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MGT610 Business Ethics Assignment 1 Solution Fall 2013

BUSINESS ETHICS (MGT610)
ASSIGNMENT NO. 01
DUE DATE: 12 NOVEMBER 2013 MARKS: 15
WEIGHTAGE: 0
Topic: Role of moral reasoning in business promotion
Learning Objectives: This case study was designed for following objectives;
1. To enable the students for learning practical application of theoretical concepts.
2. To enable the students for learning practical importance of moral reasoning in business decisions.
Learning Outcomes: This case study will aim at following learning outcomes;
1. Students would be able to learn the importance of business ethics in the different decisions of business including business promotion.
2. Students would be able to understand the application of moral reasoning for ethical decision making.
ABSTRACT
Professional ethics for doctors require thoroughly examining the medicine of each company and then prescribing the best one to their patients. Similarly, professional ethics of sales persons in pharmaceutical companies should require to thoroughly explaining the features of their medicine to the doctors. This product knowledge helps doctors to prescribe the best medicine for patients. But it is an unfortunate reality that medicine companies give heavy incentives including sales commission to the doctors. This unethical practiceenhances sale of company’s medicines even if it offers lower quality medicines. This is a practice that is neither supported by utilitarian view nor by justice view of ethics. It also violates the consumer rights who are innocent patients and believe that their doctor has recommended the best medicine based on its features. This unethical practice of business promotion in this sector has emerged like a trend in the recent few years.
THE CASE
Mr. Ahmad is a newly appointed sales manager in Himalaya Pharmaceutical Company. Top management of the company has set a relatively bigger sales target for this year. This company normally targets a niche market of ENT specialist doctors in public hospitals and private clinics. This niche marketing strategy of the company normally gets implemented through direct selling method. In direct selling method, sales person has to directly approach the potential purchaser or sales booster (like doctors in this case). So, in this sector, it is best to directly approach the relevant doctors who have the authority to prescribe medicine of a particular company.
Sales team of Mr. Ahmad suggested a sales incentive strategy for doctors as the best way to boost sales in shortest possible time. Most of the sales team members were of the view that this has been a successfulpractice in the past not only for this company but also for the competitors. Team members also thought that this combination of incentive and direct selling strategy will save advertising budget as well. Now, Mr. Ahmad is in a cognitive dilemma as he is to quickly decide a sales strategy. He knows that incentive based sales strategy may be a useful strategy as a short term measure for boosting the sales. But his moral reasoning finds that this may damage the company’s reputation and competitive advantage in the long run. There is no such corporate law or regulatory policy by the ministry of health for prohibiting this type of business promotionpractices. That’s why; many companies only follow this profit oriented business model.

QUESTIONS
Answer the following questions based on your acquired knowledge about business ethics.
1. Identify pro and cons if the sales manager of this company rejects incentive based direct selling strategy on ethical grounds. (5 marks)

Solution:

  • Prons direct selling strategy.

Increased Sales

The primary reason companies use commission incentives is to motivate sales employees to work harder, more effectively or more efficiently to convert sales. The motivational impact can vary, but those salespeople driven by income tend to go after more prospects and work more diligently to get sales if pay is connected to success. Employees often take salary pay for granted. However, knowing that extra effort or results means more pay can motivate.

Pay Tied to Revenue

A financial advantage with commissions is that you know you only pay on sales conversions. Thus, you typically don’t incur the commission costs unless you also get the revenue that comes with the sales. This factor is why many sales-intensive companies pay on straight commission. Managers can effectively control labor costs or ensure optimized selling efficiency by only paying workers for the results that they produce.

  • Crons direct selling strategy.

Unpredictable Expenses

Naturally, a company that pays commissions would gladly incur high commission costs in exchange for strong revenue performance. However, the uncertainty with commission pay can lead to budget challenges, especially if you sell on account to buyers. If you pay commissions shortly after the purchase but don’t collect payments for an extended period, you have a lack of alignment in revenue and compensation. Some salespeople also struggle with the uncertainty of a commission plan.

Over-Aggressive Approach

The philosophical view or values of your business also dictate whether commissions make sense. Commission incentives sometimes motivate staff to use an overly aggressive approach to secure business. While this approach may lead to strong short-term sales results, you can also drive away prospects and customers turned off by high-pressure tactics. Some companies use a relatively small commission percentage, especially in retail environments, to balance the motivational advantages of commissions while limiting the potential for over-aggressiveness.

2. How can Mr. Ahmad solve this situation of prisoner’s dilemma with logical arguments of moral reasoning? (10 marks)

Solution: 

Mr. Ali can create the spirit of moral reasoning in the team through solid arguments and by convincing the stakeholders about the benefits of long term strategy of ethical considerations. For example, he may convince the meeting members through following points,

Short term and profit oriented strategy may gain huge advantage for this sector on temporary basis but for the long term public repute and acceptance of market operators, product price should remain fair.  Unchecked increase in prices during winter season may ultimately force the government to regulate the price in this sector which may create even greater business loss with respect to current unchecked and huge profit margin. Ultimately, it is the responsibility of the business operators towards the society to consider the aspect of social responsibility as well. Even if a relevant law does not exist for the price regulation in this sector, in case of arbitration or litigation agency may consider the ethical aspect in favour of consumers who are paying much more for this product than they should.

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