Question

Blue House Potato Chips Mr. Smith is the brand manager for Blue House Potato Chips. The overall cost to produce the chips has increased 25%, and is expected to increase another 10% next year. Due to fierce competition in the snack food category, particular in chips, Mr. Smith did not want to raise the price of chips. Therefore, he decided to reduce the size of the bag and quantity of chips within each bag, and sell at the same price. This will allow the company to retain their profit margin without having to increase the price. From previous market test, consumers did not noticed that the bag size and quantity had decreased. One of the managers felt that Blue House needed to advertise the new package size. Mr. Smith decided against this because he wanted to protect his sales. Is there an ethical issue here? Fully explain your reasoning. Base on the AMA Code of ethics which of the AMA ethical value(s) are not being adhered to or followed? What would you recommend for Mr. Smith to do?

Answer 1

Yes, there are ethical issues here because it is the responsibility of the firm towards its customers to follow the ethical marketing practices. The model code enshrined in AMA code provides the blueprint for firms to assuage the ethical inferences of certain market situations. In this example, Following values of the AMA conduct were not adhered to:

1. Honesty: As they are not clearly communicating the product offer value and are not truthful

2. Fairness: As they are not representing the quantity change in clear way through advertising or other means.

3. Transparency: As they are not clearly defining the reason for the change in quantity of packet.

Mr. Smith should disclose the change in quantity through clear advertising or can increase the price of the original product to gauge the increase in cost.