Ethical issues relating to marketing concepts are sometimes hard to understand, especially regarding pricing. Business researchers have argued that one of the essential factors when making decisions in the market is pricing a product. Businesses that engage in ethical pricing strategies tend to gain more profits, and at the same time, they earn a good reputation from customers. Notably, once a company starts to engage in unethical pricing, such as hiking the prices of products and services, the company risks losing its most valuable customers (Siham, 2013). Most companies that get involved in overpricing their products usually aim to make more profits at the expense of their customers. In this case, the company’s top management and investors tend to reap more benefits while consumers cannot purchase products at a higher price.
Ethical Issues or Questions
Various ethical problems arise when it comes to the pricing of products. The first ethical problem is pricing fixing or collusion at its worse. Pricing fixing refers to a settlement “between a group of people on the same side of a market to buy or sell a good or service at a fixed price” (Guo, 2012, para 9). When these groups of people get into a competition for consumers, prices tend to go down. There are four types of price-fixing. The first type is an agreement to raise prices whereby the competitors agree to increase a commodity’s prices by a particular amount (Guo, 2012). The next type, freeze prices, states that governments can fix prices by setting price freezes mostly to avoid inflation in the country. Horizontal price-fixing involves competitors of a similar product agreeing to either lower, raise or stabilize prices. Most of the time, a horizontal agreement is illegal according to antitrust laws.
Additionally, vertical price-fixing involves businesses in the supply chain that agrees to raise lower and stabilize prices by forcing retailers to sell products using a predetermined or suggested retail price. Price fixing is illegal as it undermines and disrupts normal laws of demand and supply. As such, monopolies businesses get the upper hand over their competitors. Such actions impose higher prices on products without the customer’s knowledge. They may also reduce incentives to innovate and make it hard to enter the market (Guo, 2012). In 1890, the American government passed the Sherman Act to help deal with collision issues in pricing.
Another ethical problem that arises when pricing products is bid rigging or favoritism. In this case, one party is promised a contract or favored for a specific bid even though it seems like most multiple parties will get an equal opportunity to submit the bid. The government has been following keenly on the issues of bid-rigging as it hurts consumers a lot. In this situation, the best producers do not receive contracts. Price discrimination or anti-favoritism is another type of ethical problem in pricing whereby a business may sell the same commodity at different prices to different consumers (Guo, 2012). There are situations where businesses may also hide lower prices for products if there are customers with a higher willingness to pay. The next pricing issue is price skimming, whereby businesses first sell a product at a higher price and then gradually reduce the price.
One company that has experienced controversies regarding the ethical problem of pricing is Bausch Health Company. The company raised the drug prices to boost profits for executives and investors. For instance, Bausch raised prices of Cuprimine and Syprine drugs from five hundred dollars to twenty-four thousand dollars for a thirty-day supply (Pollack & Travernise, 2015). Before changing to this new name, Bausch Health Company was known as Valeant pharmaceuticals. MilanPanic founded the organization in 1959 as ICN pharmaceuticals, leading the company for 47 years.
In 2003, the company was renamed to Valeant Pharmaceuticals after its owner was ousted from the company (Osman, 2021). Later in 2015, there were a series of acquisitions, among them Bausch and Lomb, which created valuable companies in Canada. During this period, the company was led by CEO Michael person and McKinsey, who took the role in 2009. Pearson had an aggressive acquisition strategy that helped him to appease shareholders. As such, he had a clinical leadership style that meant he would scarf up smaller companies. There was no need for investing in R and D. In 2015, the US Securities and Exchange Commission began to investigate Valeant for price-fixing issues. As a result of price-fixing, the company began to experience plummeting stock prices by more than 90 percent (Osman, 2021). The company also faced challenges with debt, which surpassed more than thirty billion dollars, leading CEO Pearson to leave the company.
Stakeholders Involved in Making the Decision
Bausch, formally known as Valeant pharmaceutical, involved a few shareholders in the decision for price-fixing that led to the company’s controversies. Some of these shareholders were the then CEO Michael Pearson, McKinsey and Co., and Philidor mail order pharmacy. Valeant’s ties with Philidor were the major source of improper revenue recognition. Valeant had established and funded Philidor, and within a short time, the sales of drugs through Philidor began to grow to account for a significant portion of Valeant’s US business (Nast, 2016). The company failed to disclose to investors that it had a relationship with the mail-order pharmacy for some time. Under Valeant’s leadership, the company began to adjust its disclosures threshold to avoid mentioning that it intended to buy Philidor in its acquisition files. According to research by the Security exchange commission, Valeant wrongly attributed the impact of rising prices drug Glumetza used for treating diabetes. Glumetza was just one of the drugs the company had raised its prices, leading to confrontations with the congress. Due to the company’s price-fixing actions, the company was charged $45 million to settle United States charges since it had misled investors by failing to account for revenue it had channeled through a mail-order pharmacy (Pollack & Travernise, 2015). In addition to the fee, Michael Pearson and other main executives were also required to pay civil penalties to settle down security exchange commission claims.
Additionally, Bausch had become that company that buys a lot of other companies to make a lot of profits. Since the company had to continue buying a lot to thrive, it was in a debt crisis. The company also found itself hiking the price of most common drugs such as Cuprimine, an action that highly rewarded the company’s investors, making it one of the most popular health stocks on Wall Street. Valeant had a habit of buying existing drugs and raising prices aggressively instead of developing new drugs. The company raised its drug prices more than five times compared to its competitor companies (Pollack & Travernise, 2015). Such actions also led to the intervention of lawmakers who called for efforts to control rising drug prices for most pharmaceuticals. Valeant is an example of a pharmaceutical engaged in unethical pricing issues around the industry for so long. The United States does not control drugs’ prices, which makes most pharmaceuticals manufacturers rely on steady and outsize prices increases to bolster their revenues and profits. These actions of pricing fixation to raise the prices of most drugs have become rampant and are considered unethical and immoral. According to research, there is a new model in which pharmaceutical companies buy the rights to a drug and then drastically raise the price (Relias Media, 2016).).
Ethical Theory Explaining Price Fixation
One of the most applied theories of ethics in marketing and businesses is the utilitarianism theory. The theory states every action and decision concerning the actions should produce the greatest good for the greatest number of people. In this case, good refers to the net benefits for most people who are part of that action. Most scholars of this theory argue that moral choices should be based on the good of many people (Murphy et al., 2016). When it comes to marketing, managers do not weigh the pros and cons of alternative economic and managerial actions. Notably, utilitarian theory aims to help individuals and businesses avoid actions that only fulfill their self-interests and desires. For instance, in the case of Bausch company dealing with pharmaceutical drugs, their actions did not yield benefits for a greater number of people. The corporation was only benefitting its investors by overpricing drugs to make a lot of profits. It is essential to understand that these companies have the right to profit from their investments, but they are not entitled to make an excessive profit from their consumers. Such actions are immoral and unethical and only aim to do more harm to consumers.
As the world is becoming a global village, companies serving global markets should understand the importance of pricing their commodities since pricing is essential in determining whether a product will be sold (Mandal, 2021). Company leaders who participate in unethical pricing of their commodities tend to violate the ethical laws that state the need to avoid not harming consumers. The actions of selling overpriced drugs may leave some patients going out without treatment for many days or acquiring low-quality drugs that cannot treat their ailments. Patients are required to take drugs as prescribed by physicians without seeking out other alternatives. There is a need to consider the ethical implications of overpricing products at the expense of patients and consider whether they need to introduce legislation that will make price gouging an illegal activity. Additionally, bioethicists need to encourage congress on why it is essential to regulate the drug industry because most patients do not benefit from overpriced drugs. Although sometimes it is hard for pharmaceutical companies to balance between making profits and serving the needs of patients, they should consider the greater good of saving the lives of those who are sick.
Additionally, price-fixing does not permit the necessary competition within the capitalist market as it creates an environment where only a few people control the market. In this case, the greatest good for many people is not achieved as only a few people determine the dynamics of the market. This strategy punishes most businesses by only benefitting a few. The greatest good for people can only be achieved by practicing the utilitarianism theory and allowing a free competitive market. The legal environment in the US has shifted in recent years, with the Sherman antitrust act proving to be the most relevant legislation. It allows this practicing unethical price-fixing behavior to be prosecuted. Like any other theory of ethical reasoning, utilitarianism has its problems. The most fundamental question about utilitarianism is who decides what the greatest good should be. There are many options that constitute the nature of real benefits that pertain to decision-making (Murphy et al., 2016). Also, although the philosophy is all about the end justifying the means, it is sometimes difficult balancing between the need to benefit many people and the corporation participating in the sales of products.
Several Alternatives and an Ethical Analysis
Marketing organizations should strive to have ethical conduct and protocol that every manager follows. Moral reasoning becomes the first step for the ability of managers to become ethically aware of their decisions. For instance, in the case of the Bausch company, if the CEO had moral reasoning for their actions, he would not have led the company to act unethically by overpricing drugs. Ethical marketing should always strive for honesty and fairness, and unethical practices will not guarantee more profits in the long term, putting the company at more risk.
The first course of alternative to consider more ethical in terms of pricing is implementing a system that will allow agreeing upon a price for a pharmaceutical product when introduced into the market. Such action will allow the pharmaceutical company to make money needed to advance its business while keeping its prices reasonable for patients requiring medication (Relias Media, 2016). The action calls for balancing between the need to make profits and benefit consumers. As such, both the consumers and the company will be contented without harming any party in the process. The aim of this action should align with the ethical standards of maximizing benefits and minimizing risks (Siham, 2013). Every ethical marketing strategy should benefit more people while creating as little or no harm as possible. The aim should be to make an overall positive impact on consumers purchasing drugs at this pharmaceutical company. The government should also cover all costs for patients dealing with severe illnesses. When the government takes part in covering patients’ costs and contracts with pharmaceutical pricing, it will make the pharmaceutical system more ethical.
The second course of action for the Bausch Company to consider is the financial burden on patients. Bausch Company only considered its shareholders the reason why it overpriced drugs. The company was also found to be compensating vast amounts of money to its CEO. It would be easier if the company set aside some more money for research and development to advance the production and manufacturing of new drugs. Such a move will accelerate more production of drugs to avoid purchasing from third-party dealers and then selling the drugs at a higher price. Also, the production of new drugs would require much more innovation to produce drugs of high quality and faster to avoid delays.
Another most effective alternative course of action is to respond meaningfully to consumers’ concerns. In the case of Valeant, pharmaceutical consumers have been complaining of hiked drug prices. It would be morally right for the company to consider the greater good of its actions. The company’s top priority should be its customer’s needs and not the needs of its shareholders. It is always essential to seek to protect the rights of consumers without harming them. Pricing is one of the primary factors that can determine whether a business will succeed or not (Smith, 2016). The decision to make consumers favorable prices relies on the managers and the executive team. It is worth noting that most ethical abuse that has affected marketing across all business are associated with manager. Managers should have a common language for ethics that enables communication within the different organizations to tackle the most fundamental problem of pricing products. According to Chonko and Hunt (2018), managers play a bigger role in unethical behaviors, leading to short-term benefits. Therefore, there is a need for managers in any organization to take up their part seriously while addressing unethical behaviors in their companies
Making and Justifying a Decision
The best decision, in this case, is to balance the need to make profits for the company and sell drugs at a favorable price. These actions will promote the greater good for a majority of the people, who are mostly the consumers. Notably, by doing so, the company will follow the utilitarianism theory to make decisions for its actions. Balancing between the need to make profits and benefit consumers will require the company’s relevant stakeholders to have the same moral imagination and development. Any leader in an organization striving to improve their ethical standards should cultivate better and higher moral standards. Sometimes, shareholders differ in their abilities to evaluate and resolve problems. The first most essential moral to consider is to avoid being egoistic. Most managers and business leaders lack the moral tendency to resolve moral issues due to their egoistic behaviors (Murphy et al., 2016). Such managers focus on their self-interest and make more profits rather than the greater good of many people. Notably, it is worth noting that the best ethical behaviors have an overall improvement and success for any business in terms of performance and profits (Ferrell & Fraedrich, 2021). Therefore, such managers need to focus on their egoistic behaviors and consider the benefits that accrue to most people. It is evident with the Bausch Company when it focused more on improving its shareholder’s interest instead of looking into the issues of consumers, mostly the patients.
References
Chonko, L. B., & Hunt, S. D. (2018). Reflections on ethical issues in marketing management: An empirical examination. Journal of Global Scholars of Marketing Science, 28(1), 86-95
Ferrell, O. C., & Fraedrich, J. (2021). Business ethics: Ethical decision making and cases. Cengage learning.
Guo, V. (2012). Pricing ethics: 5 ethical issues in pricing strategies [+Avoiding them]. Pricing Strategy Driven by Data. https://www.priceintelligently.com/blog/bid/164830/5-must-know-pricing-strategy-ethics-issues
Mandal, P. C. (2021). Pricing and ethical issues for global markets. International Journal of Business Strategy and Automation, 2(2), 1-15. https://doi.org/10.4018/ijbsa.20210401.oa1
Murphy, P. E., Laczniak, G. R., & Harris, F. (2016). Ethics in Marketing (2nd Edition). Taylor & Francis. https://mbsdirect.vitalsource.com/books/9781317235644
Nast, C. (2016). Inside the Valeant scandal. The New Yorker. https://www.newyorker.com/magazine/2016/04/04/inside-the-valeant-scandal
Osman, J. (2021). A Buried Scandal, Shedding Of Assets, And Forthcoming Spinoff Means Substantial Upside For Bausch Health. Forbes. https://www.forbes.com/sites/jimosman/2021/04/28/a-buried-scandal-shedding-of-assets-and-forthcoming-spinoff-means-substantial-upside-for-bausch-health
Pollack, A., & Tavernise, S. (2015). Valeant’s drug price strategy enriches it, but infuriates patients and lawmakers (Published 2015). The New York Times. https://www.nytimes.com/2015/10/05/business/valeants-drug-price-strategy-enriches-it-but-infuriates-patients-and-lawmakers.html
Relias Mmsedia. (2016). Drastic surge in drug prices: ‘Unethical and immoral’. Relias Media | Online Continuing Medical Education | Relias Media – Continuing Medical Education Publishing. https://www.reliasmedia.com/articles/139464-drastic-surge-in-drug-prices-unethical-and-immoral
Sihem, B. (2013). Marketing mix-an area of unethical practices?. British Journal of Marketing Studies, 1(4), 20-28.
Smith, A. G. (2016). Price gouging and the dangerous new breed of Pharma companies. Harvard Business Review. https://hbr.org/2016/07/price-gouging-and-the-dangerous-new-breed-of-pharma-companies
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