Ethical Behavior in Sales and its Effect on Customers

Abstract

This paper develops a conceptual framework that relates ethical behavior of salespeople to positively effects on customers' satisfaction and relate indirectly, through trust, to both job satisfaction and overall performance of salespeople. Sales employees of companies undertake the major responsibility for company's sales and profitability. As a result, they are under pressure to promote their performance which, in some cases, causes to resort to some improper and unethical methods for more sales. Even though this behavior is morally unacceptable, from organizational perspective, salespersons are in fact the company's representatives which having the most contact with customers. The customer's perceived image of the company, and thereafter their tendency to maintain or stop the relation with company will be formed depending on how the salespersons interact with customers.

Headnote

Abstract

This paper develops a conceptual framework that relates ethical behavior of salespeople to positively effects on customers' satisfaction and relate indirectly, through trust, to both job satisfaction and overall performance of salespeople.

Sales employees of companies undertake the major responsibility for company's sales and profitability. As a result, they are under pressure to promote their performance which, in some cases, causes to resort to some improper and unethical methods for more sales. Even though this behavior is morally unacceptable, from organizational perspective, salespersons are in fact the company's representatives which having the most contact with customers. The customer's perceived image of the company, and thereafter their tendency to maintain or stop the relation with company will be formed depending on how the salespersons interact with customers.

Keywords: ethical behavior, code of ethics, social responsibility, sales people, pricing discrimination

JEL Classification: M140, M390

Introduction

The definition of business ethics and the answer to the question of "What is Business Ethics in Sales?" is the principles, morals and standards that guide behavior in the world of business and in sales relationships too [Spro, 2013]. Ethics in sales is receiving a lot of attention over recent years even more so as it is the correct way to conduct business in the long term and produce long term sales results for the company and for the sales team.

Character integrity and ethics are the foundations to build long term relationships in selling, whereas unethical selling might produce short term gains for the company and small or large spikes in sales, but over time, they generally will be the companies or salespersons undoing as trust is lost and sales become less frequent and a lot harder to come by as the customers don't believe in the sales person and then following this also the company [Futrell, 2008].

Business ethics in sales can either come from the company itself, this means that the companies ethics guidelines are written into their policies and therefore can be reflected or reproduced through their sales team management and then the sales team too.

Or business ethics may come from the individual sales person and their morals personally that is a reflection of their personality as a whole. Ethics also means the continuous effort of studying moral beliefs and moral conduct, and striving to ensure that the salespeople and the institutions they represent live up to standards that are reasonable and solidly-based [Velasquez M. et al., 1988].

Finally it might be a mixture of both the company and the sales person as a sales person with high ethics that is working for a company that has similar standards to them is a great mixture for the customer and the company alike and will, in the end produce the greatest amount of sales over a long period of time.

Either way business and selling ethics go hand in hand and should play an important part in developing sales relationship strategy for customers and in turn they will reward the company with increase in sales and the ability to have a long term sales relationship. This has to be good for a company that wants to be in business for a long time and continue to maintain and grow sales [Spro T.,2013].

Management and businesses in general are constantly facing important ethical challenges. The impact of ethical behavior by companies cannot be underestimated. It's no surprise that companies that consistently demonstrate ethical behavior and social responsibility generate better results. In successful companies ethics is so integrated into the organization that it defines how every employee from CEO to the lowest level employee behaves. Ethics is not a separate topic but is incorporated into company strategy. The company makes ethics part of every activity from strategic planning to operational execution [Dann J., 2009].

1. Challenges for ethical behavior in sales

One of the most visible positions in any organization in terms of ethics is sales. That's because it is the salesperson that comes in contact directly with the customer. What the salesperson says and does is a direct reflection of the organization and its ethics.

Personal ethics and business ethics are a part of everyday selling. With pressure on short-term results, many companies set unrealistic goals and employees feel extreme pressure to meet them or face the possibility of losing their jobs. Professor Neil Malhotra of the Stanford Graduate School of Business calls this an "overemphasis on instant gratification."[Dann J., 2009].

Sales managers have important ethical responsibilities with regard to their own actions as well as the actions of their salespeople. Managers in the field of sales are often faced with ethical challenges in hiring, setting quotas, evaluating, and carrying out many other aspects of their management tasks. These include ensuring that management practices are not discriminatory and that employees are treated with dignity and respect. They are also responsible for establishing, communicating, and enforcing the ethical standards they expect their salespeople to follow[Spiro, R.L., Rich, G.A., Stanton, W.J., 2014].

Salespeople are exposed to greater ethical pressures than are individuals in many other jobs. They work in relatively unsupervised settings; they are primarily responsible for generating the firm's revenues, which at times can be very stressful; they are continually faced with problems that require unique solutions, which is also stressful; and they are often evaluated on the basis of short-term objectives. The latter, especially, can cause salespeople to promote short-term solutions to customers' problems that may not be in the customers' best interests [Spiro, R.L., Rich, G.A., Stanton, W.J., 2014].

Salespeople face unique ethical challenges because of their job, including how to handle unethical requests from customers and making sure that they know and follow all company policies for interacting with customers [Tanner J. and Raymond, M. A., 2010].

2. Ethical Situations Facing Salespeople in relations with customers

Ethical questions are involved in many of the relationships that sales managers have with their salespeople, their companies and their customers. Perhaps the most critical set of ethical questions facing sales managers is associated with customer relations. The major problem areas involve: information, gifts, entertainment, price discrimination and unfair competition[Spiro, R.L., Rich, G.A., Stanton, W.J., 2014].

Information. It is important that salespeople provide their customers with all of the information that enables them to make informed decisions. Sometimes salespeople make recommendations that are not in the best interests of their customers. For example, they may neglect to give the customers complete information. Sometimes salespeople knowingly sell a higher-priced product when a lower-priced product would have fulfilled the customer's need just as well.

Gifts. The practice of giving gifts to customers, especially at the holiday season, is time-honored in American business. But today, perhaps more than ever before, the moral and ethical climate of giving gifts to customers is under careful scrutiny. The practice is being reviewed by both the givers and the receivers of gifts. Some firms put dollar limits on the business gifts they allow their employees to give or receive. Other firms have stopped the practice of giving Christmas gifts to customers. Instead, some of these firms offer to contribute (in amounts equal to their usual gifts) to their customers' favorite charities.

Entertainment. Business entertainment is definitely a part of sales work, and a large portion of the expense money is often devoted to it. Reps who spend this money unwisely on accounts with little potential waste time, and their selling costs will be out of line. Indeed, a contributing factor in salespeople's success may be their ability to know the right person to entertain and the nature of the entertainment called for.

Price discrimination. Sales administrators, for example, cannot allow members of their sales force to indiscriminately grant price concessions. Some customers may demand larger discounts than are normally allowed and threaten to take their business elsewhere if their demands are not met. A seller who grants the unusual discount, assuming no corresponding cost differential to justify the transaction, may (along with the buyer) be violating the law.

Unfair competition. Unfair trade practices that may injure a competitor or the consumer are generally illegal. Offering bribes and providing misleading information to customers are examples of unfair competition and they have been the focus of many legal actions against firms and their employees.

Bribes. Using bribes - the payment of money or gifts to gain or retain a customer - is illegal. Using bribes to gain information about competitors is also illegal. Bribery in selling is an unpleasant fact of life that apparently has existed, in varying degrees, since time immemorial. Blatant bribes, payoffs, or kickbacks may be easy to spot - and they are patently wrong. Unfortunately, today much bribery is done in a sophisticated manner that is not easy to identify. Sometimes the lines are blurred between a bribe, a gift to show appreciation, and a reasonable commission for services rendered. In sales, the bribe offer may be initiated by the salesperson, or the request may come from the buyer. Usually, the buyer's request is stated in a veiled fashion, and it takes a perceptive sales rep to understand what is going on. Bribery is found in many (perhaps all) cultures and political systems. In fact, in many foreign countries, there is no way a company can hope to make sales without paying fees or "commissions" (translate that as bribes) to agents in those countries. Undoubtedly, bribery will continue to put sales managers and salespeople to the ethical test. If nothing else, sales executives should realize that "everyone else is doing it" is not a valid excuse. The penalties can be stiff for those found guilty of taking or giving bribes.

Misleading information. It is illegal to make false, deceptive, or misleading claims about a product or about the services that accompany that product. If a salesperson makes exaggerated claims about a product and those claims lead to misuse of the product, the seller also may be sued for any property damages or personal injuries arising out of a customer's misuse of the product. Making false, deceptive, or disparaging statements about a competitor or its products is also illegal. Yet such practices are prevalent. The lies may run from fibs about the competitor's financial stability to personal attacks on its salespeople. Regardless of their nature, these actions all have the same purpose of discrediting the competitor. This is illegal and can lead to prosecution, fines, and imprisonment. Sales managers must educate salespeople that lying is not an option in the pursuit of a sale - even though their customers aren't always truthful. There is a substantial difference between concealing your true feelings about your customers and concealing the truth about the qualities of your product. [Gschwandtner G., 2013]

These are not the only issues that salespeople face. For example, two basic principles of business are that everyone should have an equal opportunity to earn business, and the customer remains free to make a choice. Manipulation, a form of unethical sales behavior, unfairly reduces or eliminates a buyer's ability or opportunity to make a choice. Persuasion, on the other hand, may influence a buyer's decision, but the decision remains the buyer's. Manipulation can include misrepresentation, or claiming a product does something it doesn't, but it can also include withholding important information, using hard-sell tactics, and other unfair sales tactics [Tanner J. and Raymond, M. A., 2010].

3. Determining ethical standards by understanding values

As individuals, sales managers usually have their own standards of ethical conduct and they usually abide by these standards in managing their sales forces. Most of us believe we act ethically by our own standards. However, ethical standards are set by a group - by society - and not by the individual. Thus, the group evaluates what you as an individual think is ethical.

For many of us, the fundamental question of ethics is, "What should I do?" or "How should I act?"Ethics is supposed to provide us with "moral principles" or universal rules that tell us what to do. But are moral principles all that ethics consists of? The principles and rules has been recently challenged by several ethicists who argue that the emphasis on principles ignores a fundamental component of ethics - virtue. These ethicists point our that by focusing on what people should do or how people should act, the "moral principles approach" neglects the more important issue - what people should be. In other words, the fundamental question of ethics is not "What should I do?" but "What kind of person should I be?" [Velasquez, 1988].

Values provide the personal compass and the direction in life. The list below includes some examples of values [Richmond, 2009]:honesty, open communication, teamwork, integrity, prestige, security, helping others, loyalty, social responsibility, impact on society, creativity, etc. Many people feel passionately about their values and want to have their environment align with their values.

The personal values may change over time based on the experiences, but the integrity should always remain constant [Richmond, 2009].

4. Reasons why unethical selling is taking place

Most of us have our own personal codes of ethics - what we will and will not do. Often we would prefer not to do certain things; but if we are pressed sufficiently hard, our ethical codes may bend. A person's true ethical code surfaces when he or she is tested under difficult conditions. It is easy to be ethical when no hardship is involved - when one is winning and life is going well. The test comes when things are not going so well - when the competitive pressures build up. The pressure brought on by quotas, pay plans, and a fierce competitive environment breeds unethical behavior.

Some business executives believe that in order to advance in an organization, a person must occasionally do something that he or she would prefer not to do [Spiro, R.L., Rich, G.A., Stanton, W.J., 2014].In a survey of salespeople, nearly half of the respondents admitted to taking part in some illegal or unethical activity, such as deceiving customers, as a result of pressure [Spiro, et all 2014]. This is not to say that individuals involved in such deceptive practices get away with them.

Here are six reasons why unethical selling is taking place and what leadership can do to course correct and move to a professional and ethical selling [Hibbard, 2013]:

Reason 1 - quota: The pressure on sales managers to deliver sales quotas is often overwhelming. As a result, sales managers do what they have to do and that is, push and push hard. They respond to exceedingly high quotas given to them by demanding salespeople perform. Sales numbers are measured on a metric platform so if a salesperson isn't hitting quota they feel the heat quickly to ramp up results.

Reason 2 - threat: If a salesperson isn't hitting quota or are not on track to hit quota they are often faced with dialogue stating that without quota success they may be released. The pressure is now transferred to the salesperson in the form of job loss! As a result, salespeople do what they have to do to hit quota and save their job. Unfortunately that may include lying. Many salespeople are doing their best to perform day after day, but if they aren't getting the job done the thought of termination often creates a whatever it takes selling strategy.

Reason 3 - lack of training: Salespeople are hired then traditionally sent "somewhere" for training. Often times that training takes place over a period of weeks or even months. It's a responsible approach that many organizations implement.

Reason 4 - minimal post training support: The assumption that the salesperson is competent now that they are back from corporate training is a stretch at best. Although this lack of "how to" provides an opportunity for sales management to support the new salesperson. Unfortunately, sales management often is overloaded with paperwork and ends up delegating to a down-line manager who interacts with the salesperson on a day to day basis. The down-line manager may be completely unqualified to develop the new salesperson in areas they so desperately need to succeed.

Reason 5 - assumption: There is an assumption in most organizations that when a salesperson is hired with previous sales experience they know how to sell, better yet they know how to prospect. The new salesperson may have joined the new employer with an entirely different compensation platform from their original employer. The new compensation plan may require a significant amount of prospecting with a much smaller salary. The pressure to produce is big and this can lead to unethical selling.

Reason 6 - association: Most newly hired salespeople enter the career with the intention to do well and be honest. They trust they have joined a professional sales team and for the most part their assumptions would be correct. Unfortunately, every salesperson in the organization may not be the best guidepost. Just because a senior salesperson is a top performer doesn't mean they are great trainers or ethical. New hires enter the company with hope that they will learn real world experience. The problem is there are those who have powerful negative influence standing ready to tell the new salesperson how things really are. They explain how to cut corners, bend the rules, justify why they have to lie to get the sale and so on. The new salesperson has no idea who to trust, who is ethical or who is not. As a result, due to association the new salesperson becomes the unintended victim of the virus.

5. How do companies manage ethical practices?

Establishing ethical policies

The first step is to develop policies based on the company's mission and values that describe what is acceptable and what is not. Good ethical policies not only list or describe appropriate and inappropriate behaviors, they also describe the underlying principles. Not all ethical behaviors can be listed in a policy, so by detailing the principles and values that make up the reasoning behind the policies, salespeople and sales managers will be more prepared to respond appropriately. Codes of ethics, or ethics policies, can be pretty detailed. Not only do these cover how salespeople (and other company representatives) should interact with customers, they also detail how employees should treat each other and how the company's vendors should be treated [Sales and Marketing Executives International's Web site].

Many U.S. companies developed codes of ethics, which are written ethical guidelines to be followed by all employees. A survey by the Ethics Resource Center [Spiro et all 2014] showed that 84 percent of the companies surveyed have codes of conduct and 45 percent have ethics offices. Writing a code of ethical conduct is no easy task.

Higher levels of ethical behavior have been found in firms where codes of ethics are in place and enforced. An ethical code that is part of the culture of an organization is likely to affect the decision making of that organization's employees. In addition to providing guidelines for ethical decision making, a code of ethics can contribute to the general ethical climate of an organization if it is endorsed and enforced by top management. Having a code of ethics is a concrete sign that the organization cares about whether or not its employees behave in an ethical manner.

Provide Ethical Training

A good second step is to train all salespeople and sales managers on the policy. One reason for such training is to secure greater support and application of the policy. Sales managers or salespeople may want to behave in an ethical manner but may not be aware of the ethical implications of some of their decisions; or even if they are aware, they may not know what is the most ethical action to take in a particular situation. Training - through the use of cases, role plays, and games - can simulate ethical dilemmas. This can increase ethical sensitivity and skills.

Yet training alone is insufficient. The company must also enforce the policy and have procedures in place that make enforcement possible. For example, a company should have a mechanism for reporting unethical activity in a way that protects the person making the report. Many companies have anonymous message boxes that enable an employee to report unethical activity. One similar and common practice is to have an ethics office, charged with investigating any complaints and also have internal auditing procedures to ensure that misconduct can be detected.

Establishing an Ethical Climate

It is not realistic for a sales manager to construct a two-column list of practices, one headed "ethical" and the other "unethical." A better approach is establishing a climate within the organization in which every person always consciously tries to make ethical decisions. An ethical climate is one in which the employees of the organization believe that typical organizational practices and procedures are ethical. It is important to establish an ethical climate. This is done by enacting policies that specify, discourage, monitor, and correct unethical behavior.

A firm's ethical climate has an effect on its sales force. A study on the effect of perceived ethical climate for sales force has shown that salesperson's perceptions of a positive organization ethical climate are positively related with their individual commitment to quality and organizational commitment. Furthermore, the findings of study suggest an association exists between individual commitment to quality and performance [Weeks et al., 2004].

6. The responsibilities of ethical behavior for sales managers

Legal responsibilities for salespeople

Sales managers must ensure that their salespeople are aware of their legal responsibilities. To do this, they must provide training with regard to their legal responsibilities and routinely provide updates concerning the most recent legislation. If a manager believes that the behavior of a particular salesperson may lead to legal problems, the sales manager should take action immediately to make the rep (sale person) cease the questionable behavior.

The sales manager as a role model

Top managers must serve as ethical role models for employees. They must not only verbally endorse ethical behavior but also practice it. Clearly, salespeople are not going to take any code of ethics seriously if they see their immediate managers and other executives behaving unethically.

Many marketing practitioners points why the leadership role of sales managers is so important. That is, sales managers play a significant role in molding, sculpting, and shaping the behaviors and attitudes of their salespeople. Leadership in a sales context involves more than just reacting verbally to what a salesperson has done. To be a credible and effective leader, a sales manager must proactively set a positive example through his or her own behavior and thus serve as a role model to subordinates. Such leadership by example, or role modeling [Rich, 1997] is critical because salespeople tend to emulate the work habits, positive attitudes, and goals of their managers.

7. The responsibilities of ethical behavior for salespeople and the effect on customers

Salespeople should take some responsibilities of ethical behavior in order to satisfy customers, such as:

Not intentionally misrepresent anything and not over promise. That's difficult to do when the salespeople are in the middle of a competitive situation over a business and the competition is over promising to get the sale. But, an ethical salesperson won't over promise.

Fix any important misunderstandings. It's possible that the customer will form incorrect ideas about some of the products that sale person represent or the services that come with them. It's also possible that they will misunderstand things about the competitors and about the needs and statements of other people. It's very tempting, when these misunderstandings work in rap's favor, to ignore them. However, that's not acting with integrity. When rep become aware of any significant misunderstandings that customer has, he/she needs to correct them.

Always be willing to trade a short-term loss for the sake of a long-term gain. This may be another definition of integrity - the courage and conviction to walk away from an unethical short-term gain in return for a long-term gain. In other words, always be willing to give up a sale or some immediate advantage if the salesperson must stretch the truth or act unethically to get it. For example, the salesperson may have an opportunity to acquire a quick sale because his/her customer has misunderstood the specifications or features of the product. It's tempting for the salesperson to take the order and not say anything. But that would not be ethical. The ethical salesperson will correct the customer and lose the immediate gain that the sale would have brought. The payoff, however, is the long-term gain in the salesperson's reputation for integrity. A long-term gain achieved ethically is always worth more than any short-term advantage [Kahle, 2001].

Keep customer confidentiality. The salespeople ought to keep the clients information confidential, when building rapport with customers [Spro, 2013].

The following guidelines help sales managers and salespeople minimize the probability of legal proceedings and increase their chances of defending themselves if a legal complaint is brought against them [Spiro et all 2014]:

* Always make accurate, understandable, and verifiable statements about the product and its use.

* Ensure that customers have the necessary knowledge and skills needed to use the product in the proper manner.

* Caution (in writing) customers against using the product in an improper manner.

* Be able to verify any statements made about competitors.

There are some rights for customers in the marketing exchange process that have to be followed. Customers in the marketing exchange process should be able to expect that:

* Products and services offered are safe and fit for their intended uses;

* Communications about offered products and services are not deceptive;

* All parties intend to discharge their obligations, financial and otherwise, in good faith; and

* Appropriate internal methods exist for equitable adjustment and/or redress of grievances concerning purchases.

Conclusion

Sales managers have to develop policies and practices that codify ethical behaviors, train salespeople on the ethics policies, and ensure that the policies are followed. In addition, sales managers have to be aware of laws that govern sales transactions.

But business ethics, just like personal ethics, mean doing the right thing even when it is a difficult choice or doesn't appear to be advantageous. For executives who ignore the unethical activities of their representatives (reps), the consequences are serious - lawsuits, fines, ruined careers, and imprisonment. The damage to their companies is also great in terms of lost customers and potential customers. So, regardless of the pressure to compromise personal standards, all of the recent evidence suggests that it is not in the best interests of salespeople and sales managers to do so.

Sales executives should understand that ethical behavior is not only morally right but also, over the long run, realistically sound. Too many sales administrators are shortsighted. They do not see the possible repercussions from their activities and attitudes. Whether or not the buyer was deceived or pressured may seem unimportant so long as the sale is consummated. Management often does not recognize that such practices can lose customers. Furthermore, recent surveys suggest that most customers consider a company's ethical reputation when selecting vendors. In response to this, many companies are encouraging their reps to sell their companies' integrity and ethical behavior.

In order to generate a quality and long-term relationships with customers, companies compelled to observe the ethical issues in their transaction with customers. Also, ethical sale have a significant impact on customer perception towards company's business and also on quality of organization relationship with customer.

Sales managers and salespeople have to develop long-term business relationships and be sensitive to customer attitudes.

References

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