Wk 11: Marketing I

  1. Story so far: adam smith and autonomy
    The free market system is justified by its efficiency in satisfying needs (Smith’s “invisible hand argument”)

    The free market system is justified by voluntary participation and choice (autonomy)

    • Profit represents the contribution a corporation makes to the social good
    • Why: because in a world of voluntary contracts no one has to buy, and so those who choose to buy must get benefits commensurate with the price they pay. 

    In general, markets work because the exchange between corporations, workers and customers are mutually beneficial but there are exceptions
  2. Efficiency
    • According to Pareto: an efficient transaction is one that makes one person better off without making anyone else worse off (re. utilitarianism)
    • An optimal market is one where nobody can be made better off without someone being made worse off.

    • Assumes:
    • Everyone's preferences are rational and coherent
    • Symmetry of info
    • Low/no transaction costs
    • No negative externalities
    • Everyone has something someone else values
    • Multiple buyers and sellers
  3. Real amrekts
    • But most real markets are not perfect:
    • Are our choices rational?
    • Is there symmetrical information?
    • Is there a barrier to market entry?
    • Are all costs born by buyer and/or seller?
    • Does everyone have something to contribute?
    • Is there proper competition
  4. The two most important classes of inefficiency: Arrow
    • Where there are externalities that are not paid for:
    • Pollution
    • Congestion
    • Where there exists an asymmetry of information between buyer and seller:
    • Medical treatment
    • Used cars
    • Safety conditions in workplace
  5. Regulation
    Each of these situations may justify the regulation of the market in the direction of greater efficiency.
  6. Marketing
    • US: Marketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods and services to create exchanges that satisfy individual and organisational goals
    • EU: Marketing is the core business philosophy which directs the processes of identifying and fulfilling the needs of individuals and organisations through exchanges which create superior value for all parties"
  7. More definitions of marketing
    • Marketing is the process of selling a product or service that a company produces or provides.
    • Marketing techniques seek to solve a variety of problems that may inhibit the sale of a product or service.
    • Marketing research attempts to determine customer demand and the most efficient and profitable means of meeting this demand. 
    • The ultimate aim of a successful marketing programme is the sale of a particular (brand) product or service. 
    • Marketing research attempts to determine customer demand and the most efficient and profitable means of meeting this demand.
    • The ultimate aim of a successful marketing programme is the sale of a particular product or service.
  8. Efficiency and exchange
    • Primary justification for market system is its efficiency in satisfying wants
    • Exchange is efficient if it is voluntary
    • So what are the preconditions for voluntary exchange?
  9. Holley's model
    • Holley argues that there are 3 important parameters in voluntary exchange. 
    • he refers to these as the conditions of voluntary exchange
    • 1. Knowledge
    • 2. Non-compulsion
    • 3. Rationality
  10. Conditions of voluntary exchange
    • Knowledge: both buyer and the seller understand what they are giving up and what they are receiving in return. 
    • Non-compulsion: the buyer is not compelled to enter into an exchange as a result of coercion, restricted choice or constrained ability to choose.
    • Rationality: both buyer and seller are able to make rational judgements about costs and benefits of exchange.
  11. Holley's model of acceptable exchange
    • In the real world, conditions of perfect competition are frequently not met and so we are faced with determining what will count as an acceptable exchange. 
    • For an exchange to be acceptable it must be:
    • Adequately informed
    • Adequately rational
    • Free from compulsion
  12. What is adequate information?
    • Misinformation (or lies) undermine adequacy of the information condition. 
    • Truths that intended to mislead undermine the adequaxy of info condition.
    • But how much info is a sales-person required to provide?
  13. What is adequate rationality?
    • A recently bereaved person may be unable to make rational decision.
    • A child presented with the chance of having latest, game may be unable to make a rational decision.
    • Emotional appeals to factors that may be subconscious may lead to decision making that is not entirely rational
    • -glamorous people smoking cigarettes
    • -Filmstars advertising perfume
  14. What is a choice free form compulsion?
    • Choice is free from compulsion when there is no coercion
    • Buy this or I will shoot you (compulsion)
    • What if monopoly exists?
  15. Holley 1998
    • In this more recent paper (information disclosure in sales), Holley sets out a continuum of levels of disclosure
    • 1. Minimal information rule (low level)
    • 2. Modified minimal information rule
    • 3. Fairness Rule
    • 4. Mutual benefit rule
    • 5. Maximal information rule (high level)
  16. 1. Minimal information rule:
    • The buyer is responsible for acquiring information about the product.
    • There is no obligation to give any information the buyer does not specifically ask for
    • Caveat emptor: the principle that the buyer alone is responsible for checking the quality and suitability of goods before a purchase is made.
  17. 2. Modified Minimal Information Rule
    The only additional information the seller is obligated to give is information a buyer might need to avoid risk of injury (safety information)
  18. 3. Fairness rule
    In addition to safety info, a seller is responsible for giving the buyer any information need to make a reasonable judgement about whether to purchase the product which the buyer could not be reasonably expected to know about unless informed by the seller.
  19. 4. Mutual benefit rule
    In addition to safety info, the seller is responsible for giving the buyer any info needed to make a reasonable judgement about whether to purchase the product which the buyer does not possess.
  20. 5. Maximal information rule
    A seller is responsible for giving the buyer any info relevant to deciding whether to purchase the product
  21. Holley's position on sale info disclosure
    • Holley argues the Mutual benefit rule is the appropriate standard
    • The maximal info rule is too high standard: would require sales persons to supply info usually found in consumer reports.
    • It could not work without undermining the competitive structure of the market.

    • The other end of the spectrum- the fairness rule is inadequate; what can a person be reasonably expected to know?
    • To which group do they belong? expert or amateur?
    • Within the compexity of the modern market, sales persons are seen to be and frequently promoted as 'consultants'
  22. Advertising
    • One form of marketing
    • Because of its scope and impact it is undoubtedly the most significant form of marketing
    • Advertising may be intrusive- eg. television, radio, social media, public space
  23. Two important questions about advertising
    • The ethical acceptability of the institution of advertising
    • If we accept that advertising (as an institution) can be ethically justified then what standards must particular advertisements be required to meet?
  24. The institution (practice) of advertising
    • What argument can be given to support the institution (or practice) of advertising?
    • -> it tells people about what is available
    • Why is it important to inform the public of what is available?
    • -> because it allows them to select the product that best satisfies their individual needs/wants
    • How do we choose?
  25. The functions of advertising
    • To inform the public about the availability of a particular product
    • To persuade the public to buy that product
    • Is there anything ethically objectionable about the practice of informing the public about the availability of a product?
    • What about persuading them to buy?
  26. Galbraith's argument
    • Galbraith argues that the central function of advertising is to create wants or desires for particular goods.
    • The central function of advertising 'is to create desires- to bring into being wnats that previously did not exist'
    • Argues that production itself also paasively creates desires.
    • Therefore one cannot justify producing more and more goods on the basis that they are satisfying people wants.
    • 'One cannot defend production as satisfying wants if that production creates the wants'
  27. Galbraith important difference in regards to wants/desires
    • Argues that all desires/wants are not the same
    • Compare the want for food of a starving man and the wan for BMW of an affluent man?
    • How do these wants differ?
    • The want for food is more fundamental
    • Without food a human being will die but one can go on living without the BMW.
    • Virtually any food will satisfy a starving man but any car will not satisfy an affluent man. 
    • Galbraith distinguishes between innate/important wants from created (unimportant) wants
  28. Reply to Galbraith
    • We would not/could not want most things in absence of knowledge and of their existence
    • How could we?
    • How could you want/desire something you knew nothing about?
  29. Hayek's first argument
    • Hayek argues that:
    • To say that a desire/want is not important because it is not innate is to say that the whole cultural achievement of man is unimportant.
    • Civilisation/cultural heritage/education creates needs for- music, painting, literature
    • BUT this does not show these things to be of small value.
  30. Hayek's 2nd argument
    • Even if generally "production creates wants" this does not show that particular producers (and/or advertisers) can deliberately determine the wants of particular consumers.
    • Choice is the result of a complex set of causes
    • Producer and advertiser cannot determine what a particular consumer wants.
  31. What is determination?
    • It is being used in its most specific (philosophical) sense
    • For the philosopher, A determines B if and only if whenever A occurs B follows.
  32. Controlling influences
    • Spectrum of controlling to non-controlling influences
    • This spectrum consists of coersive-manipulative-persuasive influences.
    • The central question form a practical point of view is not whether choice is ideally or wholly fre but whether it is sufficient or adequately free
  33. Coercion
    • When one person uses force or credible threat of serious harm to compel a particular response from another person. 
    • Such circumstances are extremely rare in advertising.
  34. Persuasion
    • The situation where good reasons are offered for accepting the desired alternative
    • But good reasons for whom? seller or buyer?
  35. Manipulation
    Any succesful attempt to elicit a desired response from another by non-coercively modifying choices available, or by non-persuasively altering another person's perceptions of available choices.

    The major difference between manipulation and persuasion is that informational manipulation is based on deception, persuasion is not.
  36. Beauchamp Bowie and Arnold
    • Beauchamp Bowie and Arnold argue that advertising should not prevent informed choice about the product or service.
    • Advertisement should be persuasive and are ethically/morally inappropriate when they are manipulative.
    • Coercion- wrong
    • Manipulation- wrong
    • Persuasion- accceptable
  37. Can we go too far in protecting consumers?
    • Issue of paternalism
    • Paternalism is interfering with a person's liberty of actions that is justified in terms of the wellbeing of the person interfered with.
Card Set
Wk 11: Marketing I
Wk 11: Marketing I