BUS305: Small Business Management

Key Points

• Product liability means that producers of products are held responsible for upholding the safety of that product for consumers. Lawsuits and settlements incentivize producers to ensure defects are minimized and safety is maintained.
  
• Deregulation of the airline industry has lead to increased competition and service and decreased prices (see. Deregulation of electricity in California led to price hikes and was considered harmful.
  
• Companies must also pay attention to existing state laws, government relationships, social legislation, federal legislation, and monetary and fiscal policies.
  

Terms

• Product liability: The idea that manufacturers of products are responsible for the safety of that product, which may be compromised due to defect or every day use.
  
• Legislation: Law which has been enacted by legislature or other governing body
  
• Deregulation: The process of removing constraints, especially government imposed economic regulation.
  

Example

Examples of product liability in action: Two Maryland men decided to dry their hot air balloon in a commercial laundry dryer. The dryer exploded, injuring them. They sued the manufacturer and won. A two-year-old child being treated for bronchial spasms suffered brain damage from a drug overdose. The hospital staff had clearly exceeded the dosage level prescribed by the drug manufacturer. The child's parents successfully sued the manufacturer.

Every marketing organization's activities are influenced by legal factors that establish the rules of the game. These laws, agencies, policies, and behavioral norms are established to ensure that marketers compete legally and ethically in their efforts to provide want- and need-satisfying products and services. The various US legal issues of which marketers must be knowledgeable include the following:

• Monetary and fiscal policy: Marketing decisions are affected by factors like tax legislation, money supply, and the level of government spending. The tendency of a Republican Congress to spend on defense materials and not on the environment is an example.
  
• Federal legislation: Federal legislation exists to ensure such things as fair competition, fair pricing practices, and honesty in marketing communications. Anti-tobacco legislation affects the tobacco and related industries, for example.
  
• Government/industry relationships: Agriculture, railroads, shipbuilding, and other industries are subsidized by the government. Tariffs and import quotas imposed by the government affect certain industries (e.g.automobile). Other industries are regulated, or no longer regulated, by government (e.g. rail, trucking, and airlines). Deregulating the utilities industry had a tremendous negative effect on the Californian power industry in 2001.
  
• Social legislation: Marketers' activities are affected by broad social legislation, like the civil rights laws, programs to reduce unemployment, and legislation that affects the environment (e.g. water and air pollution). The meat processing industry has spent billions of dollars trying to comply with water pollution legislation.
  
• State laws: State legislation affects marketers in different ways. For example, utilities in Oregon can spend only ½ per cent of their net income on advertising. California has enacted legislation to reduce the energy consumption of refrigerators and air conditioners. In New Jersey, nine dairies have paid the state over $2 million to settle a price-fixing lawsuit.
  
• Regulatory agencies: State regulatory agencies, for example, the US Attorney General's Office, actively pursue marketing violations of the law. Federal agencies like the US Federal Trade Commission and the Consumer Product Safety concern themselves with all facets of business.
  

Every facet of business is affected by one or more laws. We will briefly discuss the three areas receiving the most notice in marketing: product liability, deregulation, and consumer protection.

Product liability

The courts are increasingly holding sellers responsible for the safety of their products. The US courts generally hold that the producer of a product is liable for any defect that causes injury in the course of normal use. Liability can even result if a court or a jury decides that a product's design, construction, or operating instructions and safety warnings make the product unreasonably dangerous to use.

Many feel that product liability law is now as it should be—in favor of the injured product user. Consumer advocates like Ralph Nader argue that for too long, product liability favored producers at the expense of the product user. Advocates claim that the threat of lawsuits and huge settlements and restitution force companies to make safe products.

Deregulation

Deregulation means the relaxation or removal of government controls over industries that were thought to be either "natural monopolies," such as telephones, or essential public services like airlines and trucking. When regulated, industries received protection from renegade competition.

Insulated from competition, regulated industries in the past often had little reason to lower costs;. they concentrated on influencing the regulators to make favorable decisions. There was an unhealthy tension and costs rose, industries sought price increases, and regulators resisted, often depressing industry profits. That, in turn, reduced new investment and perpetuated high costs and poor service.

Industries such as the airlines, banking railroads, communications, and trucking have long been subject to government regulation. A market place shock wave hit these industries as they were deregulated. Each of these industries saw the birth of many new competitors attempting to take advantage of market opportunities uncovered by deregulation. The result was that competition intensified, prices were lowered, and many once-stable organizations suffered huge financial losses.

As new competition was permitted, and rate regulation was loosened or abandoned, the vicious cycle began to reverse itself. For example, airlines, once freed of restrictions, organized "hub and spoke" systems–outing passengers via major transfer points that provided more connections. In 1978, about 14 per cent of all passengers had to change airlines to reach their destination; by 1995, this number fell to about 1 per cent.

Consumer protection

Since the beginning of the 20th century, there has been a concerted effort in the US to protect the consumer. Perhaps the most significant period in consumer protection was the 1960s, with the emergence of consumerism. This was a grassroots movement intended to increase the influence, power, and rights of consumers when dealing with institutions.

Marketers must always be aware of applicable legislation to avoid running foul of the law and incurring heavy fines, payouts and settlements.

Airlines

The deregulation of the airline industry in the US led to many new airlines, new routes, lower prices, and decreased connections for passengers.