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Net (Residual) Risk



0.0% 0.5% 1.0% 1.5% 2.0% 2.5%
Gross (Inherent) Risk
Part B “ Overview of the Economic Aspects of Business Risks

There is the potential for a shift in marketing practices to become more sus-
tainable in line with other business practices. This can occur by putting empha-
sis upon socially, environmentally or ethically beneficial aspects of a product
or service. As marketing is about conveying information about offers, the pro-
ducing organisation should also convey the spirit that the organisation is here
for the duration and that there is a belief in ˜sustainability™. An example of this
would be advice on the reuse, repair or safe disposal of products or the facility
to return them to the producer for recycling or reconditioning.
Developing a stakeholder concept of sustainable marketing involves seek-
ing to satisfy a whole range of disparate customer demands, where appropriate.
Organisations that develop a stakeholder view of sustainable marketing are
serious about improving their sustainable performance (economic as well as
social and environmental) and improving these aspects of their marketing mix.
Increasingly important are the key issues of reputation and brand protec-
tion (explored in more depth in Chapter 9). Brands and the brand of the organ-
isation, its reputation, are seen as guarantees of quality and service and part of
a widening total and sustainable customer experience. The development, pro-
tection and communication of the essence of an organisations reputation and
brand are key functions for all employees and essential for continued survival
as Sally Shire, Head of Brand Management at Barclays plc, notes:
A brand is like any other asset; if it is not well managed it will decrease in value. A well
managed brand on the other hand is a great competitive advantage. (Quoted in Adkins,
S., Cause Related Marketing (1999) from a speech at the Business in the Community
Cause Related Marketing Seminar 1996)

Case studies
The regulation of advertisers is becoming more enforced with the EU and UK
taking stronger positions on the advertising of products deemed to have
harmful effects, like Tobacco, alcohol or high fat content foods;
There is an extension of marketing regulators roles, an example is that the
UK™s Advertising Standards Authority (ASA) has become the overall regula-
tor for all print and broadcast advertising complaints on the 17 July 2004,
previously it had only dealt with print and poster adverts;
Ofcom, the UK media and telecoms regulator, imposes fines on companies
that break its programme codes. An example is that it fined Digital Television
Production £50 000 for advertising its promotional material for its pornog-
raphy channel before the 9pm watershed. The regulator noted the company
was ˜excessively complacent, unfocused and insufficiently protective of the
interests of children™ (Financial Times, 28 July 2004);
The UK Department for Environment, Food and Rural Affairs can also bring
prosecutions, as in the case against the Asda supermarket chain. Asda has
been fined £1000 and £6000 costs for having breached the European Union™s
marketing standards on 13 counts, at its store in Fareham in Hampshire
(Financial Times, 29 July 2004);
Chapter 10 “ Corporate power, business and marketing risks 241

A unit of Pfizer Inc. has agreed to plead guilty to criminal wrongdoing, and
will pay about $430 million in fines in a settlement that will end federal and
state investigations into the marketing of the blockbuster drug Neurontin
(Wall Street Journal, 13 May 2004);
The brewery sector is coming under renewed attacks as the Georgetown
University™s Centre on Alcohol Marketing and Youth recently discovered that
in 2002 the alcoholic beverage industry spent over $990 million on television
advertisements that were watched by young viewers between the ages of 12
and 20. Those who have lawsuits pending against brewers and other alcohol
companies claim that the study gives credence to the notion that these com-
panies are promoting under-age drinking (Washington Times, 22 April 2004).
In the UK Luminar, the leisure group, is set to end its ˜all you can drink™
offers, as a response to government calls to restrict binge drinking (Financial
Times, 26 July 2004):
UK public house alcohol retailer JD Wetherspoon fell 0.7% when they
were successfully challenged by a rival for serving alcohol without com-
plying with licence regulations and selling products outside their allocated
time period. The challenger, a nightclub owner, Luminar, put on 2.4% in
share value.
In the UK, a construction company has even been castigated for inappropri-
ately using a street banner to advertise a housing development when they
were supposedly sponsoring a community event;
The food industry has started to come under assault for their product and
marketing activities. McDonald™s of Norway has apologised for a new prod-
uct which charitable groups have branded ˜tasteless™. The McAfrika has been
seen as an insensitive product launch considering the starvation and famine
that is currently blighting much of Africa. McDonald™s said that it is consid-
ering the idea of sharing proceeds with charity;
The World Health Organisation (WHO) are now considering a resolution
treating obesity as a disease, and Culture Secretary Tessa Jowell admitted
recently that an advertising ban could be introduced as a final resort. The sec-
tor relies heavily on new products to keep consumers, particularly children,
excited and interested;
A Florida judge approved a class-action lawsuit against America Online noting
that internet pop-up advertisements are unsolicited messages programmed by
websites which interrupt material a viewer may be accessing (˜Florida judge
approves class-action lawsuit against America Online™, CNN.com, 25 June
The tobacco sector is facing increased restrictions to its marketing abilities in
the developing world, as the Indian Parliament has made new regulations
designed to limit the opportunities for tobacco sponsorships and marketing
(Marketing Week, 11 March 2004, p. 22);
The tobacco industry is also waking up to the fact that the ban on tobacco
advertising has stubbed out the prospects of new brand launches. Gallaher
has recently withdrawn its Mayfair brand of rolling tobacco after less than a
year and British American Tobacco™s 555 brand has also failed to reach its
Part B “ Overview of the Economic Aspects of Business Risks

anticipated sales. Industry pundits say that the brand failed because con-
sumers simply did not know they were there. Shares in Imperial Tobacco and
Gallaher dropped sharply when the Office of Fair Trading (OFT) confirmed
that they had launched a formal investigation into the companies™ trading
practices. The OFT asked for copies of contracts with major retailers and
petrol station operators, including Tesco, WH Smith and Safeway, BP, Texaco
and Esso (The Independent, 16 December 2003); and
The Racketeer Influenced and Corrupt Organisations Act, passed in 1970 and
known as RICO, had the original goal of eliminating the effects of organised
crime on the US economy. It has now been used in a lawsuit accusing the
tobacco industry of concealing information that nicotine is addictive and
smoking cause™s disease. The US government also contend that the companies
targeted children through advertising to lure new smokers. A government
estimate puts those profits, and therefore potential fines, at more than $280
billion (Health & Medicine Week, 5 April 2004, p. 786).

Risk management
Considering that perception is so important to maintaining reputation and
brand value then marketing claims can have a large effect on stakeholders™
perception of the organisation. It is also true that many companies have
positive activities that are not being reported and are not therefore con-
tributing to intangible value of the organisation. There is also the opportun-
ity for marketing to become sustainable and become part of the solution as
Ed Mayo, chief executive of the UK National Consumer Council notes:
While marketing got us into this mess, it may be that marketing can get us out.

One example of best practice is the mobile phone companies who have
proactively agreed to work together to reduce access to pornography by
youths™ mobile phones.
Positive risk management programmes and projects by an organisa-
tion for improving management of the marketing function may include the

* Marketing policy and management systems, the marketing Ps:
Strategic marketing policy: the potential for developing a stakeholder
concept of marketing which seeks to satisfy a whole range of dis-
parate customers™ demands, and sustainable marketing. Includes the
selection of causes and partnerships;
Profit/pricing/cost policy: there can be additional costs to being sus-
tainable with ethical and environmental stances costing additional
money, these can be passed onto the consumer if communicated in an
effective manner;
Product/customer policy: this could involve the minimisation of
resources, or designing for the ability to recycle the items;
Chapter 10 “ Corporate power, business and marketing risks 243

Promotion/channel policy: this can involve the highlighting of posi-
tive aspects of the products or service offerings, credible claims and
honest approaches that help build reputation. It can also involve a
policy of adherence to standards and voluntary codes related to
Packaging: improving the compliance mechanisms related to product
information and labelling, which might include the reduction of
waste packaging by way of example; and
People and personnel policy: employee awareness, commitment and
training contribute and make possible sustainable business strategies.
Management, information and compliance systems are designed for
understanding customer desires and satisfaction. Market research is
critical and an overview of the market environment and the trends of
customers changing tastes are covered in Chapter 3;
Maintenance of quality: reputations can take a long time to build and
product and services quality and effectiveness contribute a lot to this
customer perspective, thus ensuring that a long-term business view
requires a long-term relationship to be built with consumers;
Sustainable distribution channels are important and include the cost
effectiveness, in the long run of transport systems (i.e. that involve
less energy usage and environmental impact), while maintaining an
unbroken value chain, ensuring products and services are received by
Respect for privacy of customers; and
The development of cause related marketing (CRM) systems which can
be a very effective marketing tool and can align charitable and philan-
thropic giving to business strategies. This process involves the selection
of partners, negotiation and formalisation of the arrangements, and
managing, monitoring and evaluation of the programmes. CRM models
Advertising, which quite often focuses on a particular sales promo-
tion with proportions of the sales revenue going to a ˜good™ cause, like
retailers using sales vouchers to help schools purchase computers,
sports equipment and books;
Direct marketing: the ability to utilise another channel to reach char-
itable organisations™ customer lists and databases is an asset;
Giving: direct charitable and community giving can be directed
towards specific projects like charitable premises where the giving
organisations™ profile can be raised. Another version of this is facili-
tated giving such as the use of premises or staff to assist with the col-
lection of donations, like airplane companies collecting unwanted
foreign currency for charities;
Public relations: the benefits are much the same as any other PR activ-
ity but the level of balance and honesty in the communication has to
be stronger to be effective;
Part B “ Overview of the Economic Aspects of Business Risks

Sales promotion: typically a small percentage of sales goes towards an
affiliated cause, which usually results in mutual benefit as the sales
revenue growth can outweigh cost of sales commission to the cause;
an example is the Barnum™s animal crackers which sold out all its
World Wildlife Fund affiliated products in just six weeks;
Sponsorship of events, activities or charitable and philanthropic
organisations: all organisations involved are actively marketing the
relationship, thus contributing to improved brand awareness, value
and reputation, an example might be the Coca-Cola community hero
scheme or sponsorship of the Olympics; and
Licensing: organisations can pay for the right to use charities™ logos
and identity in their promotional materials, on products or with rela-
tion to services offered; there are benefits of implied endorsement and
effects on own brand and reputation.

Cause related marketing
Marketing is developing at a fast rate and so are the subsets, including
cause related marketing, but it does pretty much what is says on the label;
it™s about marketing activities related to a cause, quite often charitable or
community based in nature.
The Marketplace Responsibility Principles have been drawn up by
senior business leaders to help identify the management behaviours that
make it more likely that businesses will achieve their aims. The Marketing
Responsibility Principles cover the relationships that are crucial to achiev-
ing this: customers, suppliers, governments and the impacts of products or
services on third parties and the environment.
The key principles are:
Actively discourage product misuse;
Have consistent standards;
Manage the impact of product or service;


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