Unfair business practices
The majority of purchases satisfy both the seller and the buyer, but every now and again consumers will have a negative experience. This chapter identifies the difference between unfair business practices and illegal business practices and why you should be aware of both.
What are ethics?
Ethics are commonly-accepted standards pertaining to what is right and what is wrong. Businesses are not obliged to follow ethical practice, so it is up to the consumer to decide whether they find a practice fair or unfair and whether or not to accept an unfair business practice.
Unfair versus illegal
It is important to make the distinction that although all illegal practices are unfair, not all unfair practices are illegal. Illegal practices are those which are punishable by law. Legislation, the process of law making, defines the minimum standard by which a business abides. This may relate to the minimum quality of products, including safety standards, or may involve other limits, such as age-related restrictions.
Consumers have a right to information, choice and safety. Unfair practice is that which consumers can reasonably judge as unfair without specific knowledge, while the law protects consumers from practice that they cannot reasonably judge for themselves. In the case of safety standards, for example, it would be dangerous for a consumer to test a car for its safety features.
- make false claims about a product or service
- operate in a misleading or deceptive way, which includes concealing relevant information
- take unfair advantage of vulnerable customers (unconscionable conduct ) including consumers with a disability or who are otherwise impaired in their decision making
- abuse bargaining power, especially towards consumers who have no other choice but to deal with their business
Advertising and other forms of marketing are subject to the law. Legal standards govern situations such as false advertising while consumers exercise their own judgement for variations in marketing. Business is competitive and the nature of marketing aims to maximise the amount of business for a company. In this competitive environment, businesses may do things that seem unethical in order to capture the market.
Choice and education
Consumer choice is the opportunity to research a product and make a decision based on that research. A food product must have a label disclosing the weight or volume, the ingredients, a place of growth/manufacture and an expiry date. These standards are governed by legislation, which means that if this information is false or absent, the business selling the product is in breach of the law.
Education about the information governed by law also helps consumers make a decision. Many food products contain words such as ‘no artificial colours’, ‘90% fat free’, ‘light’ and ‘natural’. Particular claims are covered by legislation, such as the first two; ‘no artificial colours’ must mean that the product does not contain artificial colouring agents (although it may contain natural colouring agents) and ‘90% fat free’ must mean that the product has the equivalent to, or less than, 10% fat. The latter terms, ‘light’ and ‘natural’, however, do not have specific legal definitions – ‘light’ may indicate light in colour or flavour (not necessarily less fat), while ‘natural’ indicates that at some point one part of the product must have been alive – which means that businesses are free to exploit these words regardless of whether it is true or only partially true.
It is important that consumers are aware of the difference between terminology that is meaningful in a legal context and terminology not covered by law, but used in a marketing context. An uninformed consumer may believe things about a product, but if the business has acted lawfully then the practice is not illegal, even if it may be unfair.
The free market
The premise of a free market is one in which healthy competition and diversity exist, which is why seemingly identical products from different brands come in different types of packaging and have different prices. Legal standards are objective while the fairness or unfairness of a business practice is subjective, that is, open to interpretation by the consumer.
In a free market, consumers are not completely powerless as they have a right to choose and therefore have the power to withdraw their business. Unfair business practices reflect poorly on a business and negative perception of a brand or product will therefore damage the brand through lack of sales.
In response to the number of meaningless words exploited by marketing, there are a number of independent associations, usually organisations specific to an industry, which have developed their own standards or code of conduct. These associations develop their certifications according to their own minimum standards. The certifications become a brand that the product can display to indicate the presence of these standards. Misleading certifications have some legal recourse in individual State and Territory trading laws.