Marketing Ethics

Marketing ethics is the area of applied ethics which deals with the moral principles behind the operation and regulation of marketing. Some areas of marketing ethics (ethics of advertising and promotion) overlap with media ethics.  The following is a list of some of the areas of concern in ethical marketing.

Ethics in Market Research

Invasion of Privacy

Invasion of privacy is a legal term essentially defined as a violation of the right to be left alone. The right to privacy is the right to control property against search and seizure, and to control information about oneself. However, public figures have less privacy, and this is an evolving area of law as it relates to the media.

Stereotyping

Stereotypes are ideas about people of other particular groups, based primarily on membership in that group. They may be positive or negative prejudicial, and may be used to justify certain discriminatory behaviors.  Some people consider all stereotypes to be negative. Stereotypes are rarely completely accurate, based on some kernel of truth, or completely fabricated.  Stereotyping occurs because any analysis of real populations needs to make approximations and place individuals into groups. However if conducted irresponsibly, stereotyping can lead to a variety of ethical undesirable results.

Ethics Regarding Market Audience

Ethical danger points include:

1. Targeting the vulnerable (e.g. children, the elderly).
2. Excluding potential customers from the market: selective marketing is used to discourage demand from undesirable market sectors or disenfranchise them altogether.

Examples of unethical market exclusion or selective marketing are past industry attitudes to the gay, ethnic minority and obese ("plus-size") markets. Contrary to the popular myth that ethics and profits do not mix, the tapping of these markets has proved highly profitable. For example, 20% of US clothing sales are now plus-size.[8] Another example is the selective marketing of health care, so that unprofitable sectors (i.e. the elderly) will not attempt to take benefits to which they are entitled.[9] A further example of market exclusion is the pharmaceutical industry's exclusion of developing countries from AIDS drugs.[10]

Examples of marketing which unethically targets the elderly include: living trusts, time share fraud, mass marketing fraud and others. The elderly hold a disproportionate amount of the world's wealth and are therefore the target of financial exploitation.

In the case of children, the main products are unhealthy food, fashionware and entertainment goods. Children are a lucrative market: "...children 12 and under spend more than $11 billion of their own money and influence family spending decisions worth another $165 billion," but are not capable of resisting or understanding marketing tactics at younger ages ("children don't understand persuasive intent until they are eight or nine years old."  At older ages competitive feelings towards other children are stronger than financial sense. The practice of extending children's marketing from television to the schoolground is also controversial.

Pricing Ethics

Price Fixing

Price fixing is an agreement between business competitors to sell the same product or service at the same price. In general, it is an agreement intended to ultimately push the price of a product as high as possible, leading to profits for all the sellers. Price-fixing can also involve any agreement to fix, peg, discount or stabilize prices. The principal feature is any agreement on price, whether express or implied. For the buyer, meanwhile, the practice results in a phenomenon similar to price gouging.

Methods of price fixing can include selling at a common target price; setting a common "minimum" price; buying the product from a supplier at a specified "maximum" price; adhering to a price book or list price; engagement in cooperative price advertising; standardizing financial credit terms offered to purchasers; using uniform trade-in allowances; limiting discounts; discontinuing a free service or fixing the price of one component of an overall service; adhering uniformly to previously-announced prices and terms of sale; establishing uniform costs and markups; imposing mandatory surcharges; purposefully reducing output or sales; or purposefully sharing or "pooling" markets, territories, or customers.

Price Skimming

Price skimming is a pricing strategy in which a marketer sets a relatively high price for a product or service at first, then lowers the price over time. It is a temporal version of price discrimination/yield management. It allows the firm to recover its sunk costs quickly before competition steps in and lowers the market price.

Price skimming is sometimes referred to as riding down the demand curve. This can be seen in the series of diagrams on the right. The first diagram shows the demand schedule, price, and quantity demanded at time t=1. Additional short run demand schedules representing times t=2 and t=3 are added in subsequent diagrams. As time goes by, price decreases and volume increases. When the 3 equilibria are joined we obtain the price skimmers’ long run demand schedule (shown in bright green).

The objective of a price skimming strategy is to capture the consumer surplus (the area in blue, between the single market clearing price (P*) and the highest price charged (P1)). If this is done successfully, then theoretically no customer will pay less for the product than the maximum they are willing to pay. In practice it is impossible for a firm to capture all of this surplus.

Price Discrimination

Price discrimination exists when sales of identical goods or services are transacted at different prices from the same provider. In a theoretical market with perfect information, no transaction costs or prohibition on secondary exchange (or re-selling) to prevent arbitrage, price discrimination can be a feature only of monopoly markets. Otherwise, the moment the seller tries to sell the same good at different prices, the buyer at the lower price can arbitrage by selling to the consumer buying at the higher price but with a tiny discount. However, market frictions in oligopolies such as the airlines, and even in fully competitive retail or industrial markets allow for a limited degree of differential pricing to different consumers. Price discrimination also occurs when it costs more to supply one customer than it does another, and yet the supplier charges both the same price.

Variable Pricing

Most firms use a fixed price policy. That is, they examine the situation, determine an appropriate price, and leave the price fixed at that amount until the situation changes, at which point they go through the process again. The alternative has been variable pricing, a form of first degree price discrimination, characterized by individual bargaining and negotiation, and typically used for highly differentiated high value items (like real estate).

Two variants of variable pricing are price shading (in which sales people are given the authority to vary the price by a certain amount or percentage), and auctions (in which potential buyers have the option of bidding on a product and thereby varying the price). Consumers generally prefer fixed prices because they don’t need to worry about being out-negotiated by a professional with expert knowledge and skills. The exceptions are people that enjoy the social aspect of negotiating, and people that think they might have an advantage due to their product knowledge or negotiating skills.

Due to advances in technology, another variant of variable pricing, called real time pricing, has arisen. In some markets events occur so fast that there is insufficient time to either set a fixed price or engage in lengthy negotiations. By time you have all the information to determine a price, everything has changed. Examples include Airline tickets, equity markets and currency markets. In each case prices can change in less than a second. By linking all the market participants through internet connections, price changes are disseminated instantly as they occur.

A variant of real time pricing is online auctions (such as eBay). All participants can view the price changes soon after they occur (technically this is not quite real time pricing because there is a delay built into the eBay system). Traditional auctions are inefficient because they require bidders (or their representatives) to be physically present. By solving this problem, online auctions reduce the transaction costs for bidders, increase the number of bidders, and increase the average bid price.

In addition to these examples of variable pricing in the short term, there are long term pricing practices that could be considered instances of variable pricing. They are price skimming, penetration pricing, and seasonal discounts.  This kind of price discrimination is largely and widely used by rental car companies. Usually those firms need to know what your country of residence is so they can adjust the price. Depending on the answer you can get significantly different quotes for the same vehicle, date and time of rental. It is also true when accessing the rental car site through the .com main site or the local .it, .es, .se, etc. domain site.

Predatory Pricing

Predatory pricing (also known as destroyer pricing) is the practice of a firm selling a product at very low price with the intent of driving competitors out of the market, or create a barrier to entry into the market for potential new competitors. If the other firms cannot sustain equal or lower prices without losing money, they go out of business. The predatory pricer then has fewer competitors or even a monopoly, allowing it to raise prices above what the market would otherwise bear.

In many countries, including the United States, predatory pricing is considered anti-competitive and is illegal under antitrust laws. However, it is usually difficult to prove that a drop in prices is due to predatory pricing rather than normal competition, and predatory pricing claims are difficult to prove due to high legal hurdles designed to protect legitimate price competition.

Supra Competitive Pricing

Supra competitive pricing is pricing above what can be sustained in a competitive market. This may be indicative of a business that has a unique legal or competitive advantage, or possibly of anti-competitive behavior that has driven competition from the market. An example of a unique legal advantage would be a drug company that is the first to discover and successfully manufacture a medication to treat a certain disease. Initially, as the only market player, the drug company may be able to charge supra competitive prices until other companies catch up. In this case, the regulatory hurdle for drug approval may prove a substantial barrier to new competition. However, other companies may not be able to enter the market due to another barrier to entry, intellectual property (IP) rights. The drug company may have a patent on the new formulation, barring competitors until the patent expires unless they can license rights from the IP owner. An example of a competitive advantage may be a large company with a trusted brand name and a substantial marketing budget that simply overwhelms a local competitor by driving demand for its product over the competitor's product, at least in the short term. Supra competitive pricing may also result following a period of predatory pricing, which has potential antitrust implications for the predator.

Price War

Price war is a term used in business to indicate a state of intense competitive rivalry accompanied by a multi-lateral series of price reductions. One competitor will lower its price, then others will lower their prices to match. If one of the reactors reduces their price below the original price cut, then a new round of reductions is initiated. In the short-term, price wars are good for consumers who are able to take advantage of lower prices. Typically they are not good for the companies involved. The lower prices reduce profit margins and can threaten survival.

In the long term, they can be good for the dominant firms in the industry however. Typically the smaller more marginal firms will be unable to compete and will shut down. The remaining firms absorb the market share of the terminated ones. The real losers then, are the marginal firms and the people that invested in them. In the long-term, the consumer could lose also. With fewer firms in the industry, prices tend to increase, sometimes to a level higher than before the price war.

The main reasons that price wars occur are:

1. To utilize excess plant capacity. Rather than run a plant at well below its optimum capacity, firms reduce their prices so as to sell enough to keep the plant running at its optimum level.
2. Bankruptcy and survival. Companies near bankruptcy may be forced to reduce their prices so as to increase sales volume and thereby provide enough liquidity for survival.
3. Response to a competitive attack. A competitor might target your product and attempt to gain share from you by selling a product at a low price. Rather than retaliate with a matching price cut, it is usually better to introduce a fighting brand (see brand management).
4. The nature of the product. Some products, such as commodities, are very difficult to differentiate. Without unique product features, price becomes the main basis of comparison.
5. Penetration pricing. If some of the firms are employing a penetration pricing strategy, their prices will be relatively low.
6. Oligopoly. If the industry structure is oligopolistic (that is, few competitors), the players will closely monitor each others prices and be prepared to respond to any price cuts.

Bid Rigging

Bid-rigging is an illegal agreement between two or more competitors. It is a form of collusion, which is illegal in the United States. It is a form of price fixing and market allocation, and involves an agreement in which one party of a group of bidders will be designated to win the bid. It is often practised where contracts are determined by bid, for example with government construction contracts.

There are some very common bid-rigging practices:

1. Subcontract bid-rigging occurs where some of the conspirators agree not to submit bids, or to submit cover bids that are intended not to be successful, on the condition that some parts of the successful bidder's contract will be subcontracted to them. In this way, they "share the spoils" among themselves.
2. Bid suppression occurs where some of the conspirators agree not to submit a bid so that another conspirator can successfully win the contract.
3. Complementary bidding, also known as cover bidding or courtesy bidding, occurs where some of the bidders bid an amount knowing that it is too high or contains conditions that they know to be unacceptable to the agency calling for the bids.
4. Bid rotation occurs where the bidders take turns being the designated successful bidder, for example, each conspirator is designated to be the successful bidder on certain contracts, with conspirators designated to win other contracts. This is a form of market allocation, where the conspirators allocate or apportion markets, products, customers or geographic territories among themselves, so that each will get a "fair share" of the total business, without having to truly compete with the others for that business.

These forms of bid-rigging are not mutually exclusive of one another, and two or more of these practices could occur at the same time. For example, if one member of the bidding ring is designated to win a particular contract, that bidder's conspirators could avoid winning either by not bidding ("bid suppression"), or by submitting a high bid ("cover bidding").  Bid-rigging is a form of fraud, and almost always results in economic harm to the agency which is seeking the bids, and to the public, who ultimately bear the costs as taxpayers or consumers.  In the United States, bid-rigging is a criminal offence under section 1 of the Sherman Act. In Canada, it is a criminal offence under section 47 of the Competition Act. In the UK, individuals can be prosecuted criminally under the Enterprise Act. In Japan it is a violation of both the Anti-Monopoly Law as well as Public Law, but is rampant nationwide in construction and engineering works.

Dumping

Dumping is generally used only in the context of international trade law, where dumping is defined as the act of a manufacturer in one country exporting a product to another country at a price which is either below the price it charges in its home market or is below its costs of production. The term has a negative connotation, but advocates of free markets see "dumping" as beneficial for consumers and believe that protectionism to prevent it would have net negative consequences. Advocates for workers and laborers however, believe that safeguarding businesses against predatory practices, such as dumping, help alleviate some of the harsher consequences of free trade between economies at different stages of development (see protectionism). The Bolkestein directive, for example, was accused in Europe of being a form of "social dumping," as it favored competition between workers, as exemplified by the Polish Plumber stereotype.

A standard technical definition of dumping is the act of charging a lower price for a good in a foreign market than one charges for the same good in a domestic market. This is often referred to as selling at less than "fair value." Under the WTO Agreement, dumping is condemned (but is not prohibited) if it causes or threatens to cause material injury to a domestic industry in the importing country.  In the United States, domestic firms can file an antidumping petition under the regulations determined by the Department of Commerce, which determines "less than fair value" and the International Trade Commission, which determined "injury". These proceedings operate on a timetable governed by U.S. law. The Department of Commerce has regularly found that products have been sold at less than fair value in U.S. markets. If the domestic industry is able to establish that it is being injured by the dumping, then antidumping duties are imposed on goods imported from the dumpers' country at a percentage rate calculated to counteract the dumping margin.

Ethics in Advertising Promotion

Content

Ethical pitfalls in advertising and promotional content include:

1. Issues over truth and honesty. In the 1940's and 1950's, tobacco used to be advertised as promoting health.  Today an advertiser who fails to tell the truth not only offends against morality but also against the law. However the law permits "puffery" (a legal term).  The difference between mere puffery and fraud is a slippery slope: "The problem... is the slippery slope by which variations on puffery can descend fairly quickly to lies."
2. Issues with violence, sex and profanity. Sexual innuendo is a mainstay of advertising content (see sex in advertising), and yet is also regarded as a form of sexual harassment.  Violence is an issue especially for children's advertising and advertising likely to be seen by children.
3. Taste and controversy. The advertising of certain products may strongly offend some people while being in the interests of others. Examples include: feminine hygiene products, hemorrhoid and constipation medication.  The advertising of condoms has become acceptable in the interests of AIDS-prevention, but are nevertheless seen by some as promoting promiscuity. Some companies have actually marketed themselves on the basis of controversial advertising - see Benetton. Sony has also frequently attracted criticism for unethical content (portrayals of Jesus which enfuriated religious groups; racial innuendo in marketing black and white versions of its PSP product; graffiti adverts in major US cities).  
4. Negative advertising techniques, such as attack ads. In negative advertising, the advertiser highlights the disadvantages of competitor products rather than the advantages of their own. The methods are most familiar from the political sphere: see negative campaigning.

Delivery Channels

Direct marketing is the most controversial of advertising channels, particularly when approaches are unsolicited. TV commercials and direct mail are common examples. Electronic spam and telemarketing push the borders of ethics and legality more strongly.  Shills and astroturfers are examples of ways for delivering a marketing message under the guise of independent product reviews and endorsements, or creating supposedly independent watchdog or review organisations. For example, fake reviews can be published on Amazon. Shills are primarily for message-delivery, but they can also be used to drive up prices in auctions, such as Ebay auctions.

Direct Marketing

Direct marketing is a sub-discipline and type of marketing. There are two main definitional characteristics which distinguish it from other types of marketing or advertising. The first is that it attempts to send its messages directly to consumers, without the use of intervening media. This involves unsolicited commercial communication with consumers or businesses. The second characteristic is that it is focused on driving purchases that can be attributed to a specific "call-to-action." This aspect of direct marketing involves an emphasis on trackable, measurable results (known as "response" in the industry) regardless of medium.

In the United States, the United States Postal Service maintains that direct marketers pay the majority of the costs of mail.  Bulk mail thereby subsidizes low cost stamps for letter, magazine, and book mailing. However, no such compensatory relationship exists with e-mail or faxes, which require the receiver to pay for bandwidth, storage space, or paper and toner, and some of the solutions to e-mail spam in the United States have involved instituting a freight cost on mass e-mail to make it productive. Such solutions have not been universally lauded, as they leave the recipients of unsolicited e-mail with the problem of storage and bandwidth consumption and would increase costs to companies that send only solicited mass mailings.

The United States telemarketing industry was affected by a national do-not-call list, which went into effect on October 1, 2003. Under the law, it is illegal for telemarketers to call anyone who has registered themselves on the list. After the list had operated for one year, over 62 million people had signed up. The telemarketing industry opposed the creation of the list, but most telemarketers have complied with the law and refrained from calling people who are on the list.

Shills

A shill is an associate of a person selling goods or services or a political group, who pretends no association to the seller/group and assumes the air of an enthusiastic customer. The intention of the shill is, using crowd psychology, to encourage others unaware of the set-up to purchase said goods or services or support the political group's ideological claims. Shills are often employed by confidence artists and governments. The word "shill" is probably related to "shilliber," believed to be derived from George Shillibeer who was an entrepreneur who developed the first commercial bus service in the U.K. Shillibeer was believed to employ confederates who could help him solicit more customers for his bus line.

Shilling is illegal in many circumstances and in many jurisdictions because of the frequently fraudulent and damaging character of their actions. However, if a shill does not place uninformed parties at a risk of loss, but merely generates “buzz,” the shill's actions may be legal. For example, a person planted in an audience to laugh and applaud when appropriate or to participate in on-stage activities as a "random member of the audience", is a type of legal shill.

For many years rap music has included product placement for cars, alcoholic drinks, clothing and other products, which appears to have gone largely unnoticed by its audience. Rappers will discuss at length the cars they drive and the drinks they consume and glorify the excess, decadence and luxury of a lifestyle spent wasting money on vanity products, working as shills for companies who are looking to reach a key demographic of the young music audience without having to change their mainstream brand advertising: for example, cognac drinks whose primary audience is for the older market, but who wish to appeal to a younger audience without losing their older fans, Hennessy, Rémy Martin, Courvoisier; or car companies like Mercedes-Benz and Bentley. McDonalds attempted to launch a project asking rappers to advertise their foods in their songs.

In marketing, shills are often employed to assume the air of satisfied customers and give testimonials to the merits of a given product. This type of shilling is illegal in some jurisdictions and almost impossible to detect. It may be considered a form of unjust enrichment or unfair competition, as in California's Business & Professions Code § 17200, which prohibits "unfair or fraudulent business act[s] or practice[s] and unfair, deceptive, untrue or misleading advertising".

Telemarketing

Telemarketing is a method of direct marketing in which a salesperson uses the telephone to solicit prospective customers to buy products or services. Telemarketing can also include recorded sales pitches programmed to be played over the phone via automatic dialing.  Telemarketing may be done from a company office, from a call centre, or from home. It may involve either a live operator or a recorded message, in which case it is known as "automated telemarketing" using voice broadcasting. "Robocalling" is a form of voice broadcasting which is most frequently associated with political messages.

Telemarketing has been negatively associated with various scams and frauds, such as pyramid schemes, and with deceptively overpriced products and services. Some telemarketing companies raise donations for illegitimate police and law enforcement agencies, often with sound-alike names to legitimate organizations while most or all of the donations are not used for charity. The companies buy and share lists of elderly citizens to call and hire only male telemarketers, allowing the senior citizen to believe he or she is talking to a real policeman, and then having a young female "verifyer" verify that the donation amount, usually $20 to $50, is sent to the company immediately. The companies rent post office boxes in the name of the "charity" the targeted senior citizen thinks they are donating to. All the "charities" have the same P.O. box listed on the envelope for the fraud victim to send his or her check to. Fraudulent telemarketing companies are frequently referred to as "telemarketing boiler rooms" or simply "boiler rooms." Telemarketing may also be criticized as an unethical business practice due to the perception of high-pressure sales techniques during unsolicited calls.

Telemarketing is subject to regulatory and legislative controls related to consumer privacy and protection.  Telemarketing in the U.S. is restricted at the federal level by the TCPA Telephone Consumer Protection Act of 1991 (47 USC Section 227) and the FTC's Telemarketing Sales Rule. The FCC derives regulatory authority from the TCPA, adopted as CFR 64.1200. The Many professional associations of telemarketers have codes of ethics and standards that member businesses follow to encourage public confidence.  Companies that use telemarketing as a sales tool are governed by the United States Federal regulations outlined in the TSR (amended on January 29, 2003 originally issued in 1995) and the TCPA. In addition to these Federal regulations, telemarketers calling nationally must also adhere to separate State Regulations. Most states have adapted DNC files of their own, of which only some states share with the US Federal Do Not Call registry. Each US state also has its own regulations concerning: permission to record, permission to continue, no rebuttaling statutes, Sunday and Holiday calls; as well as the fines and punishments exacted for violations.

Spam

Spam originally referred a canned meat product sold by the Hormel Foods Corporation. Since then, many other uses of the term have emerged, all of which may be traced back to the original Spam food product.  E-mail spam, also known as bulk e-mail or junk e-mail is a subset of spam that involves sending nearly identical messages to numerous recipients by e-mail. A common synonym for spam is unsolicited bulk e-mail (UBE). Some definitions of spam specifically include the aspects of email that is unsolicited and sent in bulk.

Sending spam violates the Acceptable Use Policy (AUP) of almost all Internet Service Providers. Providers vary in their willingness or ability to enforce their AUP; some actively enforce their terms, some lack adequate personnel or technical skills for enforcement, while others may be reluctant to enforce restrictive terms against otherwise profitable customers.

In the United States spam is legally permissible according to the CAN-SPAM Act of 2003, provided it follows certain criteria: a truthful subject line; no false information in the technical headers or sender address; "conspicuous" display of the postal address of the sender; and other minor requirements. If the spam fails to comply with any of these requirements, then it is illegal. Aggravated or accelerated penalties apply if the spammer harvested the email addresses using methods described earlier.

Infomercials

Infomercials are television commercials that run as long as a typical television program (roughly 28 minutes, 30 seconds). Infomercials, also known as paid programming (or teleshopping in Europe), are normally shown outside of peak hours, such as daytime or late night (usually 2:00am to 6:00am). There are many people who claim to have started the modern infomercial business. The word infomercial is a portmanteau of the words "information" and "commercial". As in any other form of advertisement, the content is a commercial message designed to represent the viewpoints and to serve the interest of the sponsor. Infomercials are often made to closely resemble actual television programming, usually talk shows, with minimal acknowledgement that the program is actually an advertisement.

Infomercials are designed to solicit a direct response which is specific and quantifiable and are, therefore, a form of direct response marketing (not to be confused with direct marketing). The ad response is delivered directly to television viewers by infomercial advertisers through the television ad. In normal commercials, advertisers do not solicit a direct response from viewers, but, instead, brand their product in the market place amongst potential buyers.

Because of the sometimes sensational nature of the ad form and the questionable nature of some products, consumer advocates recommend careful investigation of the infomercial's sponsor, the product being advertised, and the claims being made before making a purchase.  For example, the Ab Toner fitness item has had its technical claims questioned on occasion by some disgruntled customers. At the beginning of an informercial, stations and/or sponsors normally run disclaimers warning that "the following program is a paid advertisement," and that the station does not necessarily support the sponsor's claims.  A few stations take the warning further, encouraging viewers to contact their local Better Business Bureau or state or local consumer protection agency to report any questionable products or claims that air on such infomercials.

Ethics as Marketing Tactic

Business ethics has been an increasing concern among larger companies, at least since the 1990's. Major corporations increasingly fear the damage to their image associated with press revelations of unethical practices. Marketers have been among the fastest to perceive the market's preference for ethical companies, often moving faster to take advantage of this shift in consumer taste. This results in the expropriation of ethics itself as a selling point or a component of a corporate image.

Greenwash is an example of a strategy used to make a company appear ethical when its unethical practices continue.  The term is generally used when significantly more money or time has been spent advertising being green (that is, operating with consideration for the environment), rather than spending resources on environmentally sound practices. This is often portrayed by changing the name or label of a product, to give the feeling of nature, for example putting an image of a forest on a bottle of harmful chemicals. Environmentalists often use greenwashing to describe energy companies, which are traditionally the largest polluters.   Greenwash (a portmanteau of green and whitewash) is a term that is used to describe the actions of a company, government, or other organization which advertises positive environmental practices while acting in the opposite way. The term came into use in the early 1990s, most notably as the title of an article in the 1991 March/April issue of Mother Jones magazine.

Liberation marketing is another strategy whereby a product can masquerade behind an image that appeals to a range of values, including ethical values related to lifestyle and anti-consumerism.

Marketing Strategy

The main theoretical issue here is the debate between free markets and regulated markets. In a truly free market, any participant can make or change the rules. However when new rules are invented which shift power too suddenly or too far, other participants may respond with accusations of unethical behaviour, rather than modifying their own behaviour to suit (which they might not be able to anyway). Most markets are not fully free: the real debate is as to the appropriate extent of regulation.  As an example, the California electricity crisis demonstrates how constant innovation of new marketing strategies by companies such as Enron outwitted the regulatory bodies and caused substantial harm to consumers and competitors.  A list of known unethical or controversial marketing strategies:

Bait & Switch

In retail sales, a bait and switch is a form of fraud in which the fraudster lures in customers by advertising a product or service at an unprofitably low price, then reveals to potential customers that the advertised good is not available but that a substitute is. The goal of the bait-and-switch is to convince some buyers to purchase the substitute good as a means of avoiding disappointment over not getting the bait, or as a way to recover sunk costs expended to try to obtain the bait. It suggests that the seller will not show the original product or product advertised but instead will demonstrate a more expensive product.

Other advertising practices, such as the use of sales techniques to steer customers away from low-profit items, depend on many of the same psychological mechanisms as a bait and switch. In the United States, courts have held that the purveyor using a bait and switch operation may be subject to a lawsuit by customers for false advertising, and can be sued for trademark infringement by competing manufacturers, retailers, and others who profit from the sale of the product used as bait. However, no cause of action will exist if the purveyor is capable of actually selling the goods advertised, but aggressively pushes a competing product.

Pyramid Scheme  

A pyramid scheme is a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, usually without any product or service being delivered.  There are other commercial models using cross-selling such as multi-level marketing (MLM) or party planning which are legal and sustainable, although there is a significant grey area in many cases. Most pyramid schemes take advantage of confusion between genuine businesses and complicated but convincing moneymaking scams.  The essential idea behind each scam is that the individual makes only one payment, but is promised to somehow receive exponential benefits from other people as a reward. A common example might be an offer that, for a fee, allows the victim to sell the same offer to other people, or receive bonuses through other people they refer. Each sale includes a fee to the original seller.

Clearly, the flaw is that there is no end benefit; the money simply travels up the chain, and only the originator (or at best a very few) wins in swindling his followers. Of course, the people in the worst situation are the ones at the bottom of the pyramid: those who subscribed to the plan, but were not able to recruit any followers themselves. To embellish the act, most such scams will have fake referrals, testimonials, and information.

The distinguishing feature of these schemes is the fact that the product being sold has little to no intrinsic value of its own or is sold at a price out of line with its fair market value. Examples include "products" such as brochures, cassette tapes or systems which merely explain to the purchaser how to enroll new members, or the purchasing of name and address lists of future prospects. The costs for these "products" can range up into the hundreds or thousands of dollars. A common Internet version involves the sale of documents entitled "How to make $1 million on the Internet" and the like. The result is that only a person enrolled in the scheme would buy it and the only way to make money is to recruit more and more people below that person also paying more than they should. This extra amount paid for the product is then used to fund the pyramid scheme. In effect, the scheme ends up paying for new recruits through their overpriced purchases rather than an initial "signup" fee.

The key identifiers of a pyramid scheme include the following:

1. A highly excited sales pitch (sometimes including props and/or promos).
2. Little to no information offered about the company unless an investor purchases the products and becomes a participant.
3. Vaguely phrased promises of limitless income potential.
4. No product, or a product being sold at a price ridiculously in excess of its real market value. As with the company, the product is vaguely described.
5. An income stream that chiefly depends on the commissions earned by enrolling new members or the purchase by members of products for their own use rather than sales to customers who are not participants in the scheme.
6. A tendency for only the early investors/joiners to make any real income.
7. Assurances that it is perfectly legal to participate.

The key distinction between these schemes and legitimate MLM businesses is that in the latter cases a meaningful income can be earned solely from the sales of the associated product or service to customers who are not themselves enrolled in the scheme. While some of these MLM businesses also offer commissions from recruiting new members, this is not essential to successful operation of the business by any individual member. Nor does the absence of payment for recruiting mean that an MLM is not a cover for a pyramid scheme. The distinguishing characteristic is whether the money in the scheme comes primarily from the participants themselves (pyramid scheme) or from sales of products or services to customers who aren't participants in the scheme (legitimate MLM).

Planned Obsolescence

Planned obsolescence is the decision on the part of a manufacturer to produce a consumer product that will become obsolete and/or non-functional in a defined time frame. Planned obsolescence has potential benefits for a producer in that it means a consumer cannot just purchase a product once that will last indefinitely - the life of the product's usefulness or functionality is fixed, so that at some point the consumer must purchase again, whether returning to the original manufacturer for a newer model, or buying from the competition. It also has potential benefits for consumers, because they are not forced to spend extra for an over-engineered product, thus becoming unable to afford a more technologically advanced product, with greater functionality, in the future. For an industry, it stimulates demand in the marketplace by ensuring a customer must come back into a buying mode sooner than had the product been built to last longer or indefinitely. It exists in many different products from vehicles to lightbulbs, from buildings to software. There is, however, the potential backlash of consumers that become aware of such obsolescence; such consumers can shed their loyalty and buy from a company that caters to their desire for a more durable product.

Vendor Lock-In & Vendor Lock-Out

A vendor lock-in, also known as proprietary lock-in, customer lock-in, lock-in is where a customer is dependent on a vendor for products and services and cannot move to another vendor without substantial switching costs, real and/or perceived. Frequently, the term connotes some level of intention on the vendor's part to create a lock-in situation, but often a client may be said to be "locked in" in situations that arose unintentionally.

Vendor lock-in is rampant in the computer and electronics industries.  In the computer industry, both hardware and software, vendor lock-in can be used to describe situations in which there is a lack of compatibility or interoperability between equivalent components.  This can make it difficult to switch systems at many levels; the application program, the file format, the operating system, or various pieces of computer hardware ranging from a video card to a whole computer or even an entire network of computers. Note that in many cases, there are no technical standards that would allow creation of interoperable systems. At nearly any level of systems architecture, lock-in may occur. This creates a situation where lock-in is often used as leverage to get market share, often leading to monopolies and antitrust actions.  As an example, Microsoft software carries a high level of vendor lock-in, based on its extensive set of proprietary APIs. Their degree of lock-in combined with their market share has made them subject to a number of antitrust lawsuits.

Vendor lock-out occurs when a software vendor uses proprietary formats, lack of configurability or other means to prevent a user from using the vendor's product in conjunction with products from other vendors.  The opposite of lock-out is integrable. This is not the same as integrated. Many products that suffer from lock-out are described as "integrated solutions", but often do not allow further integration. Lock-out tactics are beneficial to vendors as they coerce users into purchasing more products from that same vendor.