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Ethical battle lines of Marketing

February 22, 2013 Leave a comment

Marketing has been a core component of business since probably a second after business was invented. At its core Marketing aims to deliver a message to a specific group of people and that message often tries to persuade those individuals to consider purchasing the product or service in question. Competition in the marketplace makes Marketing a vital business function. After all, even if your company makes the best product, but nobody knows about it, chances are that your competitors will be able to reap greater rewards. Under competitive pressure it is often essential for marketers to promote the product to its potential, but they cannot cross the line into misleading. In the US misleading advertisements are often termed “false advertisement” or “deceptive advertisement” and are regulated by the Federal  Trade Commission. Other countries have similar laws and regulatory bodies, some initiatives that aim to protect consumers are www.isitfair.eu in EU and Australian Competition & Consumer Commission in Australia.

It is clear that you can advertise in a deceptive way and that there are regulatory and consumer bodies set up to protect the world from such practices. But what exactly is deceptive? Over the course of history and with the help of the legislative system certain marketing practices became accepted as deceptive. For example, marketing one product and substituting it for something else, creating a pyramid scheme or forging trust marks. These examples are numerous, but they came about and became accepted as deceptive because injured parties sought compensation in court in the years past. But what if the matter is so minor and legal process so expensive that nobody bothers to seek compensation? Or what if deception cannot be easily proven? I would speculate that there remains a subset of marketing practices that could be called dubious, while regulatory bodies are too busy policing more serious cases.

Just how prevalent these practices are? How used are we to them? I will include several examples below, but feel free to add additional illustrations into the comments.

1. That food looks so good on TV, but not so well in real life. Actually there are companies that specialise in replicating popular menu items in plastic. One such company is www.fake-foods.com. Not all replicated foods are used in tv commercials, some are used as restaurant displays and children toys, but some  do end up being stars of 30-second movies. Using plastic props in commercials makes perfect sense, since they don’t spoil or wither with time and able to tolerate high-powered  stage lights without melting. But is that deceptive? After all, the food I buy at the store is not plastic and would look quite different on TV.

2. People that look good on TV and look well in real life, but never used the product advertised to achieve their results. I’ll let the actual ad prove my point. Is that deceptive? Those people are in great shape, but they probably achieved such physique either genetically or by going to the gym, an exact opposite of what ad claims it can do for you. Could it be that it’s just natural to get models for your commercial? And since everyone does it is would be against industry practice try to do otherwise. Besides consumers are aware enough to understand distinction between marketing and reality. To address these arguments, I would like you to have a look at this ad. Did those people used the actual product to achieve their results? Do you think they had hairdressers on the set when filming the commercial? Another example can be seen here.

3. Perfume is all about the smell right? Perfume ads are an interesting example. On one hand what is sold is a fragrance, a physical product, that has nothing to do with the model on the ad or the shape of the bottle. In fact, very few people would be able to connect the ad and the smell of the product. So is it deception to use pretty models to sell your product? Should you not include testers in every magazine ad? Not quite, while how perfume is advertised has little or nothing to do with the actual smell, something else is sold along with it. That something is value created by the add itself solely in the mind of the consumer. By looking at the model, the elegance of the bottle some consumers derive satisfaction because they are able to imagine themselves as belonging to that lifestyle image. The feeling that consumers buys along with the perfume is purely subjective, created only in his/her mind, but it is real and paid for.

Danger with some of these practices is that we become used to them and as the result transpose marketing reality into our actual lives. Any other examples?

~Alexey

How long is your attention span?

January 21, 2013 Leave a comment

Human brain has an interesting tendency, it strives to create explanations (or better word would be models) for the environment it observes. Evolutionary speaking, this trait is highly advantageous, it allows humans to adapt and predict their environment, thus increasing chances of survival. But it also creates false positives, builds models and finds order where none exist, as for example in creating constellations out of a random spray of stars in the night sky. While the night sky is an example of how humans find order in dimensional world, we should also note that false positives may exist in the temporal continuum.

Consider, for example, a recent graduate, who becomes a young aspiring commodities trader circa 2000. It would not take long for her to learn that her peers who advise their clients to buy gold are getting substantially bigger paychecks than she does. So she asks her coworkers for their strategies, their models and explanations for how gold behaves. Wether or not those explanations are correct does not actually matter, as long as they predict higher gold price and do not substantially deviate from industry thinking, none of them can be proven wrong. Fast forward to 2012, our graduate is now a 32-year-old successful senior manager, who built her career in gold trading, and received hefty bonuses for the past 10 years. The reason for her success is her unyielding faith in the value of the yellow metal, her peers who doubted that the gold rise in the past are working for her now, since they were not promoted as quickly.

What should interest us in this discussion is the gold pricing model that this manager developed in her head over the years. It can be as simple as a single sentence, or a complex mathematical model, but the key question we must ask is whether or not it is biased. Is it biased? After all this manager was rewarded for a very particular behaviour for the past 10 years, her peers were punished for predicting lower gold prices, her whole career was based on 10 years of rising gold prices, the echelon of her analysts, senior and junior, have similar behaviour cultivated in them since the first day they join the firm. Are they biased? Would they not try to look optimistically on any kind of evidence presented to them, not try to find an explanation for why the gold should rise again after a dip, just as it did before? Furthermore, this slightly skewed view propagates through the ranks with each one adding an additional twist of optimism until reality becomes grossly distorted. How can a person, in a position of power, be objective when all he/she was presented with during her career is a single side of the coin? Can human attention span be long enough to incorporate macroeconomic forces, which take decades to play out, into mental models that humans so eagerly construct?

For most of us gold trading is of little relevance, but principles at play apply to situations that rest much closer to home. Consider for example a banker, who is measured on his yearly performance, while the loans that he makes are for periods longer than 10 years. Would he care if the loan is defaulted on 7 years from now? Probably not, the loan book could have been sold on or he could have changed jobs several times since then. You can realize how this sort of behaviour could quickly become a reckless one. If banking is not personal enough for you, consider a manager who is responsible for plant maintenance. He is presented with a choice, to save some money now or spend it to upgrade plant’s equipment, if he saves it now then he is rewarded, albeit at the risk that the machine will have a higher chance of a breakdown (but when? 1,2 or maybe 3 years from now?). How long is his attention span?

In conclusion I would like to share several quotes that drive home some of the principles discussed.

Abraham Maslow “I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail.”

Ralph Linton “The last thing a fish would ever notice would be water.”

Daniel Day-Lewis  “Perhaps I’m particularly serious, because I’m not unaware of the potential absurdity of what I’m doing.”

Several movies: Anatomy of a DisasterHow the banks never lose

And several interesting articles: Morgan Stanley, Warning to Banks

Enjoy!

~Alexey


gold price charts provided by goldprice.org

People or Process Reliant

November 2, 2012 Leave a comment

During my comparatively short career I had the chance to work in a start-up business, a medium size enterprise and a large corporation. Needless to say that there are many obvious differences among the three, but one particular aspect that I would like to draw our attention to today is the process of enterprise growth.

At first we need to ask ourselves what the thing that we call an organisation is. Unfortunately, the sheer volume of information related to organisations makes defining its essence a daunting task, even with Google’s help. For the purpose of this article we will construct our own definition, which will draw upon Culture Management and Knowledge Management concepts:

An organisation is a set of behavioural patterns, which are influenced by individual employees, codified norms and historical behavioural patterns.

Four important concepts are tied together in this definition:

Firstly, we assume that it is through behaviour of its employees that an organisation exhibits its presence.  It’s common to see definitions that emphasise on the culture or brand as the essence of the organisation. However, these definitions are ill-suited for our purpose because they don’t go far enough. While causes that elicit employee behaviour are multiple, our proposition is that behaviour is the ultimate variable affected. Culture is important, it affects behaviour,  but so does a policy manual.

Subsequently, we propose three sources of influence that do affect behaviour: individual employees, codified norms and historical behavioural patterns. Individual employees bring their own experiences, habits and initiative into the organisation. Whether or not their habits become part of the organisation depends on a variety of factors, which will be discussed later. Codified norms are another source of influence and refer to actual procedures set out in various policy manuals.

Lastly, historical behavioural patterns consist of how the organisation and people in it traditionally behaved (this portion often described as culture) and significant “out of norm occurrences”. For example, let’s say fraud occurred in the organisation and people in the organisation were so shocked as to become extra vigilant, then the organisational culture would be “anti-fraud”, yet past fraudulent behaviour had significant influence.

Once our framework for analysis is set up, we can ask ourselves how a young company differs from a mature one.

In my experience, young companies are (surprise!) people driven. With little codified norms and virtually no historical behavioural patterns to restrict individual creativity, employees and especially founders are able to set a foundation, good or bad, for organisational behaviour. Mature organisations, on the other hand, have processes and policies in place to restrict influence of individuals. Specific employees are not loger able to do what they like, but need to meet minimum explicit or implicit performance standards, or are restricted in the ways they can perform their functions. On one hand, such development is often critiqued since large organisations are notoriously slow in adapting to change, on the other hand, by codifying behavioural norms, managers can objectively evaluate and adjust organisational behavioural patterns.   The most peculiar situation happens in growing organisations, where the need for explicit standards and instructions is clearly visible due to increased efforts spent by employees in coordinating activities, yet each position within the organisation is attached to a particular individual and presents itself to managers as a vague black box, “we sort of know what this employee does, but aren’t sure how he does it”.

Anyone wishes to share their experiences in start-up, growing, or mature organisations?

Alex

Ethics in daily business

October 26, 2012 Leave a comment

The terms „business ethics“ and „business as usual“ are not necessarily related. But why is that so? It seems that the ethically of business choices  is only challenged in exceptional (and often public) circumstances . As such, the behaviour of a brand, a company or a person in day-to-day business situations are not continuously evaluated from an ethical point of view.

Most probably such state is the result of the publicity and impact extraordinary decisions have. But can we judge the general degree of ethics in a business solely based on such events? Does the impact of such big decisions have a higher influence on the ethical image than the “small” daily encounters that are being labelled “usual”? Furthermore, if “usual” manners are not seen as ethically correct, shouldn’t they be put in the focus, even more than one-of-a-kind big-ticket decisions?

One example:

A couple of weeks ago we wrote a post about Apple’s supplier Foxconn that got scorned by the press for unacceptable working conditions. Recently, Foxconn managed to be on the cover of a worldwide newspapers again. Even though the working conditions they provide are generally not humane, the only time the issue gets raised in the press  is when Apple launches their next big product. The poor conditions Foxconn provides and decisions they make on a daily basis do not seem to be of major concern. It requires a major singular incident, a focal event, to get the company back into the discussion about ethically, only to discover that their “business as usual” might not support an ethical environment…

To conclude, I would like to ask you if we judge the ethically of a company only based on singular major decisions and miss out on evaluating the morale applied in their day-to-day business?

Sebastian

More on Foxconn

Why do people work?

August 24, 2012 Leave a comment

“Why do people work?” – It was a question one of my friends was asked while applying to a top-tier consultancy firm. It is very good to see that philosophy has not left those kinds of companies, but it also means that you cannot get an answer to such a query right. Partly because it is very subjective…

Certainly a few quick guesses come to mind: people work because they have to do so for economic reasons. But yet there are people who have sufficient money and who love to work, and people who are economically deprived, can work, but choose not to. It seems that economic necessity is just one of many motivators that can contribute to one’s wish to work. But there are certainly others, like joy of learning, sense of purpose, or want to provide for one’s family.

And while motivations behind one’s drive present a subject of philosophical discussion for us, could it be that for companies selecting people with the right drive creates financial benefits?

Looking forward to your comments.

Alex

You always have a choice

Recently several on my friends mentioned that the work they do as graduates is boring, and that they want to move on to another organisation and hopefully be given  more interesting and challenging assignments. They were set on moving organisations to escape boring routine work, a simple solution and perhaps it has some merit, but I will argue that the way each of us works affects the kind of work that we are given to a greater extent than the organisational context. And if it’s true, then moving companies won’t help. What we need to do to solve the work routine problem, is to change the way we approach our work.

Let’s take a typical situation, a person worked at the XYZ company for two years and he feels that his boss gives him extensive, but straightforward assignments and wants them to be done in a particular way. This person feels bored and under-utilised and he wants some challenging assignments. Is there an incentive for the boss to give this person interesting work? No, not really, from boss’s perspective this person is good at doing routine assignments well and delivers them on time.

If the person does not establish a reputation of a problem solver  and does not voice constant suggestion for improvements, even at the routine assignment level, how can the boss have confidence that this person will perform well with more interesting and challenging assignments?

So in reality, in order to get interesting work, we need to establish ourselves as people who deserve interesting work. Merely switching organisations is not a substitute for  illustrating to your employer that you are the person that is right for the challenging work. A fresh start with a new employer may help, but if you don’t illustrate those characteristics, you may end up doing the same routine and boring work.

Source: Cartoonstock.com

Alex

Is business-morale a monetary-measure?

March 22, 2012 Leave a comment

In the years of 2005 and 2006 scandals ran through German media that would eventually change the perception of business ethics. Back then, the workers’ council of Volkswagen got caught for organising pleasure trips to Brazil on the company’s expenses. Furthermore, Siemens has been sued for systematic bribery and finally got charged a fine of about 201 million €. Thereupon business seems to have changed all of a sudden. Established habits turned into immoral offences.

The government dealt with the issue in January 2007 and passed a law that limits the value of corporate gifts to 35€. I’m now asking myself: Is that the border between an ethically passable gift in a business relation and the moral abyss?

Let’s face it from a different perspective. What are the most common gifts to give to a business-partner for christmas? I’d say those are a couple of bottles of wine, a bottle of champagne or a calendar for the upcoming year. Isn’t it fairly easy to exceed the limitation of 35€ with such gifts that simply express your appraisal of the successful business relation? Or even: Might your counterpart interpret a cheap, but ‘legal’ bottle of champagne as your minor interest in the continuation of the connection?

I admit that it is difficult to measure the border between a sign of appreciation and bribery. Especially, because those borders are defined by every individual himself. Nevertheless, I’d grant mature managers and public figures the competence to handle this topic responsibly.

Thus far, we have only measured the level of morale against the amount of money, we perceive to be non-bribe-worthy. But isn’t morale more than that? On Wikipedia it says: Morale is “the capacity of people to maintain belief in an institution or a goal, or even in oneself and others.” So, it is more than that, by saying it’s the belief in an institution…

To me it seems that nowadays, people are measuring good business managers by morality, for which they have set an extremly high standard. A standard that is pretty blurry and fluent and only based on money…

Does that mean that business-morale is just a monetary value?

Whose perceptions of good morality does that meet?

And how is that compatible with the high standards we set for responsible people in powerful positions?

http://www.engageselling.com/blog/wp-content/uploads/2010/09/bribe-300x234.jpg

Sebastian