Chapter 14
Contractual Theory
Focuses on the contractual agreement between the firm and the customer. Firms have a responsibility to comply with the terms of the sale, inform the customers about the nature of the product, avoid misrepresentation of any kind, and not coerce the customers in any way
Due Care Theory
Focuses on the relative vulnerability of the customer, who has less information and expertise than the firm, and the ethical responsibility that places on the firm and its sales person. Customers must depend on the firm providing the product or service to live up to the claims abut it and to exercise due to avoid customer injury
What type of injuries the Consumer Product Safety Commission keeps track of
The CPSC keeps track of injuries treated in the ER and has identified the following categories of consumer produce as being the most frequently associated with hospital-treated injuries - Sports and Recreation - Toys and Children's Products - Fuel, Lights, and Fireworks - Furniture and Decor - Home Maintenance and Construction - Kitchen and Dining
The Vermont Country Store
This store has done a fine job at customer service. It has built its high-level customer service around its own "Customer's Bill of Rights." It's first 2 rights include (1) The right to expect polite and courteous service and (2) The right to always be treated as a priority.
Top 10 Product Safety Principles
1. Build safety into product design 2. Do product safety testing for all foreseeable hazards 3. Keep informed about and implement latest developments in product safety 4. Educate consumers about product safety 5. Track and address your products' safety performance 6. Full investigate product safety incidents 7. Report product safety defects promptly 8. If a defect occurs, promptly offer a comprehensive recall plan 9. Work with the Consumer Product Safety Commission (CPSC) to make sure your recall is effective 10. Learn from mistakes- yours and otherss
Customer Service Principles and Customer-Oriented Companies
1. Keeping your word is where it all begins 2. Always be honest and tell it like it is 3. Always think proactively, looking around the corner 4. Deal with problems as best you can yourself, never passing the buck 5. Do not argue with a customer because it is a lose/lose situation 6. Accept your mistakes, learn from them, and do not repeat them 7. Consistency is the name of the game for lasting success
Creating a Customer- Oriented Company
1. Top-down culture and commitment are essential 2. Identify internal champions and uphold them 3. Commit resources to the task 4. Hire the right employees 5. Empower your employees 6. Make sure service training a priority
5 Trends to Helping Define and Improve Customer Service
1. always have a Plan B 2. provide Video Valets (like face-to-face interaction with customer service over video chat) 3. deliver (more than) the goods 4. customer-focused brands will promote a 6th sense- info sense. Using smart sensors and face-and-object technologies 5. remember that politeness pays
Product Liability Risk Management Program
1st: transfer risk through management of suppliers. This helps the business avoid financial vulnerability to damages and claims due to liabilities caused or contributed by others 2nd: manage supplies and imported goods. Companies that import products and components later provided to an end user may bear responsibility for safety requirements. 3rd: companies should build safety into the product's design. Hazards may often be eliminated in the product design stage 4th: the company should keep essential records for documentation purposes should product liability issues arise 5th: enable and review customer feedback. If the company makes it easy for customers to share their concerns, they will have information that may improve on product exposures and issues
Ethical Underpinnings
3 Ethical Theories based on the concept of duty that informs our understanding of ethical dimensions of quality include: (1) Contractual Theory (2) Due Care Theory (3) Social Costs View
Food Safety
According to "Contamination Nation" food borne illnesses still gets 49 million consumers sick each year The annual cost of treatment, lost of productivity, and morality has been been estimated to be $56 billion The government's regulation of food safety is primarily driven by the "Food Safety Modernization Act (FSMA) of 2001", the most sweeping reform of the US food laws in 70 years. The FSMA is enforced by the FDA. The purpose of this legislation is to ensure that the food supply is safe by shifting from responding to contaminations to preventing them. FDA rule tightened in order to get the FSMA full implemented. This rule tightening focused on requiring companies to create and implement written plans for keeping food safe. Companies will have to identify hazards in manufacturing, create measures to reduce the risk of contamination, and design methods to verify that the controls are working. If they don't comply, then the FDA is authorized to access a company's plans and take action. Food safety advocates have complimented the new rules of the FDA because they attempt to transform a regulatory system that used to be mostly reactive to one that is focused on prevention of food contamination In spite of the new FDA rules, it has been argued that the new regulations alone will not completely solve the problem because of the following 4 major issues: 1. Health officials can identify only a fraction of those who get food poisoning 2. Regulators have new tools but industry does not trust them 3. The consumer's food pantry is global and so are the chances for contamination 4. It is partially the fault of the consumer's too
Two Central Issues
Quality and Safety
Extensions of Strict Liability Rule
Courts in several states and certain countries have established a standard that is much more demanding than strict liability and this is known as "Absolute Liability." The ruling that established this concept was handed down in the New Jersey Supreme Court in Beshada v. John Manville Corporation (1982). The Plaintiffs were employees of John Manville Corporation and other companies who had developed asbestos- related diseases as a result of workplace exposure. The court ruled in this case that a manufacturer could be held "strictly liable" for failure to warn of a product hazard, even if the hazard was scientifically unknowable at the time of the manufacture and sale Another extension of strict liability is known as "Market Share Liability." This concept evolved from Delayed Manifestation Cases, situations in which delayed reactions to products appear year later after consumption of, or exposure to, the product. Market share liability was derived from the California case in which a group of women with birth defects claimed that the defects had been cause by the drug DES, which their mothers had taken while pregnant years earlier. The mother's couldn't name the specific company that had made the pills their mothers had taken, but the CA Supreme Court ruled that the 6 drug firms that made DES would be held responsible in proportion to their market shares of DES sales unless they could prove that they had not made the actual doses the women had taken. Market share is not used much today, but it is a constant threat for firms
TQM Emphasize 8 Key Elements
Ethics Integrity Trust Training Teamwork Leadership Recognition Communication
Quality Attributes
Excellence Value Conformance to Specifications Meeting and/or Exceeding Expectations
Social Costs View
Extends beyond contractual theory and due care theory to suggest that, if a product causes harm, the firm should pay the costs of any injury, even if the firm had met the terms of the contract, exercised al due care, and taken all reasonable precautions. This perspectives serves as the underpinning for strict liability and its extension into absolute liability
Doctrine of Strict Liability
Holds that anyone in the value chain of a product is liable for harm caused to the user if the products sold was unreasonably dangerous because if its defectives condition. This applies to anyone involved in the design, manufacture, or sale of the defective product Some hold that strict liability is utilitarian; that is, society has made a determination that is better to hold persons responsible for certain actions even without showing of negligence because the benefits derived (ex: safety, improved products, accountability) outweigh the burden placed on the defendant in a strict liability lawsuit
Customer Service Programs
In one study, 66% of consumers switched brands or businesses due to poor customer service. 82% of those who switched said the brand could have done something to stop them Customer's today continue to expect high-quality, safe products and responsive customer service regarding the products and services they buy. One major factor that holds out hope for better customer service is the fact that there are a number of companies that not only give good customer service, but have become well know for excellence in customer service. For example: Zappos, one key to their success is the careful hiring process they use to make sure the employees will fit in with and can adapt to the customer-centric culture Companies provide customer service through money-back guarantees, warranties, and offices of consumer affairs in which are found customer service representatives whose full-time job is to make customer's happy. It is absolutely critical that TOP MANAGEMENT be committed to providing a service as part of its ongoing relationship with the consumer. Management's job is to attract, maintain, and retain customers, and this requires a high degree of dedication and commitment.
The Mission, Vision, and Goals of CPSC
Mission: Protecting the public against unreasonable risk of injury from consumer products through education, safety standards activities, regulation, and enforcement Vision: The CPSC is the recognized global leader in consumer product safety Goal 1: Leadership in Safety Goal 2: Commitment to Prevention Goal 3: Rigorous Hazard Identification Goal 4: Decisive Response Goal 5: Raising Awareness
FDA Overview
Overview: The FDA is an agency within the US Department of Health and Human Services (HHS) responsible for ensuring the safety and effectiveness of products that account for about 20 cents of every dollar spent by the American consumer's each year 5 Crosscutting Strategic Priorities: 1. Regulatory Science 2. Globalization 3. Safety and Quality 4. Smart Regulation 5. Stewardship Core Mission Goals and Objectives: Goal 1: Enhance oversight of the FDA- regulated products Goal 2: Improve and safeguard access to FDA-regulated products to benefit health Goal 3: Promote better informed decision about the use of FDA-regulated products Goal 4: Strengthen organizational excellence and accountability
The Issue of Quality
Product Quality is considered the totality of characteristics and features of a product and may embrace both reality and perceptions of excellence, conformance to specifications, value, and degree to which the product meets or exceeds the consumer's expectations Service Quality, customers are typically concerned that the service is performed the way expected or advertised, that is is completed on time, that all that was promised has been delivered, that courtesy was extended by the provider
The Issue of Safety
The concept of safety means "free from harm or risk" or "secure from threat of danger, harm, or loss" Started at Caveat Emptor ("let the buyer beware", then shifted to Caveat Vender/ Caveat Venditor ("let the seller beware") The challenge to management, therefore, is to make product as safe as possible while at the same time making them affordable and useful to consumers
Product Tampering
The most well-known case involving product tampering involved Tylenol in the 1980's. First in 1982, when 7 Chicago people died from taking tainted Tylenol Extra Strength and in 1986, when cyanide-laced bottles of Tylenol were found in New York and 1 women died. James Burke characterized this as "terrorism, pure and simple" To response to these and other incidents, firms began to employ tamper-evident packaging. These may have slowed it down, but it has not stopped it Other tampering cases has involved: Jell-O Pudding, Bottled Water, Oranges, Candy, Baby Food, and Girl Scout Cookies
Product Liability Reform (also known as Tort Reform)
a tort is an act that injures someone in some way and for which the injured person may sue the wrongdoer for damages (civil wrongs, not criminal wrongs) Businesses claims that the current system is inherently inefficient, raises the costs of litigation, and imposes a hidden tax on consumers because it inhibits innovation and dampens competitiveness Consumer groups argue that the current system has forced companies to make safer products and listen to their customers. The American Tort Reform Association (ATRA) has been working for decades to bring about modifications in product liability legislation. This organization represents a nationwide network of state-based liability reform coalitions back by many grassroots supporters. There are 2 government agencies that are dedicated to product safety- the Consumer Product Safety Commission and the Food and Drug Administration
Dimensions of Quality
at least 8 critical dimensions of product or service quality must be understood and acted upon if business is to respond strategically to this factor (1) performance- refers to a product's primary operating characteristics (2) features- are the "bell and whistles" of products that supplement their basic functioning (3) reliability- reflects the probability of a product malfunctioning or failing (4) conformance- is the extent to which the product or service meets established standards (5) durability- a measure of the products life (6) serviceability- refers to the speed, courtesy, competence, and ease of repair (7) aesthetics- a subjective factor that refers to how the product looks, feels, tastes, and so on (8) perception- subjective inference that the consumer makes on the basis of a variety of tangible and intangible product characteristics
Lean Six Sigma
began being practiced in conjunction with it. Whereas Six Sigma focused on improving quality, Lean Six Sigma focused on removing waste LSS amplifies the strengths and minimizes the weakness of both approaches TQM and Six Sigma are often used in conjunction with the Japanese concept of Kaizen, which means "improvement," and refers to activities that are continuously involving all employees, management, and workers towards process improvement
Consumer Stakeholder Satisfaction Model
depicts how product and service quality and safety lead to consumer satisfaction and the consequences for the firm's profitability, reputation, and continued purchasing by consumers
FDA (Food and Drug Administration)
grew out of experiments with food safety by one man- Harvey W. Wiley- chief chemist for the ag department in the late 1800's. Wiley's most famous experiments involved feeding small doses of poisons to human volunteers. The substances fed to the volunteers were similar to those found in food preservatives. The volunteers became known as the "Poison Squad." Food and Drugs Act of 1906 was a direct result of the publicity created by Wiley's experiments. The act was administered by Wiley's Bureau of Chemistry un 1931, when the name "Food and Drug Administration" was first used Today, the FDA is responsible for protecting public health by assuring the safety, efficacy, and security of human and veterinary drugs, biological products, medical devices, and the nations food supply, cosmetics, tobacco products, and products that emit radiation.
PulseNet
has allowed regulators to get information faster and more accurately The speed with which outbreaks have been identified, along with public notifications, has risen significantly because of PulseNet
Product Liability
includes the liability of any or all parties in the chain of manufacture and sale of a product and for any damage caused by that product This includes: -manufacture assembly - wholesaling - retailing of the product
Six Sigma
is a development within TQM that has become a way of life for many corporations --> "Sigma" is a statistical measure of variation from the mean; higher values of sigma means fewer defects The six-sigma level of operation is 3.4 defects per million. Most companies operate around the four-sigma level, that is 6,000 defects per million Six Sigma also is viewed as a general heading under which is grouped a body of strategies, methodologies, and techniques. Six Sigma continues as a popular way of improving quality and reducing costs --> IBM< Motorola, Amazon, GE, Nokia, and Sony are but a few of the major corporations that have adopted the Six Sigma methodology Motorola first developed Six Sigma, and Allied Signal later experimented with it, but most observers believe that GE perfected it One of its strength has been the clarity of the process and the steps companies must take to adopt it. However, 6 Sigma is more than a toolbox with clear instructions. The programs represents and "philosophy or strategy" that stresses the important of customers as well as careful measurement. 6 Sigma practitioners look for FACTS rather than OPINIONS, and they believe in fixing the PROCESS rather than the PRODUCT
Consumer Product Safety Commission
is an independent regulatory agency that was created by the Consumer Product Safety Act of 1972. CPSC works to reduce the risk of injuries and deaths from consumer products by: 1. developing voluntary standard with industry 2. issuing and enforcing mandatory standards 3. banning consumer products if no feasible standard would adequately protect the public 4. obtaining the recall of products or arranging for their repair 5. conducting research on potential product hazards 6. informing and educating consumers through media, state, and local governments, private organization, and by responding to consumer inquiries On a regular basis is actively engaged in product recalls, safety education, regulations, laws, and standards
IS9000
is often used as well. It's a set of international standards on quality management and quality assurance that have a customer focus The standards are based on quality management principles that senior management can apply for organization improvement
Consumer Product Safety Improvement Act (CPSIA) of 2008
is the most recent and comprehensive piece of legislation given to the CPSC for enforcement This act provided the CPSC with new regulatory and enforcement tools. CPSIA addresses, among other things, lead, phthalates, toy safety, third-party testing and certification, imports, ATV's, civil and criminal penalties, and SaferProducts.gov It also repeals a funding limitation on the number of CPSC commissioners
Total Quality Management (TQM)
it essentially means that all functions of the business are blended into a holistic, integrated philosophy built around the concepts of quality, teamwork, and productivity, customer understanding, and satisfaction Purpose: to satisfy customers by focusing on product quality and safety issues. To be successful, a TQM programs needs to employ principles, practices, and techniques that focus on the customer, use continuous improvement, and employ teamwork TQM Benefits: strengthened competitive position, elimination of defects and waste, reduced costs, enhanced market position, and improved customer focus and satisfaction
Business's Response to Customer Stakeholders
it has ranged from poorly conceived public relations ploys to one extreme to well-designed and implemented programs focusing on customer relations, customer satisfaction, customer engagement, and customer relationship management Business's response had also included programs focusing on quality and continuous improvement initiatives such as Total Quality Management (TQM), Kaizen, ISO Certification, and Lean Six Sigma programs, although there is some indication that these are falling out of favor Business has realized that consumer's today are more persistent than in the past, more assertive, and more likely to use or exhaust all appeal channels before being satisfied
The American Customer Satisfaction Index
measures customer satisfaction with purchasing, and this index has declined noticeably between 2013 and 2015 with the future uncertain
Product Extortion
occurs when someone threatens to damage, destroy, or contaminate products in an effort to leverage ransom monies from the affected companies. Though there hasn't been many cases in the US, product extortions have occurred around the world in a variety of markets However, there are now insurance companies that now specialize in product extortion insurance Unlike product tampering, extorters don't try to ruin the reputation of the company, they are just interested in the ransom
Other Safety Issues
other recent recalls have involved medical-device flaws such as defibrillator wires, surgical vaginal mesh, and metal hip joints. With manufactured goods its not uncommon to find charges based on one or more of several allegations --> First may be the charge that the product was "improperly manufactured", wherein the producer failed to exercise due care in the product's production, which contributed to the accident or injury --> Second, could be the charge that, though manufactured properly, the product's "design could have been defective", the that alternative designs or devices, if used at the same time of manufacture, may have prevented the accident --> Third, could be that the producer failed to provide "satisfactory instructions and/or warnings" that could have helped avert accident or injury --> Fourth, may be that the producer failed to "foresee a reasonable and anticipated misuse" of the product and warn against misuse
Service Quality
the US and many developed nations have visibly become more service-based economies, and poor quality of service has become one of the great consumer frustrations of all time If we reply on anecdotal evidence, there seems to be more complaining about service quality than ever before On the front line of the new economy, service-fast and customized- is now the ultimate strategic business imperative Most executives think they are doing a good job, but only about 20-30% of executives think they are doing an excellent job According to Forbes Survey, a few key findings in the arena of customer service were: -->modern customer service is entrenched in most companies -->at the same time, serving customers is not given the weight it deserves. Organizations may not be fully grasping its full importance as part of a corporate strategy beyond customer retention -->companies may be reluctant to move outside their customer service zone -->companies are using newer technologies and striving to provide a seamless multi-channel experience, but still feel most comfortable with tradition channels
Reasons for Concern about Product Liability
this have become a major issues because of the "Sheer Numbers of Cases" involving products that have resulted in illness, harm, or death. More than in any other countries, US residents tend to file lawsuits and pursue litigation when faced with situations in which they are harmed and dissatisfied Another cause for concern has been the "Size of the Financial Awards" that have been given by the courts It has been estimated that litigation's "cost to society" is over $250 billion per year, more than half of which goes to legal fees and costs, some of which could be spent to hire more teachers, police officers, and fire fighters. The cost of litigation to companies has been said to represent approximately 30% of a stepladder's price, 50% of a football helmet, and 95% of the price of a childhood vaccine
