Marketing Case Study

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CASE 46 Making Socially Responsible and Ethical
Strategic decisions move a company toward its stated goals and perceived success. Strategic decisions also reflect the firm’s social responsibility and the ethical values on which such decisions are made. They reflect what is considered important and what a company wants to achieve. Mark Pastin, writing on the function of ethics in business decisions, observes: There are fundamental principles, or ground rules, by which organizations act. Like the ground rules of individuals, organizational ground rules determine which actions are possible for the organization and what the actions mean. Buried beneath the charts of organizational responsibility, the arcane strategies, the crunched numbers, and the political intrigue of every firm are sound rules by which the game unfolds. The following situations reflect different decisions made by multinational firms and governments and also reflect the social responsibility and ethical values underpinning the decisions. Study the following situations in the global cigarette marketplace carefully and assess the ground rules that guided the decisions of firms and governments.

Marketing Decisions: Selling Tobacco to Third World Countries expanding market. As an example, Indonesia’s per capita cigarette consumption quadrupled in less than ten years. Increasingly, cigarette advertising on radio and television is being restricted in some countries, but other means of promotion, especially to young people, are not controlled. China, with more than 300 million smokers, produces and consumes about 1.4 trillion cigarettes per year, more than any other country in the world. Estimates are that China has more smokers than the United States has people. Just 1 percent of that 1.4 trillion cigarette market would increase a tobacco company’s overseas sales by 15 percent and would be worth as much as $300 million in added revenue. American cigarette companies have received a warm welcome in Russia, where at least 50 percent of the people smoke. Consumers are hungry for most things Western, and tobacco taxes are low. Unlike in the United States and other countries that limit or ban cigarette advertising, there are few effective controls on tobacco products in Russia. Russia, the world’s fourth largest cigarette market, has proved to be an extremely profitable territory for British American Tobacco (BAT). BAT Russia, established in 1949, sold 65 billion cigarettes in Russia in 2005, giving it almost onefifth of market share.

In the United States, 600 billion cigarettes are sold annually, but sales are shrinking rapidly. Unit sales have been dropping about 1 to 2 percent a year, and sales have been down by almost 5 percent in the last six years. The U.S. Surgeon General’s campaign against smoking, higher cigarette taxes, non-smoking rules in public areas, and the concern Americans have about general health have led to the decline in tobacco consumption. Faced with various class-action lawsuits, the success of states in winning lawsuits, and pending federal legislation, tobacco companies have stepped up their international marketing activities to maintain profits. Even though companies have agreed to sweeping restrictions in the United States on cigarette marketing and secondhand smoke and to bolder cancer-warning labels, they are fighting as hard as ever in the Third World to convince the media, the public, and policymakers that similar changes are not needed. In seminars at luxury resorts worldwide, tobacco companies invite journalists, all expenses paid, to participate in programs that play down the health risks of smoking. It is hard to gauge the influence of such seminars, but in the Philippines, a government plan to reduce smoking by children was “neutralized” by a public relations campaign from cigarette companies to remove “cancer awareness and prevention” as a “key concern.” A slant in favor of the tobacco industry’s...
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