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Consumer behavior:
CASE I
Sunder Singh
Sunder Singh had studied only up to high school. He was 32-years of age, lived alone in a rented room, and worked eight-hour shift at one petrol pump, then went to the other one for another eight-hour shift. He had a girl friend and was planning to marry.
One day when he returned from work, he got a note from his girl friend that she was getting married to someone else and he need not bother her. This was a terrible shock to Sunder Singh and he fell apart. He stopped going to work, spent sleepless nights, and was very depressed. After a month, he was running Iowan his savings and approached his earlier employers to get back his job, but they would not give him a second chance. He had to quit his rented room, and sold few things that he had. He would do some odd jobs at the railway station or the bus terminal.
One day, nearly two years ago, he was very hungry and did not have any money and saw a young man selling newspapers. He asked him what he was selling and he told him about Guzara (an independent, non-profit, independent newspaper sold by the homeless, and economically disadvantaged men and women of this metro city). Sunder Singh approached the office and started selling the newspaper. He did not make a lot of money, but was good at saving it. He started saving money for a warm jacket for next winter.
He was reasonably happy; he had money to buy food, and no longer homeless and shared a room with two others. One day, with his savings he bought a pair of second-hand Nike shoes from flea market.
Sunder Singh is not unique among low-income consumers, especially in large cities, in wanting and buying Nike shoes. Some experts believe that low-income consumers too want the same products and service that other consumers want.
The working poor are forced to spend a disproportionate percent of their income on food, housing, utilities, and healthcare. They solely rely on public transportation, spend very little on entertainment of any kind, and have no security of any kind. Their fight is mainly day-to-day survival.
QUESTIONS
1. What does the purchase of a product like Nike mean to Sunder Singh?
2. What does the story say about our society and the impact of marketing on consumer behavior?
Case 2
Mouse-Rid
One hot May morning, Shobha, general manager of Innotrap India Ltd., entered her office in Delhi. She paused for a moment to contemplate the quote, which she had framed and hung on a wall facing her table.
"If a man can make a better mousetrap than his neighbour, the world will make a beaten path to his door." She vaguely recalled that probably it was Ralph Waldo Emerson who said this. Perhaps, she wondered, Emerson knew something that she didn't. She had the better mousetrap - Mouse¬-Rid - but the world didn't seem all that excited about it.
Shobha had just returned from a Trade Fair in Kolkata. Standing in the trade show display booth for long hours and answering the same questions hundreds of times had been tiring. Yet, this show had excited her. The Trade Fair officials held a contest to select the best new product introduced at the show. Of the more than 150 new products, her mousetrap had won first place. Two women's magazines had written small articles about this innovative mousetrap, however, the expected demand for the trap had not materialised. Shobha hoped that this award might stimulate increased interest and sales.
A group of investors who had obtained rights to market this innovative mousetrap in India had formed Innotrap India in January 2001. In return for marketing rights, the group agreed to pay the inventor and patent holder, a retired engineer, a royalty fee for each trap sold. The group then appointed Shobha as the general manager to develop and manage Innotrap India Ltd.
The Mouse-Rid, a simple yet clever device, is manufactured by a plastics firm under contract with Innotrap India Ltd. It consists of a square, plastic tube measuring about 6 inches long and one and one-half inches- square. The tube bends in the middle at a 30-degree angle, so that when the front part of the tube rests on a flat surface, the other end is elevated. The elevated end holds a removable cap into which the user places bait (piece of bread, or some other titbit). A hinged door is attached to the front endofthe tube. When the trap is "open", this door rests on two narrow "stills" attached to the two bottom corners of the door.
The trap works with simple efficiency. A mouse, smelling the bait enters the tube through the open end. As it moves up the angled bottom toward the bait, its weight makes the elevated end of the trap drop downward. This elevates the open end, allowing the hinged door to swing closed, trapping the mouse. Small teeth on the ends of stills catch in a groove on the bottom of the trap, locking the door closed. The mouse can be disposed of live, or it can be left alone for a few hours to suffocate in the trap.
Shobha felt the trap had many advantages for the consumer when compared with traditional spring-loaded traps or poisons. Consumers can use it safely and easily with no risk for catching their fingers while loading. It poses no injury or poisoning threat to children or pets.
Shobha's personal and informal inquiries with acquaintances and friends suggested that women are the best target market for the Mouse-Rid. Most women stay at home and take care of household chores and their children. Thus, they want a means of dealing with the mouse problem that avoids any kind of risks. To reach this market,
Shobha decided to distribute Mouse-Rid through grocery stores, and kitchenware stores. She personally contacted a supermarket and some departmental stores to persuade them to carry the product, but they refused saying that they did not sell such contraptions. She avoided any wholesalers and other middlemen.
The traps were packaged in a simple cardboard, with a suggested retail price ofRs.150 for a piece. Although this price made Mouse-Rid about five 1;0 six times more expensive than standard traps, those who bought it showed little price resistance.
To promote the product, Shobha had budgeted approximately Rs. 300,000 toward advertising in different women's magazines, such as Grah Shobha, and Good Housekeeping. Shobha was the company's only salesperson, but planed to employ sales people soon.
Shobha had forecasted Mouse-Rid's first year sales at 2 million units. Through Aril, however, the company had sold only few thousand units. She wondered if most new products got to such slow start, or if she was doing something wrong.
Shobha knew that the investor group believed that Innotrap India Ltd. had a "once-in-a¬ lifetime chance" with its innovative mousetrap. She sensed the group's impatience. To keep the investors happy, the company needed to sell enough traps to cover costs and make a profit.
QUESTIONS
1. Has Shobha identified the best target market for Mouse-Rid? Why or why not?
2. Does Shobha have enough needed data on consumer behaviour? What type of consumer research should Shobha conduct?
3. What type of advertising can influence consumers for this type of product?
Case 3
Golden Glow Soap
Anil Mahajan absent -mindedly ran his finger over the cake of soap before him. He traced the name 'Golden Glow' embossed on the soap as he inhaled its unmistakable sesame fragrance. It was a small soap, almost like a bar of gold. There were no frills, no coloured packaging, and no fancy shape. Just a golden glow and the fragrance of sesame and Lucida font that quietly stated' Golden Glow'.
Mahajan smiled wanly and clasped the soap in his hands, as if protecting it from an unseen predator. He was wondering with quiet concern if the 30-year-old brand would last long. Sensi India, where Mahajan was marketing manager, was taking a long, hard look at the soap, as it was proving to be a strain on resources.
There were varying stories about how Golden Glow was launched. Some said the brand was a 'gift' from the departing English parent company. Others claimed that it was created for the then chairman's British wife, as the Indian climate did not agree with her skin. They also claimed that the lady also coined the copy "The honest soap that loves your skin" was also coined by the lady. The line had stuck through three decades. Only the visuals had changed, with newer models replacing the older ones.
Zeni was basically a speciality products company producing household hygiene, fabricare, and dental care products. Golden Glow was the only soap in its product mix, produced and marketed by Sensi. Its reliable quality and value delivery had earned it a lot of respect in the market. Golden Glow equity was such that Sensi was known as the Golden Glow Company. Indeed, the brand name Golden Glow denoted purity, reliability, and gentle skincare.
In 1994, Sensi UK increased its stake in the Indian subsidiary to 51%. Within months, all of Sensi's products were given a facelift, thanks to the inflow of foreign capital. New packaging, new fragrances, new formulations and more variants were introduced.
Only Golden Glow was left untouched. For, although it had a growing skincare business following some strategic acquisitions in Europe in the early eighties, Sensi UK was not a soap company. The UK marketing team ran an audit of every brand and product in the company's portfolio. But when it came to Golden Glow, it faltered. "We don't know this one," officials at the parent company said.
"We don't want this one to be touched," Mahajan had said protectively, a sentiment tliat was endorsed by the managing director, Rajan Sharma. "Golden Glow is too sacred, we will leave it as it is," he said.
But the UK marketing team was confounded. What was a lone soap doing in the midst of toilet cleaners and fabric protectors; they wondered, however they somehow agreed that their proposed revamp strategy would only look at up-gradation, not tinkering with what wasn't broken.
Indeed, for 30 long years no one had tampered with the Golden Glow brand. And Mahajan felt there was no reason to start now. Golden Glow, in his view, was a self-sustaining brand. That was a bit of an understatement because advertising for the brand was moderate and Sensi India had never used any promotional gimmick for it.
Now, after four years of nurturing the other categories, Sensi UK had decided to launch its Vio range of skincare products in India. But Golden Glow's presence and profile was a major roadblock to Vio's success. "It will create dissonance, confuse our skincare equity and deter the articulation of Vio's credo. It will stand out as a genetic flaw," argued the UK marketing head. "You need to do a rethink on Golden Glow."
Mahajan protested. "Why? It has such a strong equity and loyal following. So much has been invested in it all these years. Why give up all that?"
Rajan, however, had another idea. "Let us then extend the Golden Glow brand." He said It was the simplest solution. Companies were now investing heavily in creating new equities for their brands. But in Golden Glow's case, Sensi was already sitting on a brand with a terrific equity. He felt that extending this equity to other categories, such as skincare products would be successful.
But Golden Glow needed a new positioning before it could be extended. Till a few years ago, it had been in premium category, priced at Rs.15. Then new brands with specific positioning and higher price tags entered the market. This created a level above Rs.15 soaps and pushed Golden Glow down to the mid-priced range. So Golden Glow's price was not commensurate with its premium position and image.
Over the years, Golden Glow had become so sacred that Sensi India had been too scared to do anything to it. As a result, the soap was left with niche category of loyal users. This category neither shrank or increased, just kept getting older and older, and with it the brand also kept growing older. For example, when Mahajan's wife had her first baby at 25, her mother had recommended Golden Glow for her dry skin and also for baby's tender skin because it contained sesame oil. That was in 1979. Today, Mahajan's daughter had turned 21 and was being wooed by Dove, Camay, even Santoor, and Lifebuoy Gold, with their aggressive advertising. Golden Glow had begun to lose its image of being contemporary as newer brands came in with newer values.
Today, at 46, Mahajan's wife still used Golden Glow, but when she recommended Golden Glow to her daughter, she said, "But Golden Glow is a soap for mothers, for older people."
That was a major problem. The Golden Glow brand had aged, and Sensi India hadn't even been aware of it. While its equity had grown with its users, its personality had aged considerably in the last 30 years. "I don't think you can keep the personality young, unless you keep renewing the brand. The objective now is to widen your equity so that your image becomes young," continued Rajan. "For instance, if today you were to personify a Golden Glow user now, it would be a woman of 45 years using the same brand for many years, who is aver-se to experimenting, very skincare conscious, very trusting, and very one-dimensional. As you can see, this is not a very competitive personality. These are the strengths of our Golden Glow, but these are also its weaknesses," he analysed.
The context had changed. Today, youth demanded brands that stood for freedom and fearlessness. They demanded bold brands that dared to cure, not just p;eserve. "Preservation is for old people. Those are the attributes being presented in evolved markets," said Rajan. To make Golden Glow contemporary, the attributes had to be re-framed, he felt. "You can't make a young brand trusting caring, loving, without adding other attributes to it. Today, youth stands for freedom, for laughter, for frankness, for forthrightness. That's what Close Up, Lifebuoy Gold, Vatika, and other brands propagate. So, either come clean and say it is for older skin which needs trust and kindness, or reposition the brand," said Rajan.
Repositioning was also necessary to address another anomaly in Golden Glow's image: its perceived premium. Sensi India had been unable to do anything about Golden Glow slipping into the mid-price range following the entry of more expensive brands. Now, as Rajan mulled over the brand extension plan, Mahajan felt that Golden Glow's premium positioning was its core equity and that had to be maintained.
"If you are premium priced in the consumer's mind, your extensions are automatically perceived as premium. So, if you don't present the other products as premium, the consumer will not see them as extensions of the brand," he said. "For example, if you are to launch a shampoo which is priced lower than Sunsilk, but higher than Nyle and Ayur, then whatever the rationale, the consumer will not accept your product. "It is not the Golden Glow I know," will be the feeling," he said.
Mahajan felt that since premium positioning was one of Golden Glow's equity values, it would be very difficult to convince consumers that the brand was being extended without hanging on to this particular value. "Will they buy your rationale that the very same values and equity would now be available at a low price? To be in the premium segment now, you have to price it at Rs 35 or 40, almost on a par with Dove," he said. "With Dove retailing at Rs 45, Golden Glow will be perceived as a cheaper option."
"We can't simply raise the price," said Rajan. "What are we offering for that increase? You can 't add value because you don't want to tamper with the brand. The consumers will then ask, "Golden Glow used to be so cheap, what has happened now? The user will forget that 15 years ago, Rsl0 was expensive, because all her comparisons would be in today' s context," said Rajan.
"So what's the option?" asked Mahajan. "You don't have to be expensive to be premium," said Rajan. Golden Glow already has the image of a premium brand, thanks to its time-tested core values of purity, credibility, and reliability. What we can do is reinforce the premium through communication and positioning. In fact) we should have tinkered with Golden Glow long ago. That is what HLL did with Lux. It also launched a bridge brand, Lux International, in the premium category," said Rajan.
"How could we have done anything to the brand?" asked Mahajan. "The product had such a strong following. It stood for gold, for sesame oil, for its subtle earthy perfume. We changed the packaging periodically, but that's all we could do. Remember the time we brought out a transparent green Golden Glow with the fragrance of lime? It bombed in the market."
Rajan was not in favour of the premium positioning. It appeared very short sighted to him, given the bigger plan to extend the brand. "Where are the volumes in the premium segment? He asked. "For some reason, every manufacturer feels that skincare can be an indulgence of only the moneyed class. As a result, there is a crowd in the premium end of the market. Do we want to be yet another player in the segment?"
Fifteen years ago, Golden Glow was perceived as a premium product. But today, globa1brands like Revlon, Coty, and Oriflame were delivering specific premium platforms. Golden Glow did not have a global equity. 'Let us revisit the brand and examine what it stood for 15 years ago and examine the relevance of those attributes in today's context," suggested Rajan. "Golden Glow stood for care, consciousness, love, quality and all that. But today, are these enough to justify a premium position?" he asked Mahajan. "These attributes are viable in the mid-priced segment." He said.
"The mid-priced brand is the proverbial washer-man's dog," said Mahajan. "You don't know whether you are at the bottom end of the premium range or at the top-end of the low-priced range. You end up creating an image of being on the opportunity fence. It is a mere pricing ploy, with no strategic value."
QUESTIONS
1. Discuss the nature of problem(s) in this case?
2. Suggest the kind of consumer research needed?
3. How should Golden Glow be positioned/ repositioned to bring about the desired change among consumers? Give your reasons.
CASE 4
Impact of Retail Promotions on Consumers
Shoppers' Delight, a large retail store, had above-average quality and competitive prices. It advertised its retail promotions in local newspapers. Its TV advertising was mainly aimed at building store image and did not address retail promotions. The management knew it well that they had to advertise their retail promotions more, but they did not feel comfortable with the effectiveness of present efforts and wanted to better understand the impact of their present promotions.
To better understand the effectiveness of present efforts, a study of advertising exposure, interpretation, and purchases was undertaken. Researchers conducted 50 in-depth interviews with customers of the store's target market to determine the appropriate product mix, price, ad copy and media for the test. In addition, the store's image and that of its two competitors were measured.
Based on the research findings, different product lines that would appeal to the target customers were selected. The retail promotion was run for a full week. Full-page advertisements were released each day in the two local Hindi newspapers, and also in one English newspaper that devotes six pages to the coverage of the state.
Each evening, a sample of 100 target market customers were interviewed by telephone as follows:
1. Target customers were asked if they had read the newspaper that day. This was done to determine their exposure to advertisement.
2. After a general description of the product lines, the respondents were asked to recall any related retail advertisements they had seen or read.
3, If the respondents were able to recall, they were asked to describe the ad, the promoted products, sale prices, and the name of the sponsoring store.
4. If the respondents were accurate in their ad interpretation, they were asked to express their intentions to purchase.
5. Respondents were also asked for suggestions to be incorporated in future promotions targeted at this consumer segment.
Immediately after the close of promotion, 500 target market customers were surveyed to determine what percentage of the target market actually purchased the promoted products. It also determined which sources of information influenced them in their decision to purchase and the amount of their purchase.
Results of the study showed that ad exposure was 75 per cent and ad awareness level was 68 per cent and was considered as high. Only 43 percent respondents exposed to and aware of the ad copy could accurately recall important details, such as the name of the store promoting the retail sale. Just 43 per cent correct interpretation was considered as low. Of those who could accurately interpret the ad copy, 32 per cent said they intended to respond by purchasing the advertised• products ' and 68per cent sad they had no intention to buy. This yields an overall intention to buy of 7 per cent. The largest area of lost opportunity was due to those who did not accurately interpret the ad copy.
The post-promotion survey indicated that only 4.2 per cent of the target market customers made purchases of the promoted products during the promotion period. In terms of how the buyers learned of the promotion, 46 per cent mentioned newspaper A (Hindi), 27 per cent newspaper B (Hindi), 8 per cent newspaper (English), and 15 per cent learned about sale through word-of mouth communication.
The retail promotion was judged as successful in many ways, besides yielding sales worth
Rs 900,000. However, management was concerned about not achieving a higher level of ad comprehension, missing a significant sales opportunity: It was believed that a better ad would have at least 75 per cent correct comprehension among those aware of the ad. This in turn would almost double sales without any additional cost.
QUESTIONS
QUESTIONS
1. Why would some consumers have high-involvement levels in learning about this sales promotion?
Ans.
Consumer involvement is defined as a state of mind that motivates consumers to identify with product/service offerings, their consumption patterns and consumption behavior. Involvement creates within consumers an urge to look for and think about the product/service category and the varying options before making decisions on brand preferences and the final act of purchase. It is the amount of physical and mental effort that a consumer puts into a purchase decision. It creates within a person a level of relevance or personal importance to the product/service offering and this leads to an urge within the former to collect and interpret information for present/future decision making and use. Involvement affects the consumer decision process and the sub processes of information search, information processing, and information transmission. As Schiffman has put it “Involvement is a heightened state of awareness that motivates consumers to seek out, attend to, and think about product information prior to purchase”. It is the perceived interest and importance that a consumer attaches to the acquisition and consumption of a product/service offering.
Herbert Krugman, a researcher is credited with his contribution to the concept of consumer involvement. According to him, consumers approach the marketplace and the corresponding product/service offerings with varying levels and intensity of interest and personal importance. This is referred to as consumer involvement.
Involvement of consumers while makes purchase decisions varies across persons, across product/service offerings in question as well as purchase situations and time at hand. Some consumers are more involved in purchase processes than others. For example, a person who has a high level of interest in a product category would expend a lot of time making a decision with regard to the product and the brand. He would compare brands across features, prices etc. Another example is a person who is risk aversive; he would also take a longer time making a decision. Involvement also varies across product/service offerings. Some products are high involvement products; these are products that are high in value and expensive, possess sufficient amount of risk, are purchased infrequently, and once purchased, the action is irrevocable, i.e. they cannot be returned and/or exchanged . On the other hand, there are low involvement products, which are moderately expensive or generally inexpensive, possess little risk and are purchased regularly on a routine basis. Further, such consumer involvement based on their personal traits or on the nature of product/service offering are also impacted by the buying situation and time in hand for making purchase decisions. Very often, due to time constraints or emergency situations, a consumer may expend very little time on the purchase decision and buying activity in spite of the fact that the consumer is highly involved or risk aversive or the product is a high involvement one.
2 Is a level of 75 per cent comprehension realistic among those who become aware of an ad? Why or why not?
Ans.
The goals of comprehension realistic awareness of advertising do not usually involve making money in the short term. Awareness advertising seeks to increase the name recognition of your small business in the minds of consumers across your target market area. These advertising objectives are particularly useful in the early days of your company when you don't have as many
Awareness advertising is a marketing strategy designed to increase consumer familiarity with your company's overall message and the services or products it offers. How awareness advertising develops goals and objectives for your small business depends on your target consumer market and the company image you wish to portray. According to the Small Business Notes website, these goals are essential to developing your awareness advertising strategy and determining how much money to spend on your promotional campaigns.
Brand awareness is an overarching objective of your awareness advertising strategy. This marketing phenomenon is the extent to which consumers recognize the brands of your small business and can correctly associate these brands with particular product offerings, according to the Business Dictionary. Increasing brand awareness is a primary aim in the early months of small business life, when your company is attempting to enter the local marketplace and garner consumer attention. Raising brand awareness through advertising keeps your small business in the minds of consumers, which can lead to increased traffic at your place of business.
The message your small business chooses to convey cannot be vague or easily misinterpreted. The more room you give consumers to confuse your company message, the easier it will be for your target market to make false assumptions about your brands and products. Conveying a clear, strong message through your advertising campaigns gives consumers your product messages in ways that are easily understandable and memorable. This allows for greater retention of your message and easier recognition when consumers come across your company's products or enter your business locations.
Awareness advertising seeks to increase your company's market share by increasing consumer knowledge of your small business's products and services. Advertising campaigns saturate the market in an attempt to drown out the voices of your competitors. If your advertising campaigns follow the rules for simplicity and memorability, consumers may begin to frequent your business, giving you the opportunity to steal sales from the competition on a permanent basis.
3. Do you think such promotions are likely to influence the quality image of the retail store? Explain.
Martineau gives the retail store image first. He thinks that the retail image is “personality of the retail store”. He reckons that the definition given by consumers is very important to affect their patronization the store.
Arons(1961)&Dichter(1985) think retail store image is an individual’s cognitions and emotions that are inferred from perceptions or memory inputs that are attached to a particular store and which represent what that store signifies to an individual[8]. Keaveney& Hunt takes retail store image as an overall impression of a store as perceived by consumers. Store image is the subjective feeling got by the store information, this image is based on the personality of consumers’. This view is accepted by more and more scholars. And, some researchers not only test the subjective of the store image, but also point out the influence store image theory.
Wyckham (1967)emphasizes the consumer’s subjective feeling in his research and tests one of the factors by empirical ways. He connects the consumer’s shopping experience and store image, and reckon “ the feeling and experience have certain relationship”. When consumer has happy experience, and he will have good image; then will have bad image. According to the definition of the retail image, we can get the result that the recognition of the retail store is based on the reaction to the store. And this recognition can be emphasized. So, this research takes the retail information as the result of the emphasize of the store. Retail image is produced by the consumer’s feeling. Different consumers have different recognitions according to their
knowledge, education and life style.
The above segmentation distinguishes the factors which may affect the retail store image from different angles. The definition for service is further more different, which just indicates the complexity of service. Taking James Reardon(1995)’s segmentation for example, convenience could also be treated as service provided to customers, which makes the practical verification more difficult. It is because of the different recognition to service factor .
CORPORATE LAW ISMS ONGOING EXAM ANSWER PROVIDED
Solve:
1. How is the price fixed in a contract of sale? If price is not determined by the parties, what price, if any, is the buyer liable to pay?
2. When a pledger fails to redeem his pledge, what rights does the pledgee have in the pledge?
3. When the cheque shall be considered as dishonoured and what are the consequences of the dishonour of the cheques?
4. “Every shareholder of a company is also known as a member; while every member may not be known as a shareholder.” Comment.
5. Discuss briefly the provisions of the Companies Act in regard to the appointment of and removal directors.
6. “A contract caused by mistake is void.” Discuss fully the statement.
7. Discuss the legal aspects of ‘liability of an agent for acts of sub-agent.’
8. What companies may dispense with the use of the word ‘Limited’ as part of their name, even though they are limited companies?
9. “A company cannot be party to a contract before it has come into existence.” – Discuss.
10. Can a minor be admitted to partnership? If so, what will be the rights and liabilities during his minority and after he has attained majority?
Case No : 1
PUBLIUS
Although many people believe that the World Wide Web is anonymous and secure from censorship, the reality is very different. Governments, law courts, and other officials who want to censor, examine, or trace a file of materials on the Web need merely go to the server (the online computer) where they think the file is stored. Using their subpoena power, they can comb through the server’s drives to find the files they are looking for and the identify of the person who created the files.
On Friday June 30, 2000, however, researches at AT & T Labs announced the creation of Publius, a software program that enables Web users to encrypt (translate into a secret code) their files – text, pictures, or music – break them up like the pieces of a jigsaw puzzle, and store the encrypted pieces on many different servers scattered all over the globe on the World Wide Web. As a result, any one wanting to examine or censor the files or wanting to trace the original transaction that produced the file would find it impossible to succeed because they would have to examine the contents of dozens of different servers all over the world, and the files in the servers would be encrypted and fragmented in a way that would make the pieces impossible to identify without the help of the person who created the file. A person authorized to retrieve the file, however, would look through a directory of his files posted on a Publius – affiliated website, and the Publius network would reassemble the file for him at his request. Researchers published a description of Publius at www.cs.nyu.edu/waldman/publius.
Although many people welcomed the way that the new software would enhance freedom of speech on the Web, many others were dismayed. Bruce Taylor, an antipornography activist for the National Law Center for Children and Families, stated : “It’s nice to be anonymous, but who wants to be more anonymous than criminals, terrorists, child molesters, child pornographers, hackers and e-mail virus punks.” Aviel Rubin and Lorrie Cranor, the creators of Publius, however, hoped that their program would help people in countries where freedom of speech was repressed and individuals were punished for speaking out. The ideal user of Publius, they stated, was “a person in China observing abuses of human rights on a day – to – day basis.”
Questions :
1. Analyze the ethics of marketing Publius using utilitarianism, rights, justice, and caring. In your judgement, is it ethical to market Publius ? Explain.
2. Are the creators of Publius in any way morally responsible for any criminal acts that criminals are able to carry out and keep secret by relying on Publius ? Is AT & T in any way morally responsible for these ? Explain your answers.
3. In your judgment, should governments allow the implementation of Publius ? Why or why not ?
Case NO. 2
A JAPANESE BRIBE
In July 1976, Kukeo Tanaka, former prime minister of Japan , was arrested on charges of taking bribes ($ 1.8 million) from Locjheed Aircraft Company to secure the purchase of several Lockheed jets. Tanaka’s secretary and serial other government officials were arrested with him. The Japanese public reacted with angry demands for a complete disclosure of Tanaka’s dealings. By the end of the year, they had ousted Tanaka’s successor, Takeo Miki, who was widely believed to have been trying to conceal Tanaka’s actions.
In Holland that same year, Prince Bernhard, husband of Queen Juliana, resigned from 300 hundred positions he held in government, military, and private organizations. The reason : He was alleged to have accepted $ 1.1 million in bribes from Lockheed in connection with the sale of 138 F – 104 Starfighter jets.
In Italy , Giovani Leone, president in 1970, and Aldo Moro and Mariano Rumor, both prime ministers, were accused of accepting bribes from Lockheed in connection with the purchase of $ 100 million worth of aircraft in the late 1960s. All were excluded from government.
Scandinavia , South Africa , Turkey , Greece , and Nigeria were also among the 15 countries in which Lockheed admitted to having handed out payments and at least $ 202 million in commissions since 1970.
Lockheed Aircraft’s involvement in the Japanese bribes was revealed to have begun in 1958 when Lockheed and Grumman Aircraft (also an American firm) were competing for a Japanese Air Force jet aircraft contract. According to the testimony of Mr. William Findley, a partner in Arthur Young & Co. (auditors for Lockheed), in 1958 Lockheed engaged the services of Yoshio Kodama, an ultra right – wing war criminal and reputed underworld figure with strong political ties to officials in the ruling Liberal Democratic Party. With Kodama’s help, Lockheed secured the Government contract. Seventeen years later, it was revealed that the CIA had been informed at the time (by an American embassy employee) that Lockheed had made several bribes while negotiating the contract.
In 1972, Lockheed again hired Kodama as a consultant to help secure the sale of its aircraft in Japan . Lockheed was desperate to sell planes to any major Japanese airline because it was scrambling to recover from a series of financial disasters. Cost overruns on a government contract had pushed Lockheed to the brink of bankruptcy in 1970. Only through a controversial emergency government loan guarantee of $ 250 million in 1971 did the company narrowly avert disaster. Mr. A. Carl Kotchian, president of Lockheed from 1967 to 1975, was especially anxious to make the sales because the company had been unable to get as many contracts in other parts of the world as it had wanted.
This bleak situation all but dictated a strong push for sales in the biggest untapped market left-Japan. This push, if successful, might well bring in revenues upward of $ 400 million. Such a cash inflow would go a long way towards helping to restore Lockheed’s fiscal health, and it would, of course, save the jobs of thousands of firm’s employees. (Statement of Carl Kotchian)
Kodama eventually succeeded in engineering a contract for Lockhed with All – Nippon Airways, even beating out McDonnell Douglas, which was actively competing with Lockheed for the same sales. To ensure the sale, Kodama asked for and received from Lockheed about $9 million during the period from 1972 to 1975. Much of money allegedly went to then – prime minister Kukeo Tanaka and other government officials, who were supposed to intercede with All – Nippon Airlines on behalf of Lockheed.
According to Mr. Carl Kotchian, “ I knew from the beginning that this money was going to the office of the Prime Minister.” He was, however, persuaded that, by paying the money, he was sure to get the contract from All-Nippon Airways. The negotiations eventually netted over $1.3 billion in contracts for Lockheed.
In addition to Kodama, Lockheed had also been advised by Toshiharu Okubo, an official of the private trading company, Marubeni, which acted as Lockheed’s official representative. Mr. A. Carl Kotchian later defended the payments, which he saw as one of many “Japanese business practices” that he had accepted on the advice of his local consultants. The payments, the company was convinced, were in keeping with local “ business practices.”
Further, as I’ve noted, such disbursements did not violate American laws. I should also like to stress that my decision to make such payments stemmed from my judgment that the (contracts) …… would provided Lockheed workers with jobs and thus redound to the benefit of their dependents, their communities, and stockholders of the corporation. I should like to emphasize that the payments to the so-called “ high Japanese government officials” were all requested y Okubo and were not brought up from my side. When he told me “ five hundred million yen is necessary for such sales,” from a purely ethical and moral standpoint I would have declined such a request. However, in that case, I would most certainly have sacrificed commercial success….. (If) Lockheed had not remained competitive by the rules of the game as then played, we would not have sold (our planes) ……… I knew that if we wanted our product to have a chance to win on its own merits, we had to follow the functioning system. (Statement of A. Carl Kotchian)
In August, 1975, investigations by the U.S. government led Lockheed to admit it had made $ 22 million in secret payoffs. Subsequent senate investigations in February 1976 made Lockheed’s involvement with Japanese government officials public. Japan subsequently canceled their billion dollar contract with Lockheed.
In June 1979, Lockheed pleaded guilty to concealing the Japanese bribes from the government by falsely writing them off as “marketing costs”. The Internal Revenue Code states, in part. “ No deduction shall be allowed….. for any payment made, directly or indirectly, to an official or employee of any government …. If the payment constitutes an illegal bribe or kickback.’ Lockheed was not charged specifically with bribery because the U.S. law forbidding bribery was not enacted until 1978. Lockheed pleaded guilty to four counts of fraud and four counts of making false statements to the government. Mr. Kotchian was not indicated, but under pressure from the board of directors, he was forced to resign from Lockheed. In Japan , Kodama was arrested along with Tanaka.
Questions :
1. Fully explain the effects that payment like those which Lockheed made to the Japanese have on the structure of a market.
2. In your view, were Lockheed’s payments to the various Japanese parties “bribes” or “extortions” ? Explain your response fully.
3. In your judgment, did Mr. A. Carl Kotchian act rightly from a moral point of view ? (Your answer should take into account the effects of the payments on the welfare of the societies affected, on the right and duties of the various parties involved, and on the distribution of benefits and burdens among the groups involved.) In your judgment, was Mr. Kotchian morally responsible for his actions ? Was he, in the end, treated fairly ?
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4. In its October 27, 1980, issue, Business Week argued that every corporation has a corporate culture – that is, values that set a pattern for its employee’s activities, opinions and actions and that are instilled in succeeding generations of employees (pp.148-60) Describe, if you can, the corporate culture of Lockheed and relate that culture to Mr. Kotchian’s actions. Describe some strategies for changing that culture in ways that might make foreign payments less likely.
Case NO. 3
THE NEW MARKET OPPORTUNITY
In 1994, anxious to show off the benefits of a communist regime, the government of China invited leading auto manufacturers from around the world to submit plans for a car designed to meet the needs of its massive population. A wave of rising affluence had suddenly created a large middle class of Chinese families with enough money to buy and maintain a private automobile. China was now eager to enter joint ventures with foreign companies to construct and operate automobile manufacturing plants inside China . The plants would not only manufacture cars to supply China’s new internal market, but could also make cars that could be exported for sale abroad and would be sure to generate thousands of new jobs. The Chinese government specified that the new car had to be priced at less than $5000, be small enough to suit families with a single child (couples in China are prohibited from having more than one child), rugged enough to endure the poorly maintained roads that criss-crossed the nation, generate a minimum of pollution, be composed of parts that were predominantly made within China, and be manufactured through joint – venture agreements between Chinese and foreign companies. Experts anticipated that the plants manufacturing the new cars would use a minimum of automation and wuld instead rely on labor – intensive technologies that could capitalize on China ’s cheap labor. China saw the development of a new auto industry as a key step in its drive to industrialize its economy.
The Chinese market was an irresistible opportunity for General Motors, Ford and Chrysler, as well as for the leading Japanese, European and Korean automobile companies. With a population of 1.2 billion people and almost double digit annual economic growth rates, China estimated that in the next 40 years between 200 and 300 million of the new vehicles would be purchased by Chinese citizens. Already cars had become a symbol of affluence for China’s new rising middle class, and a craze for cars had led more than 30 million Chinese to take driving lessons despite that the nation had only 10 million vehicles, most of them government – owned trucks.
Environmentalists, however, were opposed to the auto manufactures’ eager rush to respond to the call of the Chinese government. The world market for energy, particularly oil, they pointed out, was based in part on the fact that China , with its large population, was using relatively low levels of energy. In 1994, the per-person consumption of oil in China was only one sixth of Japan ’s and only a quarter of Taiwan ’s. If China were to reach even the modes per person consumption level of South Korea , China would be consuming twice the amount of oil the United States currently uses. At the present time, the United States consumes one forth of the world’s total annual oil supplies, about half of which it must import from foreign countries.
Critics pointed out that if China were to eventually have as many cars on the road per person as Germany does, the world would contain twice as many cars as it currently does. No matter how “ pollution – free” the new car design was, the cumulative environmental effects of that many more automobiles in the world would be formidable. Even clean cars would have to generate large amounts of carbon dioxide as they burned fuel, thus significantly worsening the greenhouse effect. Engineers pointed out that it would be difficult, if not impossible, to build a clean car for under $5000. Catalytic converters, which diminished pollution, alone cost over $200 per car to manufacture. In addition, China ’s oil refineries were designed to produce only gasoline with high levels of lead. Upgrading all its refineries so they could make low-lead gasoline would require an investment China seemed unwilling to make.
Some of the car companies were considering submitting plans for an electric car because China had immense coal reserves which it could burn to produce electricity. This would diminish the need for China to rely on oil, which it would have to import. However, China did not have sufficient coal burning electric plants nor an electrical power distribution system that could provide adequate electrical power to a large number of vehicles. Building such an electrical power system also would require a huge investment that the Chinese government did not seem particularly interested in making. Moreover, because coal is a fossil fuel, switching from an oil – based auto to a coal – based electric auto would still result in adding substantial quantities of carbon dioxide to the atmosphere.
Many government officials were also worried by the political implications of having China become a major consumer of oil. If China were to increase its oil consumption, would have to import all its oil from the same countries that other nations relied on, which would create large political, economic and military risks. Although the United States imported some of its oil from Venezuela and Mexico , most of its imports came from the Middle East – an oil source that China would have to turn to also. Rising demand for Middle East oil would push oil prices sharply upward, which would send major shocks reverberating through the economics of the United States and those of other nations that relied heavily on oil. State Department officials worried that China would begin to trade weapons for oil with Iran or Iraq , heightening the risks of major military confrontations in the region. If China were to become a major trading partner with Iran or Iraq , this would also create closer ties between these two major power centres of the non-Western world – a possibility that was also laden with risk. Of course, China might also turn to tapping the large reserves of oil that were thought to be lying under Taiwan and other areas neighboring its coast. However, this would bring it into competition with Japan , South Korea , Thailand , Singapore , Taiwan , the Phillippines, and other nations that were already drawing on these sources to supply their own booming economies. Many of these nations, anticipating heightened tensions, were already puring money into their military forces, particularly their navies. In short, because world supplies of oil were limited, increasing demand seemed likely to increase the potential for conflict.
Questions :
1. In your judgment, is it wrong, from an ethical point of view, for the auto companies to submit plans for an automobile to China ? Explain your answer ?
2. Of the various approaches to environmental ethics outlined in this chapter, which approach sheds most light on the ethical issues raised by this case ? Explain your answer.
3. Should the U.S. government intervene in any way in the negotiations between U.S. auto companies and the Chinese government ? Explain ?
Case NO. 4
NAPSTER’S REVOLUTION
Eighteen – year old Shawn “NAPSTER” Fanning, then a freshman at Northeastern University, dropped out of school and founded Napster Inc. (website was at w.w.w.napster.com) in San Mateo, California in May 1999. Two months earlier, working in his college dorm room, he had developed both a website that let users locate other users who were willing to share whatever music files they had in MP3 format on the hard drives of their computers and a software program (called “Napster) that let users copy these music files from each other over the Internet. When an early free version of the program he posted on Download.com received more than 300,000 hits and was named “Download of the week,” he decided to devote himself full time to developing his program and website. The final version of his version of his program was officially released August 1999, and in May 2000, with more than 10 million people – most of them students on college campuses where Napster was especially popular – signed up at its website, Shawn’s company received $ 15 million of start – up funds from venture capital firms in California’s “Silicon Valley.”
Fanning grew up in Brockton , Massauchettes, the son of a nurse’s aid and the stepson of a truck driver, in a family of four half-brothers and half-sisters. He got the nickname “Napster” during a basketball game when a player commented on his closely cropped sweaty head of hair. Fanning had taught himself programming and had held several summer programming jobs.
The company Shawn helped establish gave the Napster program away for free and charged users nothing to use its website to post the URL addresses where personal copies of music could be downloaded. Nevertheless, a month later, Shawn found himself embroiled in a legal and ethical controversy when two record tables, two musicians (Metallica and Dr. Dre), and two industry trade groups of music companies (the National Music Publishers Association and the Recording Industry Association of America) filed suits against his young company claiming that Napster’s software was enabling other to make and distribute copies of copyrighted music that the musicians and companies owned.
On June 12, the two industry trade groups filed preliminary injunctions against the company demanding that it remove all the songs owned by their member companies from Napster’s song directories. According to the two groups, a survey of 2555 college students showed a correlation between Napster use and decreased CD purchases. College students were outraged, especially fans of Metallica and Dr. Dre. Supporters of Napster argued that Napster allowed people to hear music that they then went out and purchased, so Napster actually helped the music companies. Music sales had increased by over $500 million a year since Napster had started to operate, but the music companies claimed that this was a result of a booming economy. Supporters of Napster also argued that individuals had a moral and legal right to lend other individuals a copy of the music on the CDs that they had purchased. After all, they argued, the law explicitly stated that an individual could make a copy of copyrighted music he or she had purchased to hear the music on another player. Moreover, according to Fanning, Napster was not doing anything illegal, and the company was not responsible if other people used its software and website to copy music in violation of copyright law any more than a car company was responsible when its autos were used by thieves to rob banks. Much of the music that was downloaded using Napster, they claimed, was in the public domain (i.e.not legally owned by anyone) and was being legally copied. The music companies countered that an individual had no right to give multiple copies of their music to others even if the individual had paid for the original CD. If everyone was allowed to copy music without paying for it, they charged, eventually the music companies would stop producing music and musicians would stop creating it. Other musicians claimed, however, that Napster and the Web gave them a way to put their music before millions of potential fans without having to beg the music companies to sponser them.
In March 2000, the band Metallica hired consultant PDNet to electronically “evesdrop” on users who assumed they were anonymously accessing Napster’s website. The following week the band’s lawyers handed Napster a list with the names of 300, 000 people that Metallica claimed had violated its copyrights using Napster’s service and that Metallica now wanted removed from Napster’s services. Fanning complied with the demand of Metallica, whose drummer, Lars Ulrich, was one of his musical heros. “If they want to steal our music,” said Ulrich, “ why don’t they just go down to Tower Records and grab them off the shelves ?” Many young people protested that the bands should not be alienating their own fans in this way. One fan posted a note on an MP3 chat room : “Give me a break ! I have been dropping 16 bucks an album for Metallica’s music since I was a teenager. They made a fortune off us and now they accuse us of stealing from them. What nerve !” Howard King, a Los Angeles lawyer for Metallica and Dr. Dre, stated that “I don’t know Shawn Fanning but he seems to be a pretty good kid who came up with a sensational program. But this sensational program has allowed people to take music without paying ………. Shawn probably had no idea of the legal ramifications of what he created. I’m sure the though never crossed his mind.”
In August 2000, a federal judge in San Francisco , Marilyn Patel, responded to the suit against Napster. Judge Patel called Shawn’s company a “monster” and charged that the only purpose of Napster was to copy pirated music without paying for it. The judge ordered Napster to remove all URLS from its website that referenced material that was copyrighted.
Judge Patel’s ruling would have shut down the company’s website immediately. But a few days later, an appeals court reversed Judge Patel and allowed the company to continue operating. The reprieve was only temporary. On Monday February 12, 2001 , the Ninth Circuit Court of Appeals in San Francisco affirmed Judge Patel’s ruling. The company attempted to circumvent the ruling by negotiating agreements with the music companies that would pay them certain annual fees in return for withdrawing the suit.
Napster was not the only software that allowed individuals to swap files from
One personal computer to another over the Internet. The software program named “Gnutella” let individuals swap any kind of files – music, text, or visuals – over the Internet, but Gnutella did not operate a centralized index like the website that Napster had established. Observers predicated that if Napster was put out of business, numerous underground websites would be created providing the kind of listing service that the company had earlier provided on its website. Already a website named zeropaid.com provided free copies of Gnutella and many other Napster clones that users could download and use to share digital music files with each other. Unlike Napster, these software products did not require a central website to connect users to each other, making it impossible for music companies to find and target single entity whom they could sue. Many observers predicated that Napster was only the beginning of an upheaval that would revolutionize the music industry, forcing music companies to lower their prices, make their music easily available on the Internet, and completely change their business models.
Questions :
1. What are the legal issues involved in this case, and what are the moral issues ? How are the two different kinds of issues different from each other, and how are they related to each other ? Identify and distinguish the “systemic, corporate and individual issues” involved in this case.
2. In your judgment, was it morally wrong for Shawn Fanning to develop and release his technology to the world given its possible consequences ? Was it morally wrong for an individual to use Napster’s website and software to copy for free the copy righted music on another person’s hard drive ? If you believe it was wrong, then explain exactly why it was wrong. If you believe it was not morally wrong, then how would you defend your views against t he claim that such copying is stealing ? Assume that it was not I illegal for an individual to copy music using Napster. Would there be anything immoral with doing so ? Explain ?
3. Assume that it is morally wrong for a person to use Napster’s website and software to make a copy of copyrighted music. Who, then, would be morally responsible for this person’s wrong doing ? Would only the person himself be morally responsible ? Was Napster, the company, morally responsible ? Wash shawn Fanning morally responsible ? Was any employee of Napster, the company, morally responsible ? Was the operator of the server or that portion of the Internet that the person used morally responsible ? What if the person did not know that the music was copyrighted or did not think that it was illegal to copy copyrighted music ?
4. Do the music companies share any of the moral responsibility for what has happened ? How do you think technology like Napster is likely to change the music industry ? In your judgment, are these changes ethically good or ethically bad ?
CONTACT:
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Consumer behavior:
CASE I
Sunder Singh
Sunder Singh had studied only up to high school. He was 32-years of age, lived alone in a rented room, and worked eight-hour shift at one petrol pump, then went to the other one for another eight-hour shift. He had a girl friend and was planning to marry.
One day when he returned from work, he got a note from his girl friend that she was getting married to someone else and he need not bother her. This was a terrible shock to Sunder Singh and he fell apart. He stopped going to work, spent sleepless nights, and was very depressed. After a month, he was running Iowan his savings and approached his earlier employers to get back his job, but they would not give him a second chance. He had to quit his rented room, and sold few things that he had. He would do some odd jobs at the railway station or the bus terminal.
One day, nearly two years ago, he was very hungry and did not have any money and saw a young man selling newspapers. He asked him what he was selling and he told him about Guzara (an independent, non-profit, independent newspaper sold by the homeless, and economically disadvantaged men and women of this metro city). Sunder Singh approached the office and started selling the newspaper. He did not make a lot of money, but was good at saving it. He started saving money for a warm jacket for next winter.
He was reasonably happy; he had money to buy food, and no longer homeless and shared a room with two others. One day, with his savings he bought a pair of second-hand Nike shoes from flea market.
Sunder Singh is not unique among low-income consumers, especially in large cities, in wanting and buying Nike shoes. Some experts believe that low-income consumers too want the same products and service that other consumers want.
The working poor are forced to spend a disproportionate percent of their income on food, housing, utilities, and healthcare. They solely rely on public transportation, spend very little on entertainment of any kind, and have no security of any kind. Their fight is mainly day-to-day survival.
QUESTIONS
1. What does the purchase of a product like Nike mean to Sunder Singh?
2. What does the story say about our society and the impact of marketing on consumer behavior?
Case 2
Mouse-Rid
One hot May morning, Shobha, general manager of Innotrap India Ltd., entered her office in Delhi. She paused for a moment to contemplate the quote, which she had framed and hung on a wall facing her table.
"If a man can make a better mousetrap than his neighbour, the world will make a beaten path to his door." She vaguely recalled that probably it was Ralph Waldo Emerson who said this. Perhaps, she wondered, Emerson knew something that she didn't. She had the better mousetrap - Mouse¬-Rid - but the world didn't seem all that excited about it.
Shobha had just returned from a Trade Fair in Kolkata. Standing in the trade show display booth for long hours and answering the same questions hundreds of times had been tiring. Yet, this show had excited her. The Trade Fair officials held a contest to select the best new product introduced at the show. Of the more than 150 new products, her mousetrap had won first place. Two women's magazines had written small articles about this innovative mousetrap, however, the expected demand for the trap had not materialised. Shobha hoped that this award might stimulate increased interest and sales.
A group of investors who had obtained rights to market this innovative mousetrap in India had formed Innotrap India in January 2001. In return for marketing rights, the group agreed to pay the inventor and patent holder, a retired engineer, a royalty fee for each trap sold. The group then appointed Shobha as the general manager to develop and manage Innotrap India Ltd.
The Mouse-Rid, a simple yet clever device, is manufactured by a plastics firm under contract with Innotrap India Ltd. It consists of a square, plastic tube measuring about 6 inches long and one and one-half inches- square. The tube bends in the middle at a 30-degree angle, so that when the front part of the tube rests on a flat surface, the other end is elevated. The elevated end holds a removable cap into which the user places bait (piece of bread, or some other titbit). A hinged door is attached to the front endofthe tube. When the trap is "open", this door rests on two narrow "stills" attached to the two bottom corners of the door.
The trap works with simple efficiency. A mouse, smelling the bait enters the tube through the open end. As it moves up the angled bottom toward the bait, its weight makes the elevated end of the trap drop downward. This elevates the open end, allowing the hinged door to swing closed, trapping the mouse. Small teeth on the ends of stills catch in a groove on the bottom of the trap, locking the door closed. The mouse can be disposed of live, or it can be left alone for a few hours to suffocate in the trap.
Shobha felt the trap had many advantages for the consumer when compared with traditional spring-loaded traps or poisons. Consumers can use it safely and easily with no risk for catching their fingers while loading. It poses no injury or poisoning threat to children or pets.
Shobha's personal and informal inquiries with acquaintances and friends suggested that women are the best target market for the Mouse-Rid. Most women stay at home and take care of household chores and their children. Thus, they want a means of dealing with the mouse problem that avoids any kind of risks. To reach this market,
Shobha decided to distribute Mouse-Rid through grocery stores, and kitchenware stores. She personally contacted a supermarket and some departmental stores to persuade them to carry the product, but they refused saying that they did not sell such contraptions. She avoided any wholesalers and other middlemen.
The traps were packaged in a simple cardboard, with a suggested retail price ofRs.150 for a piece. Although this price made Mouse-Rid about five 1;0 six times more expensive than standard traps, those who bought it showed little price resistance.
To promote the product, Shobha had budgeted approximately Rs. 300,000 toward advertising in different women's magazines, such as Grah Shobha, and Good Housekeeping. Shobha was the company's only salesperson, but planed to employ sales people soon.
Shobha had forecasted Mouse-Rid's first year sales at 2 million units. Through Aril, however, the company had sold only few thousand units. She wondered if most new products got to such slow start, or if she was doing something wrong.
Shobha knew that the investor group believed that Innotrap India Ltd. had a "once-in-a¬ lifetime chance" with its innovative mousetrap. She sensed the group's impatience. To keep the investors happy, the company needed to sell enough traps to cover costs and make a profit.
QUESTIONS
1. Has Shobha identified the best target market for Mouse-Rid? Why or why not?
2. Does Shobha have enough needed data on consumer behaviour? What type of consumer research should Shobha conduct?
3. What type of advertising can influence consumers for this type of product?
Case 3
Golden Glow Soap
Anil Mahajan absent -mindedly ran his finger over the cake of soap before him. He traced the name 'Golden Glow' embossed on the soap as he inhaled its unmistakable sesame fragrance. It was a small soap, almost like a bar of gold. There were no frills, no coloured packaging, and no fancy shape. Just a golden glow and the fragrance of sesame and Lucida font that quietly stated' Golden Glow'.
Mahajan smiled wanly and clasped the soap in his hands, as if protecting it from an unseen predator. He was wondering with quiet concern if the 30-year-old brand would last long. Sensi India, where Mahajan was marketing manager, was taking a long, hard look at the soap, as it was proving to be a strain on resources.
There were varying stories about how Golden Glow was launched. Some said the brand was a 'gift' from the departing English parent company. Others claimed that it was created for the then chairman's British wife, as the Indian climate did not agree with her skin. They also claimed that the lady also coined the copy "The honest soap that loves your skin" was also coined by the lady. The line had stuck through three decades. Only the visuals had changed, with newer models replacing the older ones.
Zeni was basically a speciality products company producing household hygiene, fabricare, and dental care products. Golden Glow was the only soap in its product mix, produced and marketed by Sensi. Its reliable quality and value delivery had earned it a lot of respect in the market. Golden Glow equity was such that Sensi was known as the Golden Glow Company. Indeed, the brand name Golden Glow denoted purity, reliability, and gentle skincare.
In 1994, Sensi UK increased its stake in the Indian subsidiary to 51%. Within months, all of Sensi's products were given a facelift, thanks to the inflow of foreign capital. New packaging, new fragrances, new formulations and more variants were introduced.
Only Golden Glow was left untouched. For, although it had a growing skincare business following some strategic acquisitions in Europe in the early eighties, Sensi UK was not a soap company. The UK marketing team ran an audit of every brand and product in the company's portfolio. But when it came to Golden Glow, it faltered. "We don't know this one," officials at the parent company said.
"We don't want this one to be touched," Mahajan had said protectively, a sentiment tliat was endorsed by the managing director, Rajan Sharma. "Golden Glow is too sacred, we will leave it as it is," he said.
But the UK marketing team was confounded. What was a lone soap doing in the midst of toilet cleaners and fabric protectors; they wondered, however they somehow agreed that their proposed revamp strategy would only look at up-gradation, not tinkering with what wasn't broken.
Indeed, for 30 long years no one had tampered with the Golden Glow brand. And Mahajan felt there was no reason to start now. Golden Glow, in his view, was a self-sustaining brand. That was a bit of an understatement because advertising for the brand was moderate and Sensi India had never used any promotional gimmick for it.
Now, after four years of nurturing the other categories, Sensi UK had decided to launch its Vio range of skincare products in India. But Golden Glow's presence and profile was a major roadblock to Vio's success. "It will create dissonance, confuse our skincare equity and deter the articulation of Vio's credo. It will stand out as a genetic flaw," argued the UK marketing head. "You need to do a rethink on Golden Glow."
Mahajan protested. "Why? It has such a strong equity and loyal following. So much has been invested in it all these years. Why give up all that?"
Rajan, however, had another idea. "Let us then extend the Golden Glow brand." He said It was the simplest solution. Companies were now investing heavily in creating new equities for their brands. But in Golden Glow's case, Sensi was already sitting on a brand with a terrific equity. He felt that extending this equity to other categories, such as skincare products would be successful.
But Golden Glow needed a new positioning before it could be extended. Till a few years ago, it had been in premium category, priced at Rs.15. Then new brands with specific positioning and higher price tags entered the market. This created a level above Rs.15 soaps and pushed Golden Glow down to the mid-priced range. So Golden Glow's price was not commensurate with its premium position and image.
Over the years, Golden Glow had become so sacred that Sensi India had been too scared to do anything to it. As a result, the soap was left with niche category of loyal users. This category neither shrank or increased, just kept getting older and older, and with it the brand also kept growing older. For example, when Mahajan's wife had her first baby at 25, her mother had recommended Golden Glow for her dry skin and also for baby's tender skin because it contained sesame oil. That was in 1979. Today, Mahajan's daughter had turned 21 and was being wooed by Dove, Camay, even Santoor, and Lifebuoy Gold, with their aggressive advertising. Golden Glow had begun to lose its image of being contemporary as newer brands came in with newer values.
Today, at 46, Mahajan's wife still used Golden Glow, but when she recommended Golden Glow to her daughter, she said, "But Golden Glow is a soap for mothers, for older people."
That was a major problem. The Golden Glow brand had aged, and Sensi India hadn't even been aware of it. While its equity had grown with its users, its personality had aged considerably in the last 30 years. "I don't think you can keep the personality young, unless you keep renewing the brand. The objective now is to widen your equity so that your image becomes young," continued Rajan. "For instance, if today you were to personify a Golden Glow user now, it would be a woman of 45 years using the same brand for many years, who is aver-se to experimenting, very skincare conscious, very trusting, and very one-dimensional. As you can see, this is not a very competitive personality. These are the strengths of our Golden Glow, but these are also its weaknesses," he analysed.
The context had changed. Today, youth demanded brands that stood for freedom and fearlessness. They demanded bold brands that dared to cure, not just p;eserve. "Preservation is for old people. Those are the attributes being presented in evolved markets," said Rajan. To make Golden Glow contemporary, the attributes had to be re-framed, he felt. "You can't make a young brand trusting caring, loving, without adding other attributes to it. Today, youth stands for freedom, for laughter, for frankness, for forthrightness. That's what Close Up, Lifebuoy Gold, Vatika, and other brands propagate. So, either come clean and say it is for older skin which needs trust and kindness, or reposition the brand," said Rajan.
Repositioning was also necessary to address another anomaly in Golden Glow's image: its perceived premium. Sensi India had been unable to do anything about Golden Glow slipping into the mid-price range following the entry of more expensive brands. Now, as Rajan mulled over the brand extension plan, Mahajan felt that Golden Glow's premium positioning was its core equity and that had to be maintained.
"If you are premium priced in the consumer's mind, your extensions are automatically perceived as premium. So, if you don't present the other products as premium, the consumer will not see them as extensions of the brand," he said. "For example, if you are to launch a shampoo which is priced lower than Sunsilk, but higher than Nyle and Ayur, then whatever the rationale, the consumer will not accept your product. "It is not the Golden Glow I know," will be the feeling," he said.
Mahajan felt that since premium positioning was one of Golden Glow's equity values, it would be very difficult to convince consumers that the brand was being extended without hanging on to this particular value. "Will they buy your rationale that the very same values and equity would now be available at a low price? To be in the premium segment now, you have to price it at Rs 35 or 40, almost on a par with Dove," he said. "With Dove retailing at Rs 45, Golden Glow will be perceived as a cheaper option."
"We can't simply raise the price," said Rajan. "What are we offering for that increase? You can 't add value because you don't want to tamper with the brand. The consumers will then ask, "Golden Glow used to be so cheap, what has happened now? The user will forget that 15 years ago, Rsl0 was expensive, because all her comparisons would be in today' s context," said Rajan.
"So what's the option?" asked Mahajan. "You don't have to be expensive to be premium," said Rajan. Golden Glow already has the image of a premium brand, thanks to its time-tested core values of purity, credibility, and reliability. What we can do is reinforce the premium through communication and positioning. In fact) we should have tinkered with Golden Glow long ago. That is what HLL did with Lux. It also launched a bridge brand, Lux International, in the premium category," said Rajan.
"How could we have done anything to the brand?" asked Mahajan. "The product had such a strong following. It stood for gold, for sesame oil, for its subtle earthy perfume. We changed the packaging periodically, but that's all we could do. Remember the time we brought out a transparent green Golden Glow with the fragrance of lime? It bombed in the market."
Rajan was not in favour of the premium positioning. It appeared very short sighted to him, given the bigger plan to extend the brand. "Where are the volumes in the premium segment? He asked. "For some reason, every manufacturer feels that skincare can be an indulgence of only the moneyed class. As a result, there is a crowd in the premium end of the market. Do we want to be yet another player in the segment?"
Fifteen years ago, Golden Glow was perceived as a premium product. But today, globa1brands like Revlon, Coty, and Oriflame were delivering specific premium platforms. Golden Glow did not have a global equity. 'Let us revisit the brand and examine what it stood for 15 years ago and examine the relevance of those attributes in today's context," suggested Rajan. "Golden Glow stood for care, consciousness, love, quality and all that. But today, are these enough to justify a premium position?" he asked Mahajan. "These attributes are viable in the mid-priced segment." He said.
"The mid-priced brand is the proverbial washer-man's dog," said Mahajan. "You don't know whether you are at the bottom end of the premium range or at the top-end of the low-priced range. You end up creating an image of being on the opportunity fence. It is a mere pricing ploy, with no strategic value."
QUESTIONS
1. Discuss the nature of problem(s) in this case?
2. Suggest the kind of consumer research needed?
3. How should Golden Glow be positioned/ repositioned to bring about the desired change among consumers? Give your reasons.
CASE 4
Impact of Retail Promotions on Consumers
Shoppers' Delight, a large retail store, had above-average quality and competitive prices. It advertised its retail promotions in local newspapers. Its TV advertising was mainly aimed at building store image and did not address retail promotions. The management knew it well that they had to advertise their retail promotions more, but they did not feel comfortable with the effectiveness of present efforts and wanted to better understand the impact of their present promotions.
To better understand the effectiveness of present efforts, a study of advertising exposure, interpretation, and purchases was undertaken. Researchers conducted 50 in-depth interviews with customers of the store's target market to determine the appropriate product mix, price, ad copy and media for the test. In addition, the store's image and that of its two competitors were measured.
Based on the research findings, different product lines that would appeal to the target customers were selected. The retail promotion was run for a full week. Full-page advertisements were released each day in the two local Hindi newspapers, and also in one English newspaper that devotes six pages to the coverage of the state.
Each evening, a sample of 100 target market customers were interviewed by telephone as follows:
1. Target customers were asked if they had read the newspaper that day. This was done to determine their exposure to advertisement.
2. After a general description of the product lines, the respondents were asked to recall any related retail advertisements they had seen or read.
3, If the respondents were able to recall, they were asked to describe the ad, the promoted products, sale prices, and the name of the sponsoring store.
4. If the respondents were accurate in their ad interpretation, they were asked to express their intentions to purchase.
5. Respondents were also asked for suggestions to be incorporated in future promotions targeted at this consumer segment.
Immediately after the close of promotion, 500 target market customers were surveyed to determine what percentage of the target market actually purchased the promoted products. It also determined which sources of information influenced them in their decision to purchase and the amount of their purchase.
Results of the study showed that ad exposure was 75 per cent and ad awareness level was 68 per cent and was considered as high. Only 43 percent respondents exposed to and aware of the ad copy could accurately recall important details, such as the name of the store promoting the retail sale. Just 43 per cent correct interpretation was considered as low. Of those who could accurately interpret the ad copy, 32 per cent said they intended to respond by purchasing the advertised• products ' and 68per cent sad they had no intention to buy. This yields an overall intention to buy of 7 per cent. The largest area of lost opportunity was due to those who did not accurately interpret the ad copy.
The post-promotion survey indicated that only 4.2 per cent of the target market customers made purchases of the promoted products during the promotion period. In terms of how the buyers learned of the promotion, 46 per cent mentioned newspaper A (Hindi), 27 per cent newspaper B (Hindi), 8 per cent newspaper (English), and 15 per cent learned about sale through word-of mouth communication.
The retail promotion was judged as successful in many ways, besides yielding sales worth
Rs 900,000. However, management was concerned about not achieving a higher level of ad comprehension, missing a significant sales opportunity: It was believed that a better ad would have at least 75 per cent correct comprehension among those aware of the ad. This in turn would almost double sales without any additional cost.
QUESTIONS
QUESTIONS
1. Why would some consumers have high-involvement levels in learning about this sales promotion?
Ans.
Consumer involvement is defined as a state of mind that motivates consumers to identify with product/service offerings, their consumption patterns and consumption behavior. Involvement creates within consumers an urge to look for and think about the product/service category and the varying options before making decisions on brand preferences and the final act of purchase. It is the amount of physical and mental effort that a consumer puts into a purchase decision. It creates within a person a level of relevance or personal importance to the product/service offering and this leads to an urge within the former to collect and interpret information for present/future decision making and use. Involvement affects the consumer decision process and the sub processes of information search, information processing, and information transmission. As Schiffman has put it “Involvement is a heightened state of awareness that motivates consumers to seek out, attend to, and think about product information prior to purchase”. It is the perceived interest and importance that a consumer attaches to the acquisition and consumption of a product/service offering.
Herbert Krugman, a researcher is credited with his contribution to the concept of consumer involvement. According to him, consumers approach the marketplace and the corresponding product/service offerings with varying levels and intensity of interest and personal importance. This is referred to as consumer involvement.
Involvement of consumers while makes purchase decisions varies across persons, across product/service offerings in question as well as purchase situations and time at hand. Some consumers are more involved in purchase processes than others. For example, a person who has a high level of interest in a product category would expend a lot of time making a decision with regard to the product and the brand. He would compare brands across features, prices etc. Another example is a person who is risk aversive; he would also take a longer time making a decision. Involvement also varies across product/service offerings. Some products are high involvement products; these are products that are high in value and expensive, possess sufficient amount of risk, are purchased infrequently, and once purchased, the action is irrevocable, i.e. they cannot be returned and/or exchanged . On the other hand, there are low involvement products, which are moderately expensive or generally inexpensive, possess little risk and are purchased regularly on a routine basis. Further, such consumer involvement based on their personal traits or on the nature of product/service offering are also impacted by the buying situation and time in hand for making purchase decisions. Very often, due to time constraints or emergency situations, a consumer may expend very little time on the purchase decision and buying activity in spite of the fact that the consumer is highly involved or risk aversive or the product is a high involvement one.
2 Is a level of 75 per cent comprehension realistic among those who become aware of an ad? Why or why not?
Ans.
The goals of comprehension realistic awareness of advertising do not usually involve making money in the short term. Awareness advertising seeks to increase the name recognition of your small business in the minds of consumers across your target market area. These advertising objectives are particularly useful in the early days of your company when you don't have as many
Awareness advertising is a marketing strategy designed to increase consumer familiarity with your company's overall message and the services or products it offers. How awareness advertising develops goals and objectives for your small business depends on your target consumer market and the company image you wish to portray. According to the Small Business Notes website, these goals are essential to developing your awareness advertising strategy and determining how much money to spend on your promotional campaigns.
Brand awareness is an overarching objective of your awareness advertising strategy. This marketing phenomenon is the extent to which consumers recognize the brands of your small business and can correctly associate these brands with particular product offerings, according to the Business Dictionary. Increasing brand awareness is a primary aim in the early months of small business life, when your company is attempting to enter the local marketplace and garner consumer attention. Raising brand awareness through advertising keeps your small business in the minds of consumers, which can lead to increased traffic at your place of business.
The message your small business chooses to convey cannot be vague or easily misinterpreted. The more room you give consumers to confuse your company message, the easier it will be for your target market to make false assumptions about your brands and products. Conveying a clear, strong message through your advertising campaigns gives consumers your product messages in ways that are easily understandable and memorable. This allows for greater retention of your message and easier recognition when consumers come across your company's products or enter your business locations.
Awareness advertising seeks to increase your company's market share by increasing consumer knowledge of your small business's products and services. Advertising campaigns saturate the market in an attempt to drown out the voices of your competitors. If your advertising campaigns follow the rules for simplicity and memorability, consumers may begin to frequent your business, giving you the opportunity to steal sales from the competition on a permanent basis.
3. Do you think such promotions are likely to influence the quality image of the retail store? Explain.
Martineau gives the retail store image first. He thinks that the retail image is “personality of the retail store”. He reckons that the definition given by consumers is very important to affect their patronization the store.
Arons(1961)&Dichter(1985) think retail store image is an individual’s cognitions and emotions that are inferred from perceptions or memory inputs that are attached to a particular store and which represent what that store signifies to an individual[8]. Keaveney& Hunt takes retail store image as an overall impression of a store as perceived by consumers. Store image is the subjective feeling got by the store information, this image is based on the personality of consumers’. This view is accepted by more and more scholars. And, some researchers not only test the subjective of the store image, but also point out the influence store image theory.
Wyckham (1967)emphasizes the consumer’s subjective feeling in his research and tests one of the factors by empirical ways. He connects the consumer’s shopping experience and store image, and reckon “ the feeling and experience have certain relationship”. When consumer has happy experience, and he will have good image; then will have bad image. According to the definition of the retail image, we can get the result that the recognition of the retail store is based on the reaction to the store. And this recognition can be emphasized. So, this research takes the retail information as the result of the emphasize of the store. Retail image is produced by the consumer’s feeling. Different consumers have different recognitions according to their
knowledge, education and life style.
The above segmentation distinguishes the factors which may affect the retail store image from different angles. The definition for service is further more different, which just indicates the complexity of service. Taking James Reardon(1995)’s segmentation for example, convenience could also be treated as service provided to customers, which makes the practical verification more difficult. It is because of the different recognition to service factor .
CORPORATE LAW ISMS ONGOING EXAM ANSWER PROVIDED
Solve:
1. How is the price fixed in a contract of sale? If price is not determined by the parties, what price, if any, is the buyer liable to pay?
2. When a pledger fails to redeem his pledge, what rights does the pledgee have in the pledge?
3. When the cheque shall be considered as dishonoured and what are the consequences of the dishonour of the cheques?
4. “Every shareholder of a company is also known as a member; while every member may not be known as a shareholder.” Comment.
5. Discuss briefly the provisions of the Companies Act in regard to the appointment of and removal directors.
6. “A contract caused by mistake is void.” Discuss fully the statement.
7. Discuss the legal aspects of ‘liability of an agent for acts of sub-agent.’
8. What companies may dispense with the use of the word ‘Limited’ as part of their name, even though they are limited companies?
9. “A company cannot be party to a contract before it has come into existence.” – Discuss.
10. Can a minor be admitted to partnership? If so, what will be the rights and liabilities during his minority and after he has attained majority?
Case No : 1
PUBLIUS
Although many people believe that the World Wide Web is anonymous and secure from censorship, the reality is very different. Governments, law courts, and other officials who want to censor, examine, or trace a file of materials on the Web need merely go to the server (the online computer) where they think the file is stored. Using their subpoena power, they can comb through the server’s drives to find the files they are looking for and the identify of the person who created the files.
On Friday June 30, 2000, however, researches at AT & T Labs announced the creation of Publius, a software program that enables Web users to encrypt (translate into a secret code) their files – text, pictures, or music – break them up like the pieces of a jigsaw puzzle, and store the encrypted pieces on many different servers scattered all over the globe on the World Wide Web. As a result, any one wanting to examine or censor the files or wanting to trace the original transaction that produced the file would find it impossible to succeed because they would have to examine the contents of dozens of different servers all over the world, and the files in the servers would be encrypted and fragmented in a way that would make the pieces impossible to identify without the help of the person who created the file. A person authorized to retrieve the file, however, would look through a directory of his files posted on a Publius – affiliated website, and the Publius network would reassemble the file for him at his request. Researchers published a description of Publius at www.cs.nyu.edu/waldman/publius.
Although many people welcomed the way that the new software would enhance freedom of speech on the Web, many others were dismayed. Bruce Taylor, an antipornography activist for the National Law Center for Children and Families, stated : “It’s nice to be anonymous, but who wants to be more anonymous than criminals, terrorists, child molesters, child pornographers, hackers and e-mail virus punks.” Aviel Rubin and Lorrie Cranor, the creators of Publius, however, hoped that their program would help people in countries where freedom of speech was repressed and individuals were punished for speaking out. The ideal user of Publius, they stated, was “a person in China observing abuses of human rights on a day – to – day basis.”
Questions :
1. Analyze the ethics of marketing Publius using utilitarianism, rights, justice, and caring. In your judgement, is it ethical to market Publius ? Explain.
2. Are the creators of Publius in any way morally responsible for any criminal acts that criminals are able to carry out and keep secret by relying on Publius ? Is AT & T in any way morally responsible for these ? Explain your answers.
3. In your judgment, should governments allow the implementation of Publius ? Why or why not ?
Case NO. 2
A JAPANESE BRIBE
In July 1976, Kukeo Tanaka, former prime minister of Japan , was arrested on charges of taking bribes ($ 1.8 million) from Locjheed Aircraft Company to secure the purchase of several Lockheed jets. Tanaka’s secretary and serial other government officials were arrested with him. The Japanese public reacted with angry demands for a complete disclosure of Tanaka’s dealings. By the end of the year, they had ousted Tanaka’s successor, Takeo Miki, who was widely believed to have been trying to conceal Tanaka’s actions.
In Holland that same year, Prince Bernhard, husband of Queen Juliana, resigned from 300 hundred positions he held in government, military, and private organizations. The reason : He was alleged to have accepted $ 1.1 million in bribes from Lockheed in connection with the sale of 138 F – 104 Starfighter jets.
In Italy , Giovani Leone, president in 1970, and Aldo Moro and Mariano Rumor, both prime ministers, were accused of accepting bribes from Lockheed in connection with the purchase of $ 100 million worth of aircraft in the late 1960s. All were excluded from government.
Scandinavia , South Africa , Turkey , Greece , and Nigeria were also among the 15 countries in which Lockheed admitted to having handed out payments and at least $ 202 million in commissions since 1970.
Lockheed Aircraft’s involvement in the Japanese bribes was revealed to have begun in 1958 when Lockheed and Grumman Aircraft (also an American firm) were competing for a Japanese Air Force jet aircraft contract. According to the testimony of Mr. William Findley, a partner in Arthur Young & Co. (auditors for Lockheed), in 1958 Lockheed engaged the services of Yoshio Kodama, an ultra right – wing war criminal and reputed underworld figure with strong political ties to officials in the ruling Liberal Democratic Party. With Kodama’s help, Lockheed secured the Government contract. Seventeen years later, it was revealed that the CIA had been informed at the time (by an American embassy employee) that Lockheed had made several bribes while negotiating the contract.
In 1972, Lockheed again hired Kodama as a consultant to help secure the sale of its aircraft in Japan . Lockheed was desperate to sell planes to any major Japanese airline because it was scrambling to recover from a series of financial disasters. Cost overruns on a government contract had pushed Lockheed to the brink of bankruptcy in 1970. Only through a controversial emergency government loan guarantee of $ 250 million in 1971 did the company narrowly avert disaster. Mr. A. Carl Kotchian, president of Lockheed from 1967 to 1975, was especially anxious to make the sales because the company had been unable to get as many contracts in other parts of the world as it had wanted.
This bleak situation all but dictated a strong push for sales in the biggest untapped market left-Japan. This push, if successful, might well bring in revenues upward of $ 400 million. Such a cash inflow would go a long way towards helping to restore Lockheed’s fiscal health, and it would, of course, save the jobs of thousands of firm’s employees. (Statement of Carl Kotchian)
Kodama eventually succeeded in engineering a contract for Lockhed with All – Nippon Airways, even beating out McDonnell Douglas, which was actively competing with Lockheed for the same sales. To ensure the sale, Kodama asked for and received from Lockheed about $9 million during the period from 1972 to 1975. Much of money allegedly went to then – prime minister Kukeo Tanaka and other government officials, who were supposed to intercede with All – Nippon Airlines on behalf of Lockheed.
According to Mr. Carl Kotchian, “ I knew from the beginning that this money was going to the office of the Prime Minister.” He was, however, persuaded that, by paying the money, he was sure to get the contract from All-Nippon Airways. The negotiations eventually netted over $1.3 billion in contracts for Lockheed.
In addition to Kodama, Lockheed had also been advised by Toshiharu Okubo, an official of the private trading company, Marubeni, which acted as Lockheed’s official representative. Mr. A. Carl Kotchian later defended the payments, which he saw as one of many “Japanese business practices” that he had accepted on the advice of his local consultants. The payments, the company was convinced, were in keeping with local “ business practices.”
Further, as I’ve noted, such disbursements did not violate American laws. I should also like to stress that my decision to make such payments stemmed from my judgment that the (contracts) …… would provided Lockheed workers with jobs and thus redound to the benefit of their dependents, their communities, and stockholders of the corporation. I should like to emphasize that the payments to the so-called “ high Japanese government officials” were all requested y Okubo and were not brought up from my side. When he told me “ five hundred million yen is necessary for such sales,” from a purely ethical and moral standpoint I would have declined such a request. However, in that case, I would most certainly have sacrificed commercial success….. (If) Lockheed had not remained competitive by the rules of the game as then played, we would not have sold (our planes) ……… I knew that if we wanted our product to have a chance to win on its own merits, we had to follow the functioning system. (Statement of A. Carl Kotchian)
In August, 1975, investigations by the U.S. government led Lockheed to admit it had made $ 22 million in secret payoffs. Subsequent senate investigations in February 1976 made Lockheed’s involvement with Japanese government officials public. Japan subsequently canceled their billion dollar contract with Lockheed.
In June 1979, Lockheed pleaded guilty to concealing the Japanese bribes from the government by falsely writing them off as “marketing costs”. The Internal Revenue Code states, in part. “ No deduction shall be allowed….. for any payment made, directly or indirectly, to an official or employee of any government …. If the payment constitutes an illegal bribe or kickback.’ Lockheed was not charged specifically with bribery because the U.S. law forbidding bribery was not enacted until 1978. Lockheed pleaded guilty to four counts of fraud and four counts of making false statements to the government. Mr. Kotchian was not indicated, but under pressure from the board of directors, he was forced to resign from Lockheed. In Japan , Kodama was arrested along with Tanaka.
Questions :
1. Fully explain the effects that payment like those which Lockheed made to the Japanese have on the structure of a market.
2. In your view, were Lockheed’s payments to the various Japanese parties “bribes” or “extortions” ? Explain your response fully.
3. In your judgment, did Mr. A. Carl Kotchian act rightly from a moral point of view ? (Your answer should take into account the effects of the payments on the welfare of the societies affected, on the right and duties of the various parties involved, and on the distribution of benefits and burdens among the groups involved.) In your judgment, was Mr. Kotchian morally responsible for his actions ? Was he, in the end, treated fairly ?
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4. In its October 27, 1980, issue, Business Week argued that every corporation has a corporate culture – that is, values that set a pattern for its employee’s activities, opinions and actions and that are instilled in succeeding generations of employees (pp.148-60) Describe, if you can, the corporate culture of Lockheed and relate that culture to Mr. Kotchian’s actions. Describe some strategies for changing that culture in ways that might make foreign payments less likely.
Case NO. 3
THE NEW MARKET OPPORTUNITY
In 1994, anxious to show off the benefits of a communist regime, the government of China invited leading auto manufacturers from around the world to submit plans for a car designed to meet the needs of its massive population. A wave of rising affluence had suddenly created a large middle class of Chinese families with enough money to buy and maintain a private automobile. China was now eager to enter joint ventures with foreign companies to construct and operate automobile manufacturing plants inside China . The plants would not only manufacture cars to supply China’s new internal market, but could also make cars that could be exported for sale abroad and would be sure to generate thousands of new jobs. The Chinese government specified that the new car had to be priced at less than $5000, be small enough to suit families with a single child (couples in China are prohibited from having more than one child), rugged enough to endure the poorly maintained roads that criss-crossed the nation, generate a minimum of pollution, be composed of parts that were predominantly made within China, and be manufactured through joint – venture agreements between Chinese and foreign companies. Experts anticipated that the plants manufacturing the new cars would use a minimum of automation and wuld instead rely on labor – intensive technologies that could capitalize on China ’s cheap labor. China saw the development of a new auto industry as a key step in its drive to industrialize its economy.
The Chinese market was an irresistible opportunity for General Motors, Ford and Chrysler, as well as for the leading Japanese, European and Korean automobile companies. With a population of 1.2 billion people and almost double digit annual economic growth rates, China estimated that in the next 40 years between 200 and 300 million of the new vehicles would be purchased by Chinese citizens. Already cars had become a symbol of affluence for China’s new rising middle class, and a craze for cars had led more than 30 million Chinese to take driving lessons despite that the nation had only 10 million vehicles, most of them government – owned trucks.
Environmentalists, however, were opposed to the auto manufactures’ eager rush to respond to the call of the Chinese government. The world market for energy, particularly oil, they pointed out, was based in part on the fact that China , with its large population, was using relatively low levels of energy. In 1994, the per-person consumption of oil in China was only one sixth of Japan ’s and only a quarter of Taiwan ’s. If China were to reach even the modes per person consumption level of South Korea , China would be consuming twice the amount of oil the United States currently uses. At the present time, the United States consumes one forth of the world’s total annual oil supplies, about half of which it must import from foreign countries.
Critics pointed out that if China were to eventually have as many cars on the road per person as Germany does, the world would contain twice as many cars as it currently does. No matter how “ pollution – free” the new car design was, the cumulative environmental effects of that many more automobiles in the world would be formidable. Even clean cars would have to generate large amounts of carbon dioxide as they burned fuel, thus significantly worsening the greenhouse effect. Engineers pointed out that it would be difficult, if not impossible, to build a clean car for under $5000. Catalytic converters, which diminished pollution, alone cost over $200 per car to manufacture. In addition, China ’s oil refineries were designed to produce only gasoline with high levels of lead. Upgrading all its refineries so they could make low-lead gasoline would require an investment China seemed unwilling to make.
Some of the car companies were considering submitting plans for an electric car because China had immense coal reserves which it could burn to produce electricity. This would diminish the need for China to rely on oil, which it would have to import. However, China did not have sufficient coal burning electric plants nor an electrical power distribution system that could provide adequate electrical power to a large number of vehicles. Building such an electrical power system also would require a huge investment that the Chinese government did not seem particularly interested in making. Moreover, because coal is a fossil fuel, switching from an oil – based auto to a coal – based electric auto would still result in adding substantial quantities of carbon dioxide to the atmosphere.
Many government officials were also worried by the political implications of having China become a major consumer of oil. If China were to increase its oil consumption, would have to import all its oil from the same countries that other nations relied on, which would create large political, economic and military risks. Although the United States imported some of its oil from Venezuela and Mexico , most of its imports came from the Middle East – an oil source that China would have to turn to also. Rising demand for Middle East oil would push oil prices sharply upward, which would send major shocks reverberating through the economics of the United States and those of other nations that relied heavily on oil. State Department officials worried that China would begin to trade weapons for oil with Iran or Iraq , heightening the risks of major military confrontations in the region. If China were to become a major trading partner with Iran or Iraq , this would also create closer ties between these two major power centres of the non-Western world – a possibility that was also laden with risk. Of course, China might also turn to tapping the large reserves of oil that were thought to be lying under Taiwan and other areas neighboring its coast. However, this would bring it into competition with Japan , South Korea , Thailand , Singapore , Taiwan , the Phillippines, and other nations that were already drawing on these sources to supply their own booming economies. Many of these nations, anticipating heightened tensions, were already puring money into their military forces, particularly their navies. In short, because world supplies of oil were limited, increasing demand seemed likely to increase the potential for conflict.
Questions :
1. In your judgment, is it wrong, from an ethical point of view, for the auto companies to submit plans for an automobile to China ? Explain your answer ?
2. Of the various approaches to environmental ethics outlined in this chapter, which approach sheds most light on the ethical issues raised by this case ? Explain your answer.
3. Should the U.S. government intervene in any way in the negotiations between U.S. auto companies and the Chinese government ? Explain ?
Case NO. 4
NAPSTER’S REVOLUTION
Eighteen – year old Shawn “NAPSTER” Fanning, then a freshman at Northeastern University, dropped out of school and founded Napster Inc. (website was at w.w.w.napster.com) in San Mateo, California in May 1999. Two months earlier, working in his college dorm room, he had developed both a website that let users locate other users who were willing to share whatever music files they had in MP3 format on the hard drives of their computers and a software program (called “Napster) that let users copy these music files from each other over the Internet. When an early free version of the program he posted on Download.com received more than 300,000 hits and was named “Download of the week,” he decided to devote himself full time to developing his program and website. The final version of his version of his program was officially released August 1999, and in May 2000, with more than 10 million people – most of them students on college campuses where Napster was especially popular – signed up at its website, Shawn’s company received $ 15 million of start – up funds from venture capital firms in California’s “Silicon Valley.”
Fanning grew up in Brockton , Massauchettes, the son of a nurse’s aid and the stepson of a truck driver, in a family of four half-brothers and half-sisters. He got the nickname “Napster” during a basketball game when a player commented on his closely cropped sweaty head of hair. Fanning had taught himself programming and had held several summer programming jobs.
The company Shawn helped establish gave the Napster program away for free and charged users nothing to use its website to post the URL addresses where personal copies of music could be downloaded. Nevertheless, a month later, Shawn found himself embroiled in a legal and ethical controversy when two record tables, two musicians (Metallica and Dr. Dre), and two industry trade groups of music companies (the National Music Publishers Association and the Recording Industry Association of America) filed suits against his young company claiming that Napster’s software was enabling other to make and distribute copies of copyrighted music that the musicians and companies owned.
On June 12, the two industry trade groups filed preliminary injunctions against the company demanding that it remove all the songs owned by their member companies from Napster’s song directories. According to the two groups, a survey of 2555 college students showed a correlation between Napster use and decreased CD purchases. College students were outraged, especially fans of Metallica and Dr. Dre. Supporters of Napster argued that Napster allowed people to hear music that they then went out and purchased, so Napster actually helped the music companies. Music sales had increased by over $500 million a year since Napster had started to operate, but the music companies claimed that this was a result of a booming economy. Supporters of Napster also argued that individuals had a moral and legal right to lend other individuals a copy of the music on the CDs that they had purchased. After all, they argued, the law explicitly stated that an individual could make a copy of copyrighted music he or she had purchased to hear the music on another player. Moreover, according to Fanning, Napster was not doing anything illegal, and the company was not responsible if other people used its software and website to copy music in violation of copyright law any more than a car company was responsible when its autos were used by thieves to rob banks. Much of the music that was downloaded using Napster, they claimed, was in the public domain (i.e.not legally owned by anyone) and was being legally copied. The music companies countered that an individual had no right to give multiple copies of their music to others even if the individual had paid for the original CD. If everyone was allowed to copy music without paying for it, they charged, eventually the music companies would stop producing music and musicians would stop creating it. Other musicians claimed, however, that Napster and the Web gave them a way to put their music before millions of potential fans without having to beg the music companies to sponser them.
In March 2000, the band Metallica hired consultant PDNet to electronically “evesdrop” on users who assumed they were anonymously accessing Napster’s website. The following week the band’s lawyers handed Napster a list with the names of 300, 000 people that Metallica claimed had violated its copyrights using Napster’s service and that Metallica now wanted removed from Napster’s services. Fanning complied with the demand of Metallica, whose drummer, Lars Ulrich, was one of his musical heros. “If they want to steal our music,” said Ulrich, “ why don’t they just go down to Tower Records and grab them off the shelves ?” Many young people protested that the bands should not be alienating their own fans in this way. One fan posted a note on an MP3 chat room : “Give me a break ! I have been dropping 16 bucks an album for Metallica’s music since I was a teenager. They made a fortune off us and now they accuse us of stealing from them. What nerve !” Howard King, a Los Angeles lawyer for Metallica and Dr. Dre, stated that “I don’t know Shawn Fanning but he seems to be a pretty good kid who came up with a sensational program. But this sensational program has allowed people to take music without paying ………. Shawn probably had no idea of the legal ramifications of what he created. I’m sure the though never crossed his mind.”
In August 2000, a federal judge in San Francisco , Marilyn Patel, responded to the suit against Napster. Judge Patel called Shawn’s company a “monster” and charged that the only purpose of Napster was to copy pirated music without paying for it. The judge ordered Napster to remove all URLS from its website that referenced material that was copyrighted.
Judge Patel’s ruling would have shut down the company’s website immediately. But a few days later, an appeals court reversed Judge Patel and allowed the company to continue operating. The reprieve was only temporary. On Monday February 12, 2001 , the Ninth Circuit Court of Appeals in San Francisco affirmed Judge Patel’s ruling. The company attempted to circumvent the ruling by negotiating agreements with the music companies that would pay them certain annual fees in return for withdrawing the suit.
Napster was not the only software that allowed individuals to swap files from
One personal computer to another over the Internet. The software program named “Gnutella” let individuals swap any kind of files – music, text, or visuals – over the Internet, but Gnutella did not operate a centralized index like the website that Napster had established. Observers predicated that if Napster was put out of business, numerous underground websites would be created providing the kind of listing service that the company had earlier provided on its website. Already a website named zeropaid.com provided free copies of Gnutella and many other Napster clones that users could download and use to share digital music files with each other. Unlike Napster, these software products did not require a central website to connect users to each other, making it impossible for music companies to find and target single entity whom they could sue. Many observers predicated that Napster was only the beginning of an upheaval that would revolutionize the music industry, forcing music companies to lower their prices, make their music easily available on the Internet, and completely change their business models.
Questions :
1. What are the legal issues involved in this case, and what are the moral issues ? How are the two different kinds of issues different from each other, and how are they related to each other ? Identify and distinguish the “systemic, corporate and individual issues” involved in this case.
2. In your judgment, was it morally wrong for Shawn Fanning to develop and release his technology to the world given its possible consequences ? Was it morally wrong for an individual to use Napster’s website and software to copy for free the copy righted music on another person’s hard drive ? If you believe it was wrong, then explain exactly why it was wrong. If you believe it was not morally wrong, then how would you defend your views against t he claim that such copying is stealing ? Assume that it was not I illegal for an individual to copy music using Napster. Would there be anything immoral with doing so ? Explain ?
3. Assume that it is morally wrong for a person to use Napster’s website and software to make a copy of copyrighted music. Who, then, would be morally responsible for this person’s wrong doing ? Would only the person himself be morally responsible ? Was Napster, the company, morally responsible ? Wash shawn Fanning morally responsible ? Was any employee of Napster, the company, morally responsible ? Was the operator of the server or that portion of the Internet that the person used morally responsible ? What if the person did not know that the music was copyrighted or did not think that it was illegal to copy copyrighted music ?
4. Do the music companies share any of the moral responsibility for what has happened ? How do you think technology like Napster is likely to change the music industry ? In your judgment, are these changes ethically good or ethically bad ?
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