Business and Society Chapter Notes

Chapter 14

Consumer Stakeholders: Product and Service Issues

LEARNING OUTCOMES

After studying this chapter, you should be able to:

  1. Describe and discuss the two major product issues-quality and safety.
  2. Explain the role and functions of the Consumer Product Safety Commission and the Food and Drug Administration.
  3. Enumerate and discuss the reasons for the concern about product liability and differentiate strict liability, absolute liability, and market share liability.
  4. Outline business’s responses to consumer stakeholders, includingcustomer service,Total Quality Management (TQM) programs, and Six Sigma.

TEACHING SUGGESTIONS

INTRODUCTION – In this chapter, the authors discuss two central issues in the business/ consumer relationship—product quality and safety. Within the topic of safety, product liability and calls for tort reform are explored. Two government agencies that play important roles in product safety and quality are described, and finally, businesses’ responses to the consumer stakeholder issues introduced in Chapters 13 and 14 are reviewed.

KEY TALKING POINTS – For many people, the most important elements of business ethics and corporate social responsibility are the products and services provided. Products hold a central position because these are (1) the items on which consumers spend their money and (2) the primary interface between business and consumer. What businesses say about their products (the topic of Chapter 13) is important, but not as dear as the performance of the actual goods and services. The two central issues related to products and services are quality and safety—not cost, which may be surprising to poverty-stricken college students.

The classic product safety case is probably the Ford Pinto. Produced in the early 1970s, this subcompact car had a design defect that caused the gasoline tank to rupture and catch on fire when hit from the rear end, even at relatively low speeds. Ford engineers knew of the problem before going into production and had even identified a cheap way to fix the problem ($11 per vehicle). However, Ford executives decided to forego the cure and sell the cars to an unsuspecting public. Dennis Gioia, who worked for Ford at the time this was occurring, has written an excellent review of the circumstances and attempts to understand how such a blatantly unethical decision could have been made (Gioia, D. A. 1992. Pinto Fires and Personal Ethics: A Script Analysis of Missed Opportunities. Journal of Business Ethics. 11(5/6), 379-389).

What Gioia doesn’t mention is that Ford used the exact same design, called a “drop-in gas tank,” in its early Mustangs. As documented in the 60 Minutes segment “A Classic Cover-Up?” Ford had the same problem with explosive fires resulting from rear-end collisions some seven years before the Pinto was introduced. By that time, Ford had discontinued the design in the Mustang because of the dangers involved. Why Ford used the failed design in another model, why Dr. Gioia doesn’t mention the connection, and why 60 Minutes chose not to discuss the similarities between the Mustang and the Pinto is not clear, but it does seem suspicious.

Even though the Pinto case is dated, it provides a clear example of product safety issues. It becomes an eye-opening experience for the students when, at the conclusion of the Pinto discussion, the 60 Minutes video is shown and students are asked to explain why neither source mentions the other problem. Finally, the instructor also may want to touch on the more recent situation involving Toyota’s recalls of its vehicles due to runaway acceleration problems. Prior to the recalls, Toyota enjoyed a reputation for high quality vehicles. The company’s image was quickly tarnished by the sheer volume of vehicles with safety and quality issues and its failure to act quickly when it became aware of problems.

The other major issue related to products and services is the idea of quality. Much like U. S. Supreme Court Justice Potter Stewart said about pornography in 1964, “I shall not today attempt further to define the kinds of material I understand to be embraced . . . [b]ut I know it when I see it,” quality defies precise definition. Total Quality Management (TQM) and Six Sigma are often criticized because they do not define quality, but the critics are silent on the question of how to define the term. Robert Pirsig describes his frustrations with this exercise in his famous book Zen and the Art of Motorcycle Maintenance. His conclusion is much like Justice Stewart’s—that we all know quality when we see it, but it is impossible to define. Using these concepts as examples, students may be engaged in a discussion about how companies can effectively design products for quality when their employees and customers can’t define what it is.

PEDAGOGICAL DEVICES – In this chapter, instructors may utilize a combination of:

Cases:

Wal-Mart: The Main Street Merchant of Doom

The High Cost of High Tech Foods

Coke and Pepsi in India: Issues, Ethics, and Crisis Management

Firestone and Ford: The Tire Tread Separation Tragedy

McDonald’s: The Coffee Spill Heard ‘Round the World

The Betaseron Decision (A)

The BP Oil Spill and Mental Health

Ethics in Practice Cases:

To Check or Not to Check the Chicken?

The Pirated Popcorn

Spotlight on Sustainability:

Sustainable Product Development is Here to Stay

Power Point slides:

Visit for slides related to this and other chapters.

LECTURE OUTLINE

  1. TWO CENTRAL ISSUES: QUALITY AND SAFETY
  2. The Issue of Quality
  3. Service Quality
  4. Dimensions of Quality
  5. Ethical Underpinnings
  6. The Issue of Safety
  7. Product Liability
  8. Reasons for Concern About Product Liability
  9. Doctrine of Strict Liability
  10. Extensions of StrictLiability Rule
  11. Product Tampering and Product Extortion
  12. Product Liability Reform
  1. CONSUMER PRODUCT SAFETY COMMISSION
  1. FOOD AND DRUG ADMINISTRATION
  1. BUSINESS’S RESPONSE TO CONSUMER STAKEHOLDERS
  2. Customer Service Programs
  3. Total Quality Management Programs
  4. Six Sigma Strategy and Process
  1. SUMMARY

SUGGESTED ANSWERS TO DISCUSSION QUESTIONS

Students should recognize that their answers to these discussion questions should be well reasoned and supported with evidence. Although some answers will be more correct than others, students should be aware that simplistic answers to complex questions, problems, or issues such as these will never be “good” answers.

  1. As the text notes, quality means different things to different people. Consequently, students may differ on what they consider the major dimensions of quality. The eight dimensions of quality mentioned in the textbook (and examples of products or services in which each is important) are: (1) performance (a sports car or computer), (2) features (a video game), (3) reliability (a watch), (4) conformance (a software program, so that it can communicate with other programs), (5) durability (a lawn mower), (6) serviceability (an automobile), (7) aesthetics (an evening gown), and (8) perceived quality (the panache of a trendy restaurant).
  1. Three ethical theories shape our understanding of quality: (1) the contractual theory, (2) the due-care theory, and (3) the social costs view. The contractual theory focuses on the terms of the sale between the company and the customer, emphasizing the terms of the sale, information provided to the customer, and avoiding some anti-friendly customer behaviors. The due-care theory provides that the customer is the more vulnerable party; consequently, the firm has a greater ethical responsibility to the customer. The contractual and due-care theories do little to inform us about quality because they take the product as a given. The provider knows more about the product than does the buyer, so these theories focus on fulfilling the seller’s duties and protecting the customer. The social costs view can help a business person to focus on quality issues because of the threat of additional costs. This theory says that if a product harms a customer then the provider should bear the cost of that harm. With this sword hanging over their heads, providers may be more inclined to provide high quality, safe products to their customers.
  1. The main reason we have a product liability crisis in the United States is our emphasis on litigation as the way to solve problems. If we have a problem we sue someone, rather than try to find a reasonable resolution. Why we are so litigious is beyond the scope of this question, but the fact that we are does impact the state of product liability. Another reason is the growing size of financial awards given to plaintiffs. Again, we should go deeper into why this is occurring. Could it be that businesses bring this on themselves by their cavalier treatment of the customers who are now jurors? Finally, the doctrine of strict liability suggests that anyone in the value chain is liable for harm caused to users of the product in question, if the product was defective and unreasonably dangerous. This opens wide the field of potential targets for product liability suits. Furthermore, while the text does not propose this as a contributing factor to the product liability crisis, the fact that the United States has more lawyers per capita than any other nation may impact the number of product liability lawsuits filed each year. Generally, more lawyers mean more individuals willing to take on product liability lawsuits, whether they are frivolous or not.
  1. The doctrine of strict liability holds that anyone in the value chain is liable for harm caused to users if the product as sold was defective and unreasonably dangerous. The use of the strict liability doctrine in U.S. courts is a primary reason for the litigious state of the nation. While some parties argue that strict liability increases product safety, others note that the costs of these lawsuits ultimately are passed on to the consumer. Absolute liability goes beyond this to say that a firm is liable for damages even if it had no way of knowing that the product might cause a problem later. Under this principle, it does no good for a company to claim that it did its best at the time, given the prevailing state of the art. Market share liability further extends the concept to cover all companies that produced a certain product, regardless if the plaintiff can prove that he/she used a specific company’s goods. Each company’s liability would be in proportion to the market share it held. This doctrine is not widely upheld at this point. These principles, taken together, point to a movement away from caveat emptor (buyer beware) to caveat vendor (let the seller take care). It is important to emphasize that the liability doctrine applicable to a specific case is largely dependant on state laws. Depending on whether a state is a strict liability, absolute liability or market share liability state, this could, theoretically, impact businesses’ decisions to conduct business in a particular jurisdiction.
  1. Although business is, by far, the most powerful social institution in the United States, the consumer movement seems to be holding its own. In part this is due to the fact that business is so competitive that firms cede some power to consumers in the hopes of capturing more business. With that climate as the backdrop, it is likely that the FDA and CPSC will continue much as they are now—going concerns with moderate successes and failures. Business will not be able to get rid of the agencies, nor will consumers be able to bring about their ascendance; however, as global trade increases and other countries import products that fail to meet U.S. safety standards, the role of the CPSC in product oversight may expand. Politics certainly plays a role in this tussle. This fact can be seen in the shifting focus of the CPSC from consumer focused to a more neutral stance. Because business has such influence over government (as discussed in Chapter 12), the fact that politics plays a role means that business has a great deal of control over the process.
  1. It seems that businesses have strived to improve the quality and safety of products and services over the last decade. Corporate focus on these issues is driven by businesses’ needto (1) retain a loyal consumer base despite increased competition,and (2) avoid costly litigation. Consequently, business, as a whole, seems devoted to meeting customer expectations with regards to quality and safety. One area with which companies still seem to struggle is customer service once a product has been purchased. Although the text notes that the “key to customer retention is customer service,” many companies seem to either lack sufficient resources to devote to post-sale service or are simply unwilling to divert such resources for this purpose.

GROUP ACTIVITIES

Group Activity 1 - Product Recalls

Divide students into groups of four to five students. Assign each group to research a recent product recall. Students should determine why the product was recalled and whether the company could have taken steps in the production process to avoid the recall. Students should establish whether the firm in question embraces the contractual theory, the due-care theory or the social costs view. Finally, each group should draft a sample press release for the company addressing the recall and how the company intends to manage quality issues.

Group Activity 2 - Quality and Safety Movie Night

Invite groups of students to watch the movie Supersize Me. This movie focuses on the fast food industry’s contribution to the growing obesity problem in the United States. Specifically, the subject consumes only McDonald’s food for breakfast, lunch and supper for 30 days and monitors the impact to his health. Initially, students may not view this movie to be about product quality and safety, but the instructor should encourage students to explore the ethical dilemmas raised by the movie. What determines quality/safety in fast food services? Who bears the responsibility for the impact of fast food on the American people – the consumers or the industry? Should the fast food industry address product safety and quality differently?

Have students prepare a movie review where they express their opinion regarding the ethical issues this movie raises.

INDIVIDUAL ASSIGNMENT

Distribute the following instructions to each student:

Research how Toyota handled complaints that it received from 2008-2010 regarding runaway acceleration problems. Specifically, note how the company dealt with the vehicle problem, those directly impacted by acceleration issues, and its own shareholders and employees. Compare Toyota’s response to Johnson & Johnson’s response to the Tylenol crisis. Based on this comparison, evaluate Toyota’s response. What did the company do right? What should it have done differently? How could a company that had been held out as an exemplar of product quality produce over 8 million vehicles with safety issues?