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Consumerism, 4th Ed.

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9780029001509: Consumerism, 4th Ed.

The new edition of this highly acclaimed anthology continues to provide the most comprehensive, rigorously balanced survey available of modern consumerism. Written by a wide range of experts, the 42 articles -- half of them new to this edition -- cover today's most important consumer and public policy issues: advertising and the disclosure of consumer information, selling practices, anti-trust issues and competition, product safety, liability, and consumer satisfaction. As in previous editions, the articles are arranged according to the steps in the purchase process.
New to this edition are detailed discussions of such current issues as the costs and benefits of government regulation, advertising to children, consumer information systems, and demarketing (encouraging consumers to use less of such products as tobacco and energy). The final section assesses the response of business and industry to consumer pressures.

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About the Author:

David A. Aaker is the Vice-Chairman of Prophet, Professor Emeritus of Marketing Strategy at the Haas School of Business, University of California at Berkeley, Advisor to Dentsu, Inc., and a recognized authority on brands and brand management. The winner of the Paul D. Converse Award for outstanding contributions to the development of the science of marketing and the Vijay Mahajan Award for Career Contributions to Marketing Strategy, he has published more than ninety articles and eleven books, including Strategic Market Management, Managing Brand Equity, Building Strong Brands, and Brand Leadership (co-authored with Eric Joachimsthaler).

Excerpt. © Reprinted by permission. All rights reserved.:

Chapter 1

A GUIDE TO CONSUMERISM

David A. Aaker & George S. Day

The term "consumerism" identifies the contemporary consumer movement, launched in the mid-1960s by the concerns triggered indirectly by Rachel Carson and directly by Ralph Nader's auto safety investigation, and by President Kennedy's efforts to establish the four rights of consumers: the right to safety, to be informed, to choose, and to be heard. Consumerism encompasses the evolving activities of government, business, independent organizations, and concerned consumers to protect and enhance the rights of consumers.

From the mid-sixties to the late seventies, the scope of consumerism steadily expanded. This trend was most evident in the rapid growth in expenditures for federal regulatory activities (see Table 1), fueled by the emergence of new issues and the persistence of many long-standing consumer problems. Further impetus for expansion came from the recognition that consumerism was concerned with protecting consumers whenever there is an exchange relationship with an organization, whether a business firm, a government agency, or a hospital. Finally, environmental concerns and consumerism became increasingly interwoven and frequently converged on common issues.

By the end of the 1970s, however, consumerist activity appeared to have peaked out and the consumer movement seemed "everywhere in retreat." As evidence, Reich cited a series of reversals that began in 1976:

Congress has rejected the Food and Drug Administration's proposed ban on saccharin, and several courts and state legislatures have attempted to block the FDA's attack on Laetrile. The Consumer Product Safety Commission's recent ruling that swimming pool slides must carry danger warnings has elicited widespread ridicule, brought a reversal in the federal courts, and contributed to rumors that the Commission itself will be abolished. Congress has rescinded the Department of Transportation's safety-belt/ignition interlock rule, removed its authority to require helmets for motorcyclists, and expressed distaste for its "air bag" regulation. Congress has also rejected the proposed consumer-protection agency. And the Federal Trade Commission's proposal to control television advertising of sugared cereals for children has prompted the Washington Post to accuse the agency of becoming the national nanny.

These events coincided with a period of questioning Ralph Nader's effectiveness and power. For example, there was a largely negative reaction to his formation of a group to protect the interests of sports fans -- an effort interpreted as evidence that Nader could no longer count on unquestioning public support. This was followed by several widely publicized confrontations between Nader and onetime supporters who had been given senior positions in the Carter administration. Finally, the 1980 election of Ronald Reagan was viewed by many as conclusive evidence that the consumer movement had lost most of its clout. Not only did Reagan owe little to the traditional constituencies of consumer regulation -- unions, environmental interests, and consumer groups -- but also he was committed to decreased government intervention.

On the basis of a regulatory or legislative scorecard, the strength of the consumer movement has indeed waned. This would, however, be a premature judgment in light of the considerable momentum of consumerism. For instance, consumer protection is solidly entrenched in the legal system, including provision for private parties to sue to redress violations of regulations, but most of the dissatisfactions that ultimately fuel consumerism have not abated. Indeed, to understand why the contemporary consumer movement has endured longer than similar movements in the 1910s and 1930s, it is necessary to go beyond the issues of the moment and expose the underlying problems and forces. Accordingly, this introduction seeks to clarify the present scope of consumerism -- the causal factors and the mechanisms for focusing consumer discontent -- and then to use this analysis to suggest what the future likely holds.

THE SCOPE OF CONSUMERISM

At the core of consumerism remain the four rights set forth by President Kennedy. Clearly, the meaning of each of these rights has been broadened considerably to embrace many new concerns. Further, there is a growing recognition that the scope of consumerism now includes the right to redress and the right to an environment that will enhance the quality of life.

The right to safety implies protection against the marketing of goods that are hazardous to health or life. Such a right has motivated numerous laws to protect consumers when they cannot be expected to have sufficient knowledge to protect themselves. Thus, laws pertaining to foods, textiles, drugs, cosmetics, and tires demand that the products not endanger health or safety and that if the potential exists for dangerous misuse a clear warning be provided (e. g., on poisonous cleaning liquids). There is little controversy about such a principle; the only question is whether a specific problem will merit legislation and whether the benefits outweigh the costs.

The right to safety has been broadened to include the protection of people from themselves, a policy with which there is more disagreement. It is argued that people should not always be permitted to make decisions that are not in their best long-run interests even when such decisions are deliberate and informed. Thus, people are not permitted to select an automobile without seat belts and other mandatory safety features. The concern is with consumers' long-run interests, not their immediate desires. At one time the paternalism inherent in this argument was generally accepted as legitimate. This acceptance has turned to skepticism as experience reveals the difficulties of limiting government intervention that is paternalistic. So far, however, there has not been serious questioning of intervention when consumer products may have significant adverse effects on third parties.

The right to be informed is a fundamental economic interest of the consumer. There is wide agreement that this right implies at a minimum that the consumer should not be deceived. Just what constitutes deception is more controversial and fluid. For example, the FTC has taken the position that an advertising claim should be unique to the advertised product. Thus, Wonder Bread's claim to build "bodies 12 ways" was considered deceptive by the FTC not because the message was false but because other brands could make the same claim and people exposed to the Wonder Bread advertisement could get the impression that the claim was unique. Along the same lines, slogans like "best buy" and "most significant breakthrough," which in the past were regarded as innocent exaggerations, permissible puffery, are now being challenged.

The right to be informed goes well beyond protection against deception to giving the consumer sufficient information to make wise purchase decisions. To this end there has been a great deal of legislation designed to provide useful comparative information -- such as the true rate of interest (truth in lending), the cost of food products on a per unit basis (unit pricing), product ingredients, and nutritional quality. Nonetheless, commercial sources, principally advertisements and point-of-sale information, still provide much of the product information upon which the consumer relies. To what extent are companies responsible for insuring that such sources are informative rather than merely persuasive (effective by conventional standards)? Should firms be required or motivated to tell the consumer about what their products will not do -- to reveal product disadvantages as well as advantages even when safety is not at issue?

There is growing interest in protecting the consumer's right to know through means other than legislation to correct specific information problems. Particular attention is being directed to education and independent information systems, encompassing comparative testing and informative labeling, to give consumers a broad capability to make effective decisions and police the market.

Concern over the right to choose dates back to the end of the last century, when the Sherman Anti-Trust Act was passed to break the monopoly power of the giant firms of the day. Initially, the focus was on protecting competitors from each other, particularly the small firm from the large one. However, antitrust legislation and enforcement have gradually evolved toward an emphasis upon protecting and encouraging competition. Thus, the major effort is directed at increasing the number of competitors and insuring that competitors do not have understandings that are detrimental to the long-run interests of consumers.

Increasing attention is being paid to the economic role of advertising, especially its potential for raising prices, profits, and barriers to entry, which can reduce the range of choice. In a period of significant inflation, it is not surprising that advertising costs have come under scrutiny for their role in contributing to high prices, particularly in the supermarket. However, it now appears that the most significant threat to the consumer's right to choose is price fixing. Although the U.S. Justice Department has always been concerned with deliberate conspiracy to fix prices, its efforts have not been equal to the surprising prevalence of this behavior during a period of inflation. So far the definition of price fixing has stopped short of including administered pricing, although shared monopolies -- a few large companies acting in parallel to block outside competition -- have been attacked.

There has recently been a significant move away from the view that the structure of an industry is indicative of anticompetitive behavior and in particular that higher prices characterize the more concentrated industries. Some economists have argued that antitrust policies have been doing more harm to consumers than good, as when strong companies in declining industries protect ailing, inefficient competitors for fear that antitrust enforcers would try to dismantle the efficient companies if they became too big.

President Kennedy indicated that the right to be heard involves an assurance that consumer interest will be considered in the formulation of government policy and in regulatory proceedings. The difficulty is that the consumer movement is relatively amorphous and lacks the authoritative spokesmen that labor, business, medicine, education, and other interest groups have. To give the consumer a voice within government, Lyndon Johnson created the Office of Special Assistant to the President for Consumer Affairs in 1964. Many states and cities subsequently established similar offices, as did a number of federal agencies during the Nixon and Ford administrations. This did not satisfy consumer advocates, who campaigned vigorously for an independent agency for consumer advocacy, whose main purpose would be to act as watchdog over regulatory bodies. Business lobbies successfully opposed the agency, arguing that it would only increase the harassment of businessmen and disrupt the work of other government units.

It has become clear, nonetheless, that businesses have difficulty listening to their customers. Thus, many firms have created consumer affairs departments to coordinate consumer programs and to permit a new type of representation of consumer interests. Most of these departments handle customer complaints, but some take a more active role and advocate the consumer interest in the internal policymaking process. However, the political realities of large organizations tend to inhibit such efforts.

It is now generally accepted that there is a fifth right the right to recourse and redress, that is, to fair settlement of just claims. A variety of innovations, including free legal services for the poor, consumer class action suits, and arbitration procedures, have substantially enhanced this right. The Magnuson-Moss Warranty Act of 1975 was a major legislative effort to overcome consumer problems with warranties; one provision established incentives for firms to set up dispute settlement procedures. As with much complex legislation based on imperfect understanding of the problem, the ultimate benefits to the consumer are uncertain.

The list of consumer rights has been further expanded to include the right to a physical environment that will enhance the quality of life. Indeed, consumerism has been defined broadly as an organized expression for an improved quality of life. A discarded beer can or phosphates from detergents can substantially degrade the physical environment. Advertising cluttering the television screen or the highway can similarly depress the quality of life. Environmental problems differ from other consumer questions in that the decisions of the individual consumer do not create an immediate problem. As a result, individual consumers have little incentive to modify their purchasing patterns because their decisions alone will not have an observable impact.

THE ROOTS OF CONSUMERISM

To understand both the evolution of consumerism and the prospect for the future we must look at the enduring problems, which provide the underlying momentum. Of course, any given issue may represent the convergence of a number of these problems:

* disillusionment with the system

* the performance gap

* the consumer information gap

* antagonism toward advertising

* impersonal and unresponsive marketing institutions

* intrusions of privacy

* declining living standards

* special problems of the disadvantaged

* different views of the marketplace

In this section we examine each of these areas in turn, leaving for the next section the question of how they surface as consumer issues demanding action.

Disillusionment with the System

Consumerism is one manifestation of the societal concerns voiced since the sixties. All institutions -- courts, government, universities, church, as well as business -- have been subjected to increasing public scrutiny, skepticism, and loss of esteem. For example, public confidence in big companies fell from 55 percent in 1966 to 27 percent in 1971. Fortunately, polls show that this decline in confidence was arrested between 1975 and 1977 and has been reversed in the early 1980s. Precisely why confidence eroded so far is not clear. An imbalance of power among components of our society may have encouraged this trend. Marketers were among those whose power was resented. As we will see, a number of aspects of the consumer environment support this hypothesis. Indeed, many measures taken to strengthen the consumer's rights can just as readily be interpreted as efforts to strengthen the consumer' s bargaining position.

Consumers' perceptions of their bargaining position were documented in a 1977 study of attitudes toward consumerism supported by Sentry Insurance. Some 1500 U.S. adults were asked whether "consumers get a better or worse deal in the marketplace compared to ten years ago." The views were generally negative: 27 percent said consumers got a better deal, while 50 percent said they got a worse deal (16 percent said no change and 7 percent were not sure). However, respondents were optimistic that consumers ...

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