• Deceptive Practices

• Deceptive Practices

Marketers are sometimes accused of deceptive practices that lead consumers to believe they will get more value than they actually do. Deceptive marketing prac­ tices fall into three groups: deceptive pricing, promotion and packaging. Deceptive pricing includes practices such as falsely advertising 'factory' or 'whole­

Social Criticisms of Marketing • 45

The ASA advertises its services to those its seeks to protect ­ the consumer.

If an ad misleads, we're here to stamp it out.

Advertising Standards Authority

2TorringtonPlace London WC1E7HW 0171 5805555 hup://www.asa.org.uk ASA

sale' prices or a large price reduction from a phoney high retail list price. Deceptive promotion includes practices such as overstating the product's features or performance, luring the customer to the store for a bargain that is out of stock, or running rigged contests. Deceptive packaging includes exaggerating package contents through subtle design, not filling the package to the top, using misleading labelling, or describing size in misleading terms.

Deceptive practices have led to legislation and other consumer­protection actions. Positive steps have already been taken, for example, with regard to European directives aimed at the cosmetic industry. Council Directive 93/35/EEC

of 14 June 1993 introduced far­reaching changes to cosmetic laws. The legislation controls the constituents of cosmetic products and their associated instructions and warnings about use, and specifies requirements relating to the marketing of cosmetic products, which cover product claims, labelling, information on pack­ aging and details about die product's intended function. Where a product claims to remove 'unsightly cellulitc' or make the user !ook '20 years younger', proofs must be documented and made available to the enforcement authorities. These laws also require clear details specifj'ing where animal testing has been carried out on both the finished product and/or its ingredients. The EU has recognized increased public resistance to animal testing and has proposed a limited ban on animal testing for cosmetic ingredients from 1 January 1998. Similar directives are found to regulate industry practices in the United States. The Federal Trade Commission (FTC), which has the power to regulate 'unfair or deceptive acts or practices', has published several guidelines listing deceptive practices. The toughest problem is defining what is 'deceptive'. For example, some years ago, Shell Oil advertised that Super Shell petrol with platformate gave more mileage than did

the same fuel without platformate. Now this was true, but what Shell did not say is that almost all petrol includes platformate. Its defence was that it had never claimed that platformate was found only in Shell petroleum fuel. But even though the message was literally true, the FTC felt that the ad's intent was to deceive.

Marketers argue that most companies avoid deceptive practices because such practices harm their business in the long run. Tf consumers do not get what they expect, they will switch to more reliable products. In addition,

46 Chapter 2 Marketing and Society

We Have Ways of

by extracting fat commission from

Making You Buy!

high­pressure selling schemes that customers did not really want or

Britain's life assurance industry need. Sales 'tricks' were not was severely criticized for mis­

unusual in the industry. For exam­ selling, offering poor value to cus­

ple, some salespeople sent letters tomers who surrender their

to married women, talking about policies early, and exploiting cus­

their company and appending a tomers' ignorance ­ in short, for

blank form with a piece of paper breaking the rules!

telling the woman: This is what In the early 1990s LAUTRO,

you get when your husband dies,' the body that regulated the selling

Although the surrender values of life insurance, fined at least a

offered by the insurers in later dozen life assurance companies a total of nearly

years were reasonable, the Securities and Slmillion for failing to ensure that potential cus­

Investments Board suggested that one­quarter to tomers were fully informed about different poli­

one­third of all policies were cashed in during the cies. Those singled out included Scottish Widows,

first two years alone. A number of companies Guardian Royal Exchange, General Accident,

actually profited from early lapse rates, and many Commercial Union and Norwich Union,

people holding policies with companies which In June 1994, the Office of Fair Trading (OFT),

have relatively high lapse rates were actually

a government watchdog, published its report on worse off than if they had no policy at all. Lapses

60 of the United Kingdom's largest life insurers. It

are insurers' profits!

criticized firms for poor 'surrender values' The insurance companies' response is that many household names, the symbols of probity

customers have the product literature to help and financial solidity, were short­changing cus­

them assess their policies. The OFT argues that tomers who cashed in long­term policies early.

the idea that customers could understand readily London & Manchester, London Life, MGM,

the surrender values of their policies simply by Refuge, Royal Life, Tunbridge Wells, Abbey Life,

reading the product literature is quite false. Allied Dunbar, Confederation Life, Cornhill

'These things are not only obscure to the average Insurance, Irish Life. Midland Life and Reliance

consumer but to the informed consumer as well,' Mutual were all found to offer atiro surrender

says John Mills, head of the OFT's consumer value at the end of the first year for two types of

policy division.

policy investigated by the OFT. So, if a customer So, what fuels this pervasive practice in the cancelled a £100 a month, ten­year savings plan

industry? One answer is that not nearly as many after only one year, she got no money back from

people would have bought life insurance if the the insurer. There were also wide disparities in

products had not. been actively sold to them. the surrender values of life insurance policies,

Another is that few consumers have the expertise although such information was seldom disclosed

to compare the costs and benefits of different to buyers.

policies, What consumers buy is all about how What is all the fuss about, though? Why should

quickly the sales rep gets to them and how per­ companies he penalized because their investors

suasive he or she is.

want to cash in earlier on long­term savings Although many independent financial advis­ plans? Regulators believe that life insurers had

ers ensure that clients get good value for money exploited customers' ignorance and vulnerability,

from respectable insurers, there are many others selling them products that generated big profits

who are forced to sell poor­quality products, for the sellers, but were unsuited to the buyer. In

because they are trapped in a commission struc­ many cases, insurers were accused of filling the

ture that requires them to sell or starve. pockets of salespeople, senior managers and, in

One insurance sales representative says: 'You the case of limited companies, the shareholders,

would see that some prospective clients might

Social Criticisms of Marketing * 47

have to struggle to pay the premiums, hut insurance and pension products over the phone because your livelihood depended on it, you

from the raid­1990s. Not only are these helping to would play on their emotions to try to sell them

drive prices down, but their image as the new something.' Another salesperson commented:

'clean' competitors from outside the industry, 'We were licensed to give best advice, but it

which truly apply 'customer first' marketing phil­ wasn't. A superior product offered by another

osophy, is helping to wake die industry up. They company would not be mentioned.' Salespeople

are doing the traditional insurance companies no argue that they were often put under increasing

end of good.

pressure and encouraged by a range of incentives, The moral of the story is clear. Using trickery some of them fairly obvious, such as bottles of

or vigorous sales approaches to pressure cus­ whisky and holidays in the Bahamas. There were

tomers unfairly into buying financial products (or bizarre punishments for those that did badly: at

any product or service) that they either do not one branch of a big insurer, the worst performer

need or would do better to buy elsewhere, docs over the previous month would be told to walk

not make sound marketing sense. Consumers around the building for a day dressed in ladies'

become disenchanted or disillusioned or with­ underwear.

draw consumption altogether. High­pressure sell­ Regulators and watchdogs now address two key

ing usually backfires on the aggressive sellers. You issues: what customers are told about products

cannot sell something nobody wants, no matter and the people selling them; and self­regulation

how you push it!

versus government (statutory) regulation. The OFT introduced disclosure rules in January 1995. Salespeople must now inform the con­

SOURCES: Alison Smith. 'Standard Life's surrender bonus',

sumer how much commission they take for sell­ Fini­mcicd Times (21 November 1994), p. 22; Alison Smith,

'OFT names insurers offering zero first year surrender value 1 ,

ing a given policy and need to spend hours with

Financial Times (9­10 .July 1994). p. 1; Alison Smith, 'Biiek

customers filling in forms with personal details.

from the brink', Financial Times (2,1 June 1994), p. 16;

Predictably, independent financial advisers

Norms Cohen, 'Life insurers criticised for poor surrender

protest that disclosure will force many of them

values', 'Your lapses are their profits'. Financial TiiiKS (18­

out of business. After years of deliberately confus­ 19.Tune 1994), pp. I. Ill; Peter Marsh, 'We have ways of

making you buy', Fimtnuial Times (14 June 1994), p. 18;

ing consumers with jargon, blinding them with

Peter Marsh, 'When he dies, my dear, all this will bti yours',

technical language and pressurizing to do the

Financial Times (11­12 Junu 1994J, pp. I, XII; 'All life's

deal, the industry has lost the public's trust. Bad

troubles', The JSconomist (17 July 1993), pp. 76­7; Kean

publicity on mis­selling has also affected indus­

Brierley, 'A matter of life and death'. Marketing Week (28

try­wide sales. To compound the industry's prob­ June 1995); Andrew Duffy, "Great British pensions disaster',

Business Age (5 July 1995), pp. 40­3; Alan Mitchell,

lems, new entrants, including Direct Line, Marks

'Swimming with the sharks', Marketing Business (September

& Spencer and Virgin Direct, began to sell life

1997), pp 26­30.

consumers usually protect themselves from deception. Most consumers recognize a marketer's selling intent and are carelul when they huy, sometimes to the point of not believing completely true product claims. Theodore Levitt claims that some advertising puffery is bound to occur ­ and that it may even he desir­ able:

There is hardly a company that would not go down in ruin if it refused to provide fluff, because nohody will huy pure functionality ... Worse, it denies ... man's honest needs and values ... Without distortion, embellishment and elaboration, life would he drab, dull, anguished and

at its existential worst .. .­ 1

48 Chapter 2 Marketing and Society