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Unethical marketing practices

January 30, 2012

INCREASED corporate competition coupled with the strides in information technology has enhanced the importance of aggressive marketing for selling goods and services. While a firm is entitled to persuade the potential customers that by buying its products they will get the best value for their money, the persuasion should be based on facts rather than deception, information rather than disinformation. In other words, the businesses should desist from indulging in deceptive marketing practices.

In Pakistan, deceptive marketing practices are prohibited by the Competition Ordinance, 2009. Section 10 of the Ordinance states: “No undertaking shall enter into deceptive marketing practices.” Such practices are defined in a comprehensive way to cover either of the following: a) false or misleading information, which may harm the business interest of another enterprise; b) false or misleading information to consumers, including information that lacks reasonable basis, relating to price, character, method, place of production, properties, suitability for use, or quality of goods; c) false or misleading comparison of goods in advertising; and d) fraudulent use of another business’s trademark, firm name, product labeling or packaging.

As clarified by the commission itself, Section 10 applies to goods as well as services. These provisions are calculated to ensuring that the consumer’s decision to buy a product is based on sufficient information as to its actual price and benefits. In this respect, the Office of Fair Trading has been established under the commission.

Legal remedies notwithstanding, deceptive marketing practices, particularly deceptive advertising, are a common phenomenon in Pakistan. Businesses resort to aggressive marketing in order to increase their sales and lure customers away from their competitors. All else being equal, the more aggressive the marketing in an industry, the greater the chances that the firms will resort to deceptive marketing that distorts, misrepresents, or conceals facts. Some examples are:

Faced with stiff price competition, cellular service providers have come up with various ‘inexpensive’ packages and are using aggressive advertising to sell the same. However, in several cases, the advertisements do not clearly inform the customers about the caveats attached with these packages. For instance, one cellular service provider claims to offer the world’s cheapest call. While the accuracy of the claim itself is questionable, it is not clear whether the call is the world’s cheapest in terms of being local, national, or international, from network to network or to all networks.

Every mobile company claims that it offers the lowest call or text rates. The claim prima facie is ridiculous, simply because not all service providers can have the lowest call or SMS rate.

Cellular service providers have also come up with ‘cheap’ minute per call rates. However, the advertisements either do not mention at all, or mention in small print, that the next minute starts after every 30 or 45 seconds. Moreover, hidden charges, such as call connecting charges and taxes are not clearly specified.

Some time back, the CCP had reprimanded two cellular companies for indulging in deceptive marketing. For instance, one company’s package lacked a reasonable basis as to both price and character of the offer. It was not clearly mentioned whether call rates were inclusive or exclusive of taxes. Moreover, the duration of the call was not specified.

Banks and other financial institutions while encouraging consumers to open savings accounts do not adequately disclose certain crucial facts, such as whether the promised interest is simple or compound, whether interest rate varies with payment period (monthly, six-monthly or annual) and whether there are any compulsory deductions from the promised payment.

In the past, the CCP had admonished a few banks for misleading advertisements about higher returns on deposits. According to the CCP, the banks did not specify the basis of the calculation of the expected rate of return. Nor were consequences of early withdrawal from the deposits mentioned. Moreover, important information was carried in small print. In response, banks gave the undertaking to the commission that in future their advertisements and promotional material would clearly specify the rate of profit or rate of return along with the relevant terms and conditions and disclaimers if any in a manner understood by an average consumer.

Marketing of products relating to beauty and health/fitness industries is in many cases based on false or misleading information. Potential customers are made to believe that the product being offered, and endorsed by some celebrity, can do wonders in reducing weight, accelerating growth or having a fair complexion.

Sometimes, a product is claimed to provide a cure for a number of health and beauty related problems. The manufacturers of one cream, for instance, claim that it has multiple uses or advantages ranging from fair complexion to healing of wounds and burns to even treatment of cancer. On which basis do they make such a bold claim remains a mystery. In many cases, consumers are not warned against the possible harmful effects of using a medicine.

Evening newspapers in order to swell the size of their readership resort to creating hype and sensationalism. For instance, a newspaper will carry the headline, “The stock market collapsed,” in very large fonts followed by a question mark in extremely small print. Such a misleading display is enough to lure a curious commuter at a traffic signal, where such newspapers are generally purchased, into buying a copy of the paper.

Very recently, the CCP has asked paint manufacturers to terminate the practice of putting coupons in their packs without sufficient disclosures as to the exact price of the tokens.

In several industries, the producers claim their brand to be No.1 without specifying on what basis they make such a claim. Obviously, a brand is No.1 if it has the largest share in the market. But the word “market” is vague. For it can be a local, regional, national or international market. A brand can be No.1 regionally but not nationally.

Do the businesses owe any responsibility to society in general and their customers in particular? Or are they responsible only to their shareholders and concerned primarily with maximising profits by any means?

There is a school which maintains that businesses’ responsibility is only to themselves and that corporate social responsibility is a meaningless term. If this view is accepted, then ‘deceptive’ marketing practices become legitimate though they main remain illegal depending upon the legal framework. However, such a view is not widely accepted because businesses being part of society owe responsibility to it. At least they owe responsibility to their customers — both potential and existing.

In the wake of the recent global financial turmoil, few economists now believe in a laissez faire economy, where the government keeps its hands off business activity. Instead, it is almost universally believed that the government has to play an important role in ensuring competition and fair business practices.