of events that cannot be predicted.

Everyone, for example, faces the risk of illness and can be insured against it. But sweater manufacturers can never know with certainty that the styles that they are producing today will still be in demand when they appear in the stores six months from now. Therefore, those manufacturers who guess correctly are entitled to the rewards they earn. Meanwhile, those who produced the wrong style or color will be motivated to do better next season or face ruin.

Economists and others still debate the issues raised by Thorstein Veblen's challenges to the market sys­tem and Frank Knight's responses to them. Pick up today's paper or news magazine, and see for yourself.

What's in a Name? The Case for Generic Labeling

Spokespersons for consumer groups often have advised consumers to look into the advantages of buying goods by their generic rather than brand name to save money. The generic name of a drug or fabric is its chemical name.

For example, the antibiotic drug known by its brand name as Achromycin is also manufactured and sold by its generic name of tetracycline hydrochloride. The difference, however, is that a prescription that calls for a drug by its brand name can cost three or four times more than one that identifies it by its generic name.

Federal laws dictate that garment labels identify the fiber content of fabrics by their generic name. For that reason you may have noted that a gar­ment whose fabric is identified as Dacron (its brand name) is also labeled polyester (its generic name).

In recent years many supermarkets have been offering what they call "generic" or "no frills" prod­ucts. These items, which are packaged in the plainest possible jars, cans, and boxes, are labeled by their common names (such as "corn flakes," "peanut butter," "iodized salt" and "dishwasher detergent"). They generally cost less than their brand name counterparts, but there may be differ­ences in quality. A smart shopper will evaluate both product quality and price before making a purchase.

Date: 2015-02-16; view: 1645