5. Implementation and Controlling in the Marketing Planning Process388 5.3 Ethical, Social and Environmental Aspects of Marketing Planning Responsible marketing-oriented companies discover what customers want and respond with tailored marketing offers that create value for buyers in order to establish relationships with consumers and ultimately profitability. However, not all companies consistently follow this approach and carry out socially responsible strategies and actions: the extensive criticism of such companies as Siemens (bribery), Wal-Mart (allegations of poor employee relations), McDonald’s (health concerns), Coca-Cola (Dasani launch) and many others bear witness to the importance of business and marketing ethics. Revelations about unethical behaviour can lead to negative publicity and the unwillingness of customers to buy from the accused company. Not only should modern enterprises consider and define their standards of ethical behaviour, they should as well use these standards as the underlying basis for designing corporate social responsibility strategies that take into account of how their actions might affect society and the environment. In this last section of the book we shall discuss the meaning of marketing ethics and specific issues that should be considered during the marketing planning process. The relevance of being ethical, social and environmental responsible has grown considerably over the last decades, in the light of public demands and changes in national laws. 5.3.1 Marketing Ethics At the bottom of the idea of corporate social responsibility and shaping its implementation is the concept of ethics. Ethics are the moral principles and values that govern the actions and decisions of an individual group (Berkowitz et al., 2004). Business ethics are the moral principles and values that guide a company’s behaviour. Until recently, for numerous companies, business ethics consisted mainly of compliance-based, legally driven codes and training that outlined what employees should or should not do. Today, an increasing number of enterprises are designing globally consistent ethical programmes based on values. Marketing ethics are the moral principles and values that guide behaviour with the area of marketing, and cover issues such as product safety, truthfulness in communications, honesty in relationships with stakeholders, pricing issues and the impact of marketing decisions on the environment and society (Jobber, 2010). It is an integral part of decisions regarding marketing planning. Recent criticism of the ethics of marketing reflects the increased societal concern about business practices and has focused on specific issues, industries and companies. However, there has been a long-standing suspicion of marketing as many people associate marketing activities, especially selling and advertising with dishonest behaviour. Critics who suggest that marketing heightens materialism, wastes scarce resources and makes consumption an end in itself, often ignore the role of the consumer in this process and that marketing is a response to customer preferences. Also frequently overlooked are the intangible benefits that products may provide, including the psychological and social benefits that often accompany marketing activities such as advertising and branding. Hence, an alternative view, often proclaimed by marketing practitioners, is that appropriate marketing actually serves society. Kapitel_5.indd 388 03.08.2010 12:56:30 Uhr 5.3 Ethical, Social and Environmental Aspects 389 These arguments may be sufficient to counter the charge that marketing per se is unethical. In the end every company must work out a philosophy of socially responsible and ethical behaviour. Under the ethical marketing concept, each organisation must look beyond what is legal and allowed and develop standards based on integrity, corporate conscience, and long-term customer welfare. For the sake of all of the company’s stakeholders – customers, suppliers, employees, shareholders, and the public – it is of paramount importance to make a commitment to a common set of shared standards worldwide (Kotler and Armstrong, 2009). 5.3.1.1 Ethical Issues in the Marketing Mix As stated above marketing practices have been subject to severe criticism from customers, consumer groups and environmentalists. These ethical concerns will be analysed by examining issues specific to the marketing mix (Jobber, 2010). Product There are three key issues regarding ethical issues with products: product safety, planned obsolescence and deceptive packaging: Product safety • Product safety is often a significant ethical issue in product policy. There is a legal requirement in most countries to provide products worthy of sale and fit for their intended purpose. This requirement encompasses product safety. As well as this ‘implied warranty’, an absence of ‘ordinary care’ on the part of sellers (manufacturers, wholesalers and retailers) can give rise to charges of negligence, with the seller made liable for products proven defective that have caused injury. A major concern about safety has been the issue of genetically altered products. Pressure groups such as Greenpeace have addressed the dangers of genetic modification. The process within which scientists manipulate the genetic code of plants to create new characteristics has sharply divided people as to whether this can be safe. Concerns about product safety relate to tobacco (cancer) and the levels of fat, sugar and salt in foods (obesity and heart problems). Such issues have led to bans on tobacco advertising, the setting up of bodies to protect consumers’ interests in the food and drinks industries. Planned obsolescence • Many products are not designed to last a long time. From the manufacturer’s point of view this is sensible as it potentially creates a repeat purchase situation. Naturally, consumers accept that nothing lasts forever, but the issue concerns what is an acceptable length of time before replacement is necessary. Deceptive packaging • This can happen when a product appears in an oversized package to create the impression that the customer is buying more than actually is the case. This has the potential to deceive when the package is unclear. Another area where packaging may be unreliable is through misleading labelling. This may take the form of omission – for example, the failure of a package to state that the product contains genetically modified soya beans. Kapitel_5.indd 389 03.08.2010 12:56:30 Uhr 5. Implementation and Controlling in the Marketing Planning Process390 Pricing Key issues regarding ethical issues in pricing are price fixing, predatory pricing, deceptive pricing price discrimination and product dumping: Price fixing • As one of the driving forces towards lower prices is competition it can be in the interest of producers to agree among themselves not to compete on price. This is an act of complicity and is banned in many countries and regions. Predatory pricing • This refers to the situation where a company cuts prices with the aim of driving out the competition. The firm is content to incur losses with the overriding goal that high profits will be generated through higher prices once the competition is eradicated. Deceptive pricing • This occurs when customers are misguided by the price deals offered by enterprises. For example, misleading price comparisons take place when a store sets artificially high prices for a short time so that much lower ‘sale’ prices can be claimed later. The intent is to deceive the customer into believing they are being offered bargains. Price discrimination • This takes place when a supplier offers a better price for the same product and the same quantity to one buyer and not to another, resulting in an unfair competitive advantage. Product dumping • This entails the export of products at much lower prices than charged in the domestic market, sometimes below production costs. A possible reason is that unsold stocks may be exported at a low price rather than risk lowering prices in the home market. Another reason is that products may be produced for sale overseas at low prices to fill otherwise unused production capacities. Distribution The central ethical issues in distribution are the use of slotting allowances, grey markets, exclusive dealing, and fair trading: Slotting allowances • The power shift from producers to retailers in the packaged consumer goods industry has implied that slotting allowances are often demanded to stock products. A slotting allowance is a fee paid to a retailer in exchange for an agreement to place a product on the retailer’s shelves. Grey markets • These occur when a product is sold through an unauthorized distribution channel. Exclusive dealing • This is a restrictive arrangement whereby a producer prohibits distributors that market its products from selling the products of competing suppliers. This act may restrict competition and the entry of new rivals and products into a market. Fair trading • One problem of free market forces is that when small commodity producers are faced with large powerful buyers the result can be substantially low prices. This can bring severe economic hardship to the producers, who may be situated in countries of the developing world. Kapitel_5.indd 390 03.08.2010 12:56:30 Uhr 5.3 Ethical, Social and Environmental Aspects 391 Communication The visibility of advertising, coupled with its role as persuasive communication, result in it being one of the most frequently criticized areas of marketing. Truth in advertising has seen an ethical issue since the earliest use of advertising. In most countries, advertisers are subject to stringent self-regulation by industry bodies and government regulation. The key ethical issues in advertising involve misleading advertising, advertising’s influence on society’s values and advertising to children: Misleading advertising • This can take the form of exaggerated claims and concealed facts. For example, the US-Federal Trade Commission stepped in when KFC promoted the health benefits and low carbohydrate content of its chicken with the slogan. ‘If you’re watching carbs and going high-protein, go KFC’. Two pieces of fried chicken (skin removed) were being compared to the original Burger King Whopper. Small print at the bottom of the ad noted ‘a balanced diet and exercise are necessary for good health and that KFC chicken is not low fat, low sodium, low cholesterol food’. The FTC required KFC to stop running the advertising, indicating the deceptive nature of the advertisement (Ferrell, 2004). Advertising’s influence on society’s values • Critics argue that advertising images have a significant effect on society. They claim, for example, that advertising promotes materialism and takes advantage of human imperfections. In this context advertising is accused of stressing the importance of material possessions, such as the ownership of an expensive car or the latest in consumer electronics. Critics state that this promotes the false values in society. A related criticism is that advertising takes advantage of human frailties such as the need to belong and the desire for status. It promotes the idea that people should be judged on what they possess rather than who they are. Advertising to children • Another controversial issue is advertising to children. Critics argue that children are especially vulnerable to persuasion and that they consequently need special protection from advertising. 5.3.1.2 Special Issues in Ethics More generally, a serious and unresolved situational ethics problem often occurs in global marketing. No international code of business ethics exists, because each society’s ethics vary. In some countries bribery, kickbacks, and dishonesty in advertising, selling, and dealing are much more acceptable than in others. How should foreign firms behave in such markets? If they do not tolerate such standard practices, they risk not doing business and may be further reviled for arrogantly imposing their values where they are not wanted. Bribery is can be defined as the offering, promising or giving something in order to influence a public official in the execution of his/her official duties (Sonyal and Samanbta, 2004). Bribes can take the form of money, other pecuniary advantages, such as scholarship for a child’s college education, or non-pecuniary benefits, such as favourable publicity. In the international context, bribery involves a business firm from one country offering financial or nonfinancial inducements to officials of another country to obtain a commercial benefit. Commercial bribery is ordinarily illegal, but the potential gains Kapitel_5.indd 391 03.08.2010 12:56:30 Uhr 5. Implementation and Controlling in the Marketing Planning Process392 Exhibit 5.1 Miele – entering the Indian high-end residential appliance market Miele & Cie (Miele) – is a privately held company that manufactures residential appliances such as vacuum cleaners, cooking products, refrigeration products, cooling products, laundry care machines, coffee systems and dishwashers. Miele also manufactures commercial machines and medical devices. The company primarily operates in Europe and the US. It is headquartered in Gutersloh, Germany and employs about 16,000 people. The company recorded revenues of €2.8 billion (approximately $4.1 billion) in the fiscal year 2008/09. Miele manufactures domestic appliances, machines for commercial applications and built-in kitchens. Until now the company has primarily operated in Europe and the US. Miele offers residential appliances such as vacuum cleaners including canisters, sticks, and uprights; cooking products such as ovens, warming drawers, steam ovens, speed ovens, lift doors, combisets, ventilation hoods and cooktops; cooling products such as refrigerators, freezers, refrigerator-freezers, and wine storage units; laundry care machines such as washing machines, tumble dryers, and rotary irons; coffee systems including capsule systems and whole bean systems, and dishwashers. (To the left: An enormous vacuum sucking a hot air balloon out of the sky. However, this billboard can’t actually be seen anywhere in real life. It’s an ad concept dreamed up by Jon Kubik, a student at the Miami Ad School) Miele is present in 46 countries across the globe through their fully-owned subsidiaries and over 100 countries through importers and distributors. Miele penetrates India In 2009 German domestic appliances maker Miele entered the Indian market with a range of 65 high-end products targeted at the premium segment. This is the company’s single biggest venture outside the German market. The offerings, which are priced between Rs 23,000 (for a vacuum cleaner) and Rs 20,00,000 (for a master cool refrigerator), are targeted primarily at the 400,000 most affluent people in the country. Miele has opened its first ‘product experience centre’ in Delhi. Kapitel_5.indd 392 03.08.2010 12:56:30 Uhr 393Exhibit 5.1 All the products of Miele are made in Germany. They are tried and tested in our German manufacturing unit for good performance and pleasing experience. In India the products are customized to suit Indian requirements. While there are many appliance companies in the country, there is none in the high-end premium segment. Miele’s range for India includes wine conditioners, coffee machines, refrigerators, steam ovens, warming drawers, dishwashers, washing machines, rotary irons, vacuum cleaners and so on. Priced on the higher side, washing machines from Miele cost between Rs 1.40 lakh and Rs 2.15 lakh, and refrigerators between Rs 2 lakh and Rs 9 lakh (lakh = 10 mill) Miele is confident. The decision to invest in India was based on intensive market and consumer research for a couple of years. Miele always looked at the number of German-made cars in a country — Mercedes, BMWs and Audis, as an indicator of the potential market for Miele. The number in India is quite significant. Miele’s direction is that design should be timeless. It should not be connected too much to fashion — which changes fast. When they decide for colours, they take into account if it will look good even after 10 years. Miele says the strategy for India is to go step by step. The current focus will be the market in and around Delhi. It has plans to enter the Mumbai market next year and a couple of other metros in the next few years, but the decision will largely depend on the response and demand. The target would be both individual and institutional buyers. The company says it is talking to most of the real estate companies in the country, primarily in the luxury space. It will cater to the individual customer mainly through kitchen specialists (which sell kitchens to end-customers) and up-market electrical retailers who sell premium brands. Word-of-mouth will play a big role for the brand’s growth in India, as in many other countries. Source: Adapted from Miele.com Kapitel_5.indd 393 03.08.2010 12:56:30 Uhr 5. Implementation and Controlling in the Marketing Planning Process394 from this generally unethical practice are often so immense that it can be found in many markets and in all countries. Bribery tends to occur more often in less developed countries. In these countries the whole bureaucratic apparatus of the modern state has been introduced with little regard for the limited capacity of the economy to sustain it. Government officials have important responsibilities and much social status but their salaries are often very low in comparison to their social and familial obligations. The need to maintain status and the heavy burden of traditional obligations encourage corrupt behaviours. Thus, corruption is the result of a combination of opportunity (that comes from the office being held) and personal and familial obligations. In addition, the high cost of enforcing rules relative to the available resources as well as the reluctance of people in power to prosecute corrupt acts (being corrupt themselves) allows such behaviours to persist. It is often difficult to distinguish between a bribe, a gift to show appreciation, and a reasonable commissions for services rendered. Accepting or giving gifts may or may not be ethical, but the practice of gift giving is under careful scrutiny within many businessto-business firms. If the giving of a gift is done as a condition of doing business, then the act is immoral and unethical. Furthermore, it causes prejudice against those who fail to give a gift. Many companies have stopped the practice of giving holiday gifts to customers, offering instead to contribute to a customer’s favourite charity. The problem with this approach, however, is that even those gratuities given to create legitimate goodwill may influence the purchasing decision in some way. Some common sense and social intelligence should be good guides in keeping the business selling firm within ethical boundaries. The ethical standards of morality that constrain marketing decisions making should be a result of the combination of personal conscience and the morality of the company as stated in its code of ethics. Ethical behaviour is required to make the market work efficiently and to keep it free and open. Consequently, marketing planners must respond to the almost universal ethical codes involved in trading: to be honest and not conspire to cheat and steal. However, their decisions as to what to offer the marketplace and how to offer it also have an impact on the prevailing values and ethics of a society. Some products and marketing practices are ethically questionable. This profound responsibility cannot be simply shrugged off. The enlightened leadership that marketing planners are expected to display is most put to the test when they are faced with ethical dilemmas created by conflicts of interests among customers, employees, and owners (Hollensen, 2006). 5.3.2 Social Marketing Social marketing can be described as the application of commercial marketing technologies to the analysis, planning, execution, and evaluation of programs designed to influence the voluntary behaviour of target audiences in order to improve their personal welfare and that of their society. Social marketing has comprehensible relations to commercial marketing. Still, social marketing is distinct from commercial marketing focuses on resolving social problems, whereas commercial marketing in that it focuses on producing various goods or services for a profit. The ‘customer’ of social marketing is normally not expected to pay a price equal to the cost of providing the service, whereas the customer of commercial Kapitel_5.indd 394 03.08.2010 12:56:31 Uhr 5.3 Ethical, Social and Environmental Aspects 395 marketing is expected to do so. Social marketing should not be confused with socially responsible marketing, something in which all marketers should be engaged. Socially responsible marketing is commercial marketing that suitably takes into account its social responsibilities in marketing ordinary products and services (Hollensen, 2006). As such, social marketing focuses on influencing people’s behaviour toward other ways of acting and lifestyles that will improve stakeholder’s well-being. This attempt to transform people’s behaviour may also involve modifications in their attitudes, values, norms, and ideas. In fact it may also require behavioural and value changes in the communities or groups of people with whom they live and/or associate. The well-being of the individuals and/or society is not simply subjectively identified by the individuals involved but is subject to determination through processes of social argumentation and validation. Social Marketing and Relationship-Building Social marketing is about changing behaviour: encouraging people to give up smoking, take exercise, or visit a health clinic (Andreasen, 1994). Social marketing is founded on trust, and consequently is linked to relationship building. Transactions are one-dimensional and inadequate by comparison. As in commercial marketing, relationship building on this scale will be information technology dependent. Databases used to generate bills could be adapted and customized to deliver positive health messages or products. Association with such messages and the health organisations that generate them could aid make billing a less negative process and improve the company’s corporate image. Moving from transactions to relationships adds the vital dimension of time to the social marketing exchange, which turns trust into commitment and enables long-term, strategic planning. Figure 5.14 shows that social marketers need to think about building relationships in the same four domains as commercial companies (Hastings, 2003): Buyer partnerships:• a distinction is made between the ultimate customer (the beneficiary of the social marketer’s endeavours) and the funder of their activities, such as the government health department (Bagozzi, 1974). With the latter, superior relationships can ensure that projects are set realistic objectives and that evaluation feedback will be in a form that helps policy decision making. The resulting trust and commitment also reduces the tendency to determine renewed funding merely on the basis of bottom-line results. More fundamentally, building relationships with funders enables the social marketer to influence the setting, as well as the implementation, of the policy agenda, which strengthens not just the discipline’s effectiveness but also its ethical foundation. Supplier partnerships:• in the case of suppliers, such as market research providers, long-term relationships help overpass cultural differences between the private and public sector and ensure that progress is built on consensus, matched agendas, and clearly agreed long-term goals. Lateral partnerships:• the benefits of working with governments and other controllers of the social context have already been discussed. Strategic alliances with competing social marketers can facilitate efficiency savings and improve competitiveness. Moreover, they can also help prioritise issues. This is vital given the fragmented social marketplace where organisations compete for public attention by highlighting the Kapitel_5.indd 395 03.08.2010 12:56:31 Uhr 5. Implementation and Controlling in the Marketing Planning Process396 danger of their particular concern. At any given moment, the public has to choose between the varying threats of speeding drivers, environmental tobacco smoke, and alcohol abuse (none of which are completely in their control). A combined approach based on long-term alliances, could transform threats into a multifaceted opportunity to improve health and well-being. Internal partnerships: • as in commerce, fulfilling relationships with external stakeholders depend on the whole organisation pulling together. Great data mining and strong interactive communications will be undermined if the dispatch office is unresponsive or the receptionist is obstructive. This multiplicity of potential relationships presents challenges as well as opportunities. Decisions have to be made about which stakeholders to prioritise and how to handle them. 5.3.3 Green Marketing Green marketing has evolved into a complex, integrated, strategic, and tactical process. As such, it is a holistic approach rather than the simple ‘marketing hype’ or tactical opportunism practiced by some. It expands on the basic transaction concept by minimizing a transaction’s negative impact on the natural environment. Source: Adapted from Hastings, 2003 Services suppliers Goods suppliers Functional departments Competing social marketing organizations Controllers of the social context e.g. government Employees FundersConsumers Supplier partnerships Lateral partnerships Internal partnerships Buyer partnerships Focal ”Social marketing” organization Figure 5.14: Relationships of focal ‘social marketing’ organisation Kapitel_5.indd 396 03.08.2010 12:56:31 Uhr 5.3 Ethical, Social and Environmental Aspects 397 Understanding corporate motivations and pressures for greening is indispensable, because it shapes how green marketing is implemented throughout all organisational activities. Green marketing or environmental marketing is expected to change the consumers’ outlook, provide a new direction for competition, and gain market acceptance for innovative environmental solutions. Within the framework of environment-conscious management, green or environmental marketing has a responsibility to ensure that environmental pollution is avoided or reduced at every stage of market-oriented activity (planning, coordination, implementation and inspection). The aim is to achieve corporate objectives by permanently satisfying the needs of present or potential clients while exploiting competitive advantages and safeguarding social legitimacy (Meffert and Kirchgeorg, 1998). In the long run ecologically and economically ineffective partial solutions could jeopardize the credibility and legitimacy of the enterprise in the market as well as in the community at large. To avoid this, it is essential that marketing management should develop a specific conception of green marketing (Hollensen, 2006). 5.3.3.1 Levels of Green Marketing Green marketing activities can occur at three levels in the firm (Polonsky and Rosenburger, 2001). Strategic, Quasi-strategic, and Tactical. Strategic greening • In strategic greening, there is a substantial fundamental change in corporate philosophy, such as the Australian firm CarLovers designing its entire carwash process as a closed-loop, recycled-water system (Hollensen, 2004). Quasi-strategic greening • Quasi-strategic greening entails a substantial change in business practices. To reduce water consumption, for example, some hotel chains have begun asking guests to indicate when they want their towels washed by leaving them on the bathroom floor or in the bathtub. Tactical greening • With tactical greening, there is a shift in functional activities, such as promotion. In times of drought, water authorities might use promotional campaigns to encourage consumers to behave in a more responsible, water-efficient fashion. These three levels can be used to identify the amount of change a firm requires and may reflect the degree of commitment to various environmental objectives. Take the example of a jeans manufacturer who, in the early 1990s, promoted the fact that it would donate a proportion of each sale for planting trees. Such a tactical activity might have been viewed with intense scepticism, because there is no apparent logical link between making jeans and planting trees (Hollensen, 2006). 5.3.3.2 Environmental Issues in the Marketing Mix Having already discussed the most important ethical issues in the marketing mix we shall now outline the key environmental issues in the marketing mix (Hollensen, 2006). Kapitel_5.indd 397 03.08.2010 12:56:32 Uhr 5. Implementation and Controlling in the Marketing Planning Process398 Product A product life-cycle analysis (LCA) can provide a sound basis for more ecological solutions to the problems associated with product and packaging policies. In order to resolve product-related environmental problems, it is essential to analyse the various spheres of responsibility of the supplier, manufacturer, distributor and customer. Marketing specialists will have to analyse the organisation of closed loop value chains with all of its consequences for product design (long-life products, the growing importance of after sales service, the sale of utility instead of products). Mechanisms of product policy include product innovation, product variation, and product elimination designed to bring programmes into line with ecological requirements. While product variations involve modifying existing products in accordance with ecologically oriented demands, ecologically oriented product innovations entail launching entirely new product concepts on the market. The introduction of return regulation in most European countries obliges producers and retailers to develop eco-friendly products, packaging and logistic alternatives as part of their product policy. The new regulations are based on the principle of sustainable development, aims to ensure that producers will be forced to play an active part in implementing a circular economy. This new definition of product responsibility can be regarded as a further step in the implementation of the prevention and polluter pays principle, which has guided environmental policy in European countries. Green solutions often require a modification of the logistics and product representation at the point of sale. The preparation of an ecological balance sheet for packaging materials and packaging systems (e.g. non-returnable and multi-way packaging) will ultimately be the only means of finding out which form of packaging can be considered the most environment friendly. Distribution Just as producers have traditionally had to choose between various kinds of distribution channels, they now have to concern themselves increasingly with the task of choosing an appropriate distribution channel with respect to green marketing. The implementation of the closed loop value chain in green marketing forces companies to rethink the distribution mix. Closed-loop supply chains consist of a forward supply chain and a reverse supply chain. Loops can be closed in several ways: reusing the product as a whole, reusing the components, or reusing the materials. Most closed-loop supply chains will involve a mix of reuse options, where the various returns are processed through the most profitable alternative. There are five key business processes involved in the reverse supply chain and the importance and sequence of these processes may differ from chain to chain (Krikke et al., 2004): Product acquisition:• this concerns retrieving the product from the market (sometimes by energetic buy-back) as well as physically collecting it. The timing of quality, quantity, and composition needs to be managed in close cooperation with the supply chain parties close to the final customer. Reverse logistics:• this involves the transportation to the location of recovery. An intermediate step for testing and inspection may be necessary. Kapitel_5.indd 398 03.08.2010 12:56:32 Uhr 5.3 Ethical, Social and Environmental Aspects 399 Sorting and disposition:• returns need to be sorted on quality and composition in order to determine the remaining route in the reverse chain. The sorting may depend on the outcome of the testing and inspection process. However, the disposition decision not only depends on product characteristics, but also on market demand. Recovery:• this is the process of retrieving, reconditioning, and regaining products, components, and materials. In principle, all recovery options may be applied either in the original supply chain or in some alternative supply chain. In some areas, the reuse in alternative supply chains is referred to as ‘open-loop’ applications. Redistribution and sales:• this process mainly coincides with the distribution and sales processed in the forward chain. Additional marketing efforts may be needed to convince the customer of the quality of the product. In alternative chains, separate channels need to be set up and new markets may need to be developed. The objectives of the EU eco-regulation are to promote products with a condensed environmental impact throughout their entire life-cycle and to provide better information to consumers on the environmental impacts of products. The EU eco-labelling scheme, issued as a regulation, applies directly to all member states and is EU-wide. It is a voluntary scheme and should be self-financing. Pricing While green products are often ‘priced’ higher than traditional goods, this does not at all times mean they cost more, especially when all associated costs are considered. Frequently, green goods have higher initial out-of-pocket expenses but lower long-term costs. Decisions relating to pricing are mainly determined by the consumer’s sensitivity to price, but the necessity to integrate the cost of legally stimulated pollution control plays an increasingly important role in this domain. Pricing strategies should be based on a segmentation of actual and potential target groups classified with the aid of three criteria (Hollensen, 2006): 1. ecological awareness 2. personal affectedness 3. willingness to pay a price for pollution control. Segments displaying varying degrees of price sensitivity constitute the basis for price differentiation strategies. As a matter of principle, lower introductory prices for eco-friendly products aid customers to reorient their buyer behaviour, thereby facilitating a more rapid diffusion of appropriate products. Combined costing at the expense of non eco-friendly products can ensure a necessary balance. The return of used packaging and products raises the question of pricing incentives for green distribution. Communication One of the most complicated tasks is to decide which environmental information should be communicated and how to do it. A primary issue is that there must be something worthwhile to announce. A good deal of environmental promotion has been labelled ‘green-wash’, having little if any real and sustainable ecological meaning. This type of superficial tactical greening is not appropriate and both consumers and regulators are Kapitel_5.indd 399 03.08.2010 12:56:32 Uhr 5. Implementation and Controlling in the Marketing Planning Process400 unwilling to accept it. Communicating substantive environmental information is a more appropriate approach to take, but requires real activity changes to carry great weight. Numerous firms realize that green promotion alone is becoming less effective, so they are shifting to promoting ecological attributes in addition to more traditional one. It is questionable, for example, whether environmental sponsorships and cause-related marketing programs will be effective, especially if they are seen as unrelated to a firm’s core marketing activities or products. Thus, all green promotional activities need to be carefully evaluated to ensure that the company is not criticized for green-washing. Green promotion needs to communicate substantive environmental information to consumers that has meaningful links to corporate activities. Thus, promoting some real environmental attribute of a product or firm requires a significant change in the product, process, or corporate focus (integration with other activities). Enterprises ought to work out holistic, environment friendly solutions to problems before presenting information to the public. Yet even when this compulsory condition is fulfilled, problems often arise when companies attempt to apply classical advertising techniques (e.g. emotional and empirically oriented sales messages) to the organisation of credible, environmentally oriented marketing messages that can, must or ought to be transmitted. They must also determine to what extent communication in the relevant sector is dominated by environmental arguments. 5.3.4 Corporate Social Responsibility Corporate social responsibility (CSR) refers to the ethical principle that an enterprise should be accountable for how its behaviour might affect society and the environment (Jobber, 2010). Corporate social irresponsibility can have severe consequences for companies. Taking the recent case of Siemens the negative fallout can be illustrated. Accused of paying bribes to win lucrative overseas contracts, Siemens was fined GBP 523 million by the US Department of Justice, and GBP 180 million by a local court in Munich, Germany. A further GBP 354 million was paid to settle a case in Munich over the failure of its former board to fulfil its duties. The total cost to Siemens, one of the leading companies in the world, was GBP 2,25 billion (Gow, 2008). CSR is based on the stakeholder management approach of the organisation, which contends that firms are not managed solely in the interests of their shareholders. Rather, there is a range of interest groups – labelled stakeholders – that have a legitimate interest in the company as well (Donaldson and Preston, 1995). Figure 5.15 lists the key stakeholders for an enterprise. 5.3.4.1 The Nature of Corporate Social Responsibility A constructive way of analysing the nature of CSR is the pyramid model of corporate social responsibility by Carroll. In this model CSR is described as a multilayered concept that can be divided into four interrelated responsibilities: economic, legal, ethical and philanthropic (Carroll and Buchholtz, 2000). The presentation of these responsibilities is in the form of layers within a pyramid and the full achievement of CSR only occurs when all four layers are met consecutively (see Figure 5.16). Kapitel_5.indd 400 03.08.2010 12:56:32 Uhr 5.3 Ethical, Social and Environmental Aspects 401 Economic Responsibilities Carroll recognized that the principal role of an enterprise was to produce products that customers wanted and to be as profitable as possible in doing so. Economic responsibilities involve maintaining a strong competitive position, operating at high levels of efficiency and effectiveness, and aiming for constantly high levels of profitability. This is also referred to as the classical view of social responsibility which states that management’s only social responsibility is to maximize profits. The most outspoken advocate of this approach is economist and Nobel Prize winner Milton Friedman. He argues that managers’ primary responsibility is to operate the business in the best interest of the stockholders. Friedman states that anytime executives decide to spend the organisation’s resources for ‘social good’, they are adding to the costs of doing business. These costs have to be passed on to consumers either through higher prices or absorbed Company Employees Shareholders Communities Suppliers Media Governments Trade and industry associations Competitors Social and political groups Customers Figure 5.15: Key stakeholders for a company Kapitel_5.indd 401 03.08.2010 12:56:32 Uhr 5. Implementation and Controlling in the Marketing Planning Process402 by stockholders through a smaller profit returned as dividends. It has to be emphasized that Friedman is not stating that organisations should not be socially responsible; he thinks they should. But the extent of that responsibility is to maximise organisational profits for stockholders (Friedman, 1970). Without the achievement of economic responsibilities, the other three layers are redundant since the company would go out of business. In summary, economic success is the sine qua non of CSR ‘without which there is nothing’. Legal Responsibilities Clearly, organisations must pursue their economic responsibilities within the framework of the law. Laws mirror society’s principles and standards. From time to time, however, the drive to maximize profits can conflict with the law. For example, Intel and Microsoft recently have faced heavy financial penalties for anti-competitive behaviour. Like economic responsibilities, the meeting of legal responsibilities is a condition of CSR. Ethical Responsibilities Although economic and legal responsibilities embody ethical norms about fairness and justice, ethical responsibilities mean that companies should perform in a manner consistent with the principles and values of society and prevent ethical norms from being compromised in order to achieve corporate objectives. Numerous companies involving Source: Adapted from Carroll and Buchholtz, 2000 Philanthropic responsibilities Ethical responsibilities Legal responsibilities Economic responsibilities Figure 5.16: The pyramid of social responsibility Kapitel_5.indd 402 03.08.2010 12:56:32 Uhr 5.3 Ethical, Social and Environmental Aspects 403 BP, Deutsche Telekom, and VW draw up codes of ethical conduct and employ teams to govern compliance. Philanthropic Responsibilities At the top of the pyramid are the philanthropic responsibilities of companies. This layer encompasses those corporate actions that are in response to society’s expectation that businesses be good corporate citizens. This includes actively engaging in acts or programs to promote human welfare or goodwill, such as making charitable donations, the building of leisure facilities, arts and sports sponsorship, and support of local schools (Crane and Matten, 2004). The central difference between philanthropic and ethical responsibilities is that the former is not expected in an ethical sense. Communities may desire companies to contribute to their well-being but do not consider them unethical if they do not. The power of the four-part model of CSR is its pragmatism in recognising that, without the fulfilment of economic responsibilities a company would not have the capability to engage in ethical and/or philanthropic activities. However, to gain a deeper understanding of the scope of CSR activities it is vital to explore its dimensions which we shall do now in more detail. 5.3.4.2 The Dimensions of Corporate Social Responsibility By discussing the dimensions of CSR an insight into where the above mentioned responsibilities may be acquitted can be acquired. The CSR dimensions are based on four key stakeholders who are affected by a company’s activities, plus the physical environment (Maignan and Ferrell, 2004). Physical Environment Te key issues in the physical environment include the use of environmentally friendly ingredients and components, recycling and non-wasteful packaging and pollution control. Marketers’ response strategy can be summarized under the term sustainable marketing. Environmental sustainability implies to maintain or prolong the physical environment and comprises activities towards the use of renewable rather than finite raw materials, and minimisation of polluting effluents. Sustainable marketing contributes to this goal by focusing on environmental issues and reducing environmental damage by developing, producing and delivering sustainable solution while continuing to satisfy customers and other stakeholders (Jobber, 2010). Example 38: Promoting social responsibility: The Bicycle Factory is a promotion for Cadbury where they are getting consumers to help them send 5000 Bicycles to Africa. Every time a customer enters a Cadbury UPC online, it gets turned into a bicycle part. Visitors can watch live as their part get added to a bicycle, plus explore the factory to watch videos and find out more about the initiative Kapitel_5.indd 403 03.08.2010 12:56:33 Uhr 5. Implementation and Controlling in the Marketing Planning Process404 Companies are increasingly moving towards more sustainable products and strategies. In order to facilitate this transition process, marketing needs to address several questions which are as follows (Charter et al., 2002): Have the key effects of sustainability issues on company activities been analysed as • part of the marketing planning process? Has the firm conducted marketing research into the probable impacts on the organ-• isation of sustainability issues? Can the company modify existing products, ser vices or processes to take account of • sustainability considerations, or will innovations be required? Is the organisation developing positive links with environmental groups?• Do communication strategies accurately emphasise environmental considerations?• Environmental issues can be a source of threats to companies, but they can also provide great opportunities. For example, Toyota has responded to environmental trends by successfully launching the Toyota Prius hybrid car, which supplements normal fuel with an electric powered engine giving the company a competitive advantage in its industry. Social and Consumer Dimensions Social concerns that business has sought to address are the need to support local and wider communities. Customer concerns include the effect of business activities on product safety, including the avoidance of price fixing, honesty in communications, and respecting privacy. Although social and consumer dimensions of CSR are distinct as their key issues differ, they can be analysed together as marketing’s major response – societal marketing – embrace both. Societal marketing related to marketing’s direct effect on people, both in the form of consumer and society in general. This approach takes into account consumers’ and society’s wider interest rather than their short term consumption. One objective is to consider consumers’ needs and long-term welfare and society’s long-term welfare as keys to satisfying organisation goals and responsibilities (Jobber, 2010). Supply Chain Unfair trading arises when large buyers exert their power on small commodity producers to force prices to very low levels. As discussed earlier, this can bring severe economic hardship to the producers, who may be located in countries of the developing world. Many of the manufacturers of such products as coffee and tea live in poverty and suffer from poor working conditions, health problems and prices that fail to provide a living wage. Fair trade marketing is the devel- Example 39: The WWF wants to create awareness for the physical environment in this Cannes Lions 2009 winning ad Kapitel_5.indd 404 03.08.2010 12:56:33 Uhr 5.3 Ethical, Social and Environmental Aspects 405 opment, promotion and selling of fair trade products and the positioning of companies on a fair trade ethos basis. Organisations are increasingly recognising that numerous customers care about how suppliers in countries of the developing world are treated, and wish to support them by buying fair trade brands, often at a price premium. Fair trade marketing can be based on the positioning of companies. The success of fair trade marketing is based upon customers being willing to try and repeat-buy fair trade brands and organisations developing genuine appropriate programmes. Customers will not put up with enterprises that use such schemes as an ethical facade, and websites such as Corporate Watch and Greenpeace provide examples of dubious practice by firms that consumers can campaign against in the media. Employee Relations As discussed in the framework of internal marketing, poor employee relations can have harmful marketing consequences. Negative publicity can deter ethically conscious customers from buying from companies that suffer such criticism. In this context, internal marketing is the development, training and motivation of employees designed to enhance their performance in providing consumer satisfaction. The idea began in service institutions such as hotels and restaurants where people are in daily contact with customers, but has spread to all sectors in reflection of the need for all employees who come in contact with customers to be trained appropriately. Summary Ethics means the standards by which behaviour is judged. Why do we need ethics when we have the law, which tells us what we can and cannot do? One answer is that the letter of the law is generally considered to be only a minimum ethical standard. Standard and beliefs about what is right and proper change over time. This question is becoming more important as our economy becomes more competitive and global and our technology more complex. Marketing ethics involve moral judgments, standards, and rules of conduct relating to marketing decisions and situations. Bribery distorts the operation of fair bargaining, and salespeople should resist efforts for bribes from decision makers who might want to engage in such activity. The use of bribes, although widespread and considered very acceptable behaviour within some cultures, should be refused tactfully, allowing salespeople to act in the best interests of their employers and in fairness to all customers. Bribery not only is unethical, it also can be illegal. Social marketing can be defined as the planning and implementation of programs designed to generate social change, e.g. stop smoking by life style change, social marketing is a system that can be used to change the way people think or behave. Social marketing is still based on concepts of commercial marketing. Social marketing, like commercial marketing, utilizes research to tailor messages to a particular target audience. For example, if a company is promoting an issue of major importance to encourage women to take part in annual mammogram testing, the target audience would obviously be women. Consequently, a social marketing campaign would concentrate on adapting commercial techniques to attract and persuade women. The goal of social marketing is to get people to think differently about old ideas and focus on new concepts that will add values to their lives. Social marketing is especially prevalent among non-profit organisations, government agencies, community-bases organisations, private foundations, social/health/issue issue coalitions, and any entity that wants to make social change. Kapitel_5.indd 405 03.08.2010 12:56:33 Uhr 5. Implementation and Controlling in the Marketing Planning Process406 The last decade has seen a paradigm shift in commercial marketing, from transactional to relational thinking, and social marketers need to grasp the opportunity this presents. It has dramatic implications for the discipline, changing it from a branch line of public health to a whole new way of thinking about social problems. Although environmental issues influence all human activities, few academic disciplines have integrated green issues into their literature. This is especially true of marketing. As society becomes more concerned with the natural environment, businesses have begun to modify their behaviour in an attempt to address society’s ‘new’ concerns. Some businesses have been quick to accept concepts like environmental management systems and waste minimization, and have integrated environmental issues into all organisational activities. Green marketing incorporates a broad range of activities, including product modification, changes to the production process, packaging changes, as well as modifying advertising. Yet defining green marketing is not a simple task. Indeed the terminology used in this area has varied, it includes: Green Marketing, Environmental Marketing and Ecological Marketing. No matter why a firm uses green marketing there are a number of potential problems that they must overcome. One of the main problems is that firms using green marketing must ensure that their activities are not misleading to consumers or industry, and do not breach any of the regulations or laws dealing with environmental marketing. Another problem firms face is that those who modify their products due to increased consumer concern must contend with the fact that consumers’ perceptions are sometimes not correct. One example of this is where McDonald’s is often blamed for polluting the environment because much of their packaging finishes up as roadside waste. It must be remembered that it is the uncaring consumer who chooses to dispose of their waste in an inappropriate fashion. CSR refers to the ethical principle refers to the ethical principle that an organisation should be accountable for how its behaviour might affect society and the environment. It has economic, legal, ethical and philanthropic responsibilities. The responsibilities of CSR may be discharged across five dimensions: the physical environment, social, consumer, supply chain, and employee relations. Questions for discussion 1. What conflicts of ethical issues and acceptable corporate behaviour might face a company operating across a spread of international markets? 2. What are the major competing views of corporate responsibility? 3. Why should marketers be concerned with using environmental (‘green’) metrics of performance? 4. How important is the question of bribery in international marketing? What can be done on an international basis to counter it? 5. What role do you think cultural differences play in ethical standards? 6. What are the key elements of a successful corporate ethics program? 7. What are the key responsibilities of corporate social responsibility? Kapitel_5.indd 406 03.08.2010 12:56:33 Uhr 5.4 Developing and Managing Customer Relationships 407 5.4 Developing and Managing Customer Relationships Generally speaking, marketing is all about creating value for customers. Although many companies emphasise they are committed to creation value for their customers, few organisations in fact understand their customers well enough. Customer relationships may be regarded as long-term customer commitment or loyalty, which results from the fact that customers are satisfied not only by the company’s products and services, but also by how they are treated by the company and its employees and are made to feel as a result of their contact and association with the company. Enduring customer relationships represent a company’s most valuable assets, which will pay dividends well into the future. By knowing how much equity really resides in customer relationships, a company can have an excellent understanding of how these relationships will pay returns to shareholders in the future through their contribution to a stream of revenue on which the company can rely. The measurement of concepts such as service quality, customer satisfaction, and customer relationship equity has to be tied straight to strategy. Many companies have established a corporate strategy of ‘relationship marketing’ on the premise that they will achieve success through the creation and enhancement of customer relationships. This chapter is structured as illustrated in Figure 5.17. Figure 5.17 shows the forces (section 5.4.1, 5.4.2 and 5.4.3) determining the subsequent strategies CRM (section 5.4.4)• One-to-one marketing (section 5.4.5) and• Global Account Man. (GAM) (section 5.4.6)• It is imperative to emphasise that all three management concepts are part of the same relationship marketing paradigm. Section 5.4.7 displays how to create long-term customer value and how to measure Customer Lifetime Value (CLV). Finally, section 5.4.8 concludes rethinking marketing and re-stating the importance of a relationship perspective to marketing in the 21st century. 5.4.1 Loyalty Consumers and businesses define loyalty in many different ways. Often longevity of customer patronage and repeat buying are used by businesses as proxies for loyalty. Simply put, loyalty can be described as the percentage of total spending in the product or service category. There are, evidently, certain degrees of loyalty. Some customers are more loyal than others, and customers are extremely loyal to some companies and less loyal to others. Some customers may be loyal to more than one company or brand within a product or service category. What are the main components of loyalty? Time, continuity, and duration of the connection are indicators of loyalty, but, these alone cannot lead a company to conclude that a customer is loyal. A consumer may support a business for many years without really Kapitel_5.indd 407 03.08.2010 12:56:33 Uhr