Most businesses operate on the ethical principle that they exist to provide a good or service to their customers. Consumer exploitation occurs when businesses view their consumer base as resources for them to plunder, rather than as customers for them to service. Some unethical business practices allow companies to take advantage of the business/customer relationship. These practices exploit a customer's fears, prejudices and ignorance to extract money or to steer them away from competitors.
One well-established method of consumer exploitation is the use of false advertising. These advertising messages can make outrageous and untrue claims to prey on the fears of customers. In 2008, the information security company Lifelock promised its customers that the company would repay identity theft victims up to $1 million. Lifelock CEO Richard “Todd” Davis even put his own Social Security number in his advertisements. A class-action lawsuit against Lifelock claims the company did not live up to its $1 million guarantee. In addition, Mr. Davis' information was stolen by at least 20 identity thieves.
When businesses compete for customers, they strive to provide the best possible goods and services to those customers. When a firm or group of firms exerts monopoly power over the market, this competitive incentive disappears. Firms that exert monopoly power can control the quality of goods produced, the quantity of goods available and the prices the consumers pay for those available goods. Consumers are left to choose either to purchase from the monopolistic producer or do without the product.
Substandard Goods and Services
Companies can engage in consumer exploitation by providing poor-quality goods and services. According to the Consumer Federation of America, one of the leading complaints among consumers is the sale of substandard goods and services. A 2011 survey showed that customers complained about poorly made goods, ranging from "lemons" at used car lots to defective merchandise in retail stores. The survey also recorded complaints about poor service, including repair services on homes, cars and home appliances.
Some companies exploit their customers' ignorance by engaging in deceptive billing practices. These practices can include charging higher rates or adding fees for spurious reasons. Firms can take advantage of unwitting customers by charging surprise penalty fees for high usage, such as with cell phone minutes, or by increasing interest rates without warning, such as with credit cards. Unethical firms also use other practices, such as double-cycle billing, to bill customers for the same items twice.
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