Customers

16. Product suitability

Product suitability speaks to what about the product may be detrimental and includes the quality, health impact and affordability of products and how the sale of these products may impact on customer health, safety and welfare.

How truthful, in terms of being complete, balanced and straight-talking, is the disclosure of the detail defining the organisation’s products and services, especially with regard to potential harm to the customer (habit forming, unhealthy, financial commitment, etc.)?

To what extent does the company seek to improve the societal impact of its products and services, either remediating harmful impacts, or developing and promoting realistically beneficial impacts?

There are four sub-issues under Product suitability:

• Quality of product/service – for Telcos this includes data speeds and reliability of service, for logistics, this relates to on-time delivery and reliability. In the retail industry this would also include aspects that improve or impact on the convenience of the product offering
• Health impact of product/service – societal impacts of their products and services – the extent to which companies remediate harmful impacts, or develop and promote realistically beneficial impacts (examples in media: sex, violence and language to children, or content that might be harmfully addictive)
• Abuse of content – censorship of, or alteration of, content by service providers and limits on freedom of expression imposed by firms (for example in the media industry). Fake news would be an example of content that is either frivolously or maliciously propagated across a media platform to influence the public, also referred to as social engineering. Similarly, the censorship, or alteration of content, either by the company itself, or by its channel partners, or by influential customers, can have negative effects on citizens’ rights to freedom of expression, or in denying them access to uncensored information.
• Credit affordability – credit retailers, such as in the apparel sector, car dealerships and financial services have a responsibility to determine whether their customers can afford the credit being offered and that their customers understand and can manage the financial responsibility they are taking on when buying on credit. This also backed up by legislation, for example the National Credit Amendment Act, 2014 (NCAA). (see also Responsible credit and lending practices under treatment of customers below)

Guidance: Sin industries, such as gambling, gaming, alcohol and smoking are clearly detrimental to the public’s interest, especially when consumed to excess or as an addiction. Pharmaceuticals, foods that cause obesity (confectionary and sweets), electro-magnetic radiation (cellphones), asbestosis, etc., are all examples. Other products and services can also be detrimental, such as irresponsible lending in the financial services industry. These are realities of society. The issue being assessed here is the maturity of management’s response in the way it manages the vulnerabilities inherent in the firm’s products and services.

Red flag: Hard selling of products detrimental to customers, or which they can’t afford; extortion of customers, such as in the management of debt.

Best practice: – R&D and or change in product and service offering to mitigate health or social risks – and amplify positive social impact; publication of independent research and clinical trials, uninfluenced by corporates sponsorship.

17. Treatment of customers

Treatment of customers asks how fairly does the organisation transact with its customers and speaks to how the product is promoted and sold and how this may be detrimental to the customer.

Customer experience
Customer satisfaction is the most critical issue driving relational value for retailers. Retailers benefit from the market intelligence the company gathers from their customers through a variety of channels: loyalty programmes, point-of-sale information, customer surveys, independent satisfaction surveys, social media, etc.

User-friendliness of channels for customers to complain, the resolution of customer complaints, reporting on the company’s performance in this regard (e.g. industry ombud reports). Complaints and how they are handled are both an important sources of market intelligence, as well as a significant externality that feeds back to relational value for the business. Taking responsibility for quality defects, the company’s returns policy, warrantees, etc. are further aspects to this issue dealt with under sales process below.

The strategic role of loyalty programmes and big data to drive customer satisfaction through the customisation of product offerings feeds into this issue.

Ethical advertising, product labelling and sales practices
How fairly does the company portray, promote and advertise its products and services, in particular with regards to the truth, to children, of harmful products, and in terms of potentially deceptive tactics? This issue overlaps with Product suitability. For example, in the TMT industry, network operators may entice children to procure large data bundles and airtime, and media content providers may promote inappropriate media content relating to violence, sex, language to children, of content that is by nature addictive.

Customer goodwill can be destroyed through confusing and complex deals and false representation, resulting in the loss of the customers’ trust in the companies and the brands they represent. Inappropriate targeting of children, or misleading product information, can significantly increase a retailer’s reputational vulnerability when consumer watch organisations uncover such practices.

Examples:

• Network operators in the telco industry may be guilty of false advertising and are particularly vulnerable to the practices of operators that use their network (so-called over-the-top (OTT) operators), for whose behaviour they may bear responsibility through the profile of their brand.
• VW fell victim to the temptation to misrepresent its fleet as being the most fuel efficient, going so far as to use smart software to detect when cars were being tested for emissions, and alter the vehicle’s output to fool the standards authorities. Four years after the incident, the consequences are still being felt by the VW brand, with considerable reparations and fines standing against in the company’s balance sheet.

Sales process
This includes the process of of bringing the customer to a commitment to purchase, where hard-sell techniques may result in customers purchasing items they don’t want or can’t afford, as well as finding themselves committed to punitive terms and conditions relating to payments, warranties, returns and repair policies (especially where goods and services are sold on credit).

Responsible credit and lending practices
For credit retailers (as with banks and insurers), the ethical promotion of credit during the sales process and management of debt post-sale are important issues that require responsible management. This is distinct from credit affordability and the ability of the consumer to be able to manage his/her debt burden, which relates to product suitability (see above)

Included in responsible credit and lending practices are the management of interest rates and non-interest related service charges, such as administration or club fees, credit life insurance, etc. The National Credit Act places a cap on the interest that retailers can charge on different types of loans and lines of credit.

Credit retailers have argued in their action against the NCR that “the requirement to provide latest three months’ proof of income documentation is not practical.” To which the NCR counters that verifying the income of a customer (that the retailer is about to grant credit to) is the responsible thing to do. However, unless a solution can be found, It is likely that one consequence of making new applicants jump through impossible hoops in the credit application process is that these customers could be exposed to the informal credit market, characterised by a lack of protective regulation. The issue is not yet resolved with some credit retailers arguing for the ‘best practice’ model of initiating the credit relationship with customers by granting small loans first, without raising unreasonable barriers in the application process, then testing the credit relationship through the customer’s repayment record (one of the foundations of the Grameen banking system).

How credit retailers manage their lending practices should be revealed in their reporting, considering the issue is crucial to long-term societal and business sustainability.

18. Access to products and services

How companies provide for, or prevent, access to their products and services through innovative product design, education, etc. Such access relates usually to local populations that have either been historically marginalised, or are currently marginalised through poverty. The word ‘local’ is used internationally to describe population groups that are ‘local’ to a region and have an arguable right to benefit from products and services being produced with their resources.

Guidance: Obligation and opportunity are two sides to this coin. On the one side there is a societal obligation to make products and services more equitably available to the previously disadvantaged and the poor. On the other, there is also the opportunity to be gained by doing so. CK Prahalad’s book, The Fortune at the Bottom of the Pyramid discusses in detail the benefits to companies of making products and services appropriate and available to this sector of the population.

Leading practice: R&D and market development activity to adapt and distribute products to include all LSM groups; education of mass market customers (e.g. financial education in the banking sector); distribution of products and services to improve accessibility, eg in peri-urban and rural areas.

Access to products and services is different from Anti-competitive behaviour, categorised under Ethics in the FarSight model, because the former is concerned with what actions companies are taking to provide products and services to the poor at lower than normal free-market price levels. Further, access is also concerned with other measures that companies may take, such as collaborating with distribution partners to ensure distribution to remote and rural areas that would be traditionally under-served.

Anti-competitive behaviour is also related to Access to products and services in that pricing is the primary outcome. In a normal, free market, prices should reflect the market forces of supply and demand. Higher prices are likely to be the result of anti-competitive behaviour where a company is in a position to exploit its market dominance, or collude with other stakeholders, including competitors and intermediaries (such as PBMs in the US market). For drug manufacturers, the issue is complicated by the high costs of R&D and the uncertainty of the market approval process, as well as of the time period in which the company can enjoy returns on its investment. See discussion under Ethics: Anti-competitive behaviour.

19. Consumer ID and data privacy

How responsibly does the organisation deal with the private and confidential information of its customers?

Abuse of data/violation of privacy
As consumers become concerned about data security, abuse of their data and invasion of their privacy, or violations of their rights to exchange communications and financial transactions without intrusion, become serious risks to custodians of such data. This is particularly the case for businesses in the social media space, where user data is the basis of the business model, and e-commerce, with its exposure to financial information.

While such information is an important strategic asset and can be used legitimately for digital marketing, it brings with it the obligation to manage the information responsibly, neither violating customer privacy, nor compliance with regulation. Examples of customer data that should be protected includes:

• records and content of communications
• demographic data
• behavioural data (on-line browsing patterns
• buying habits
• brand preferences
• product usage patterns
• location data
• personal information that can reveal or compromise the identity of an individual

Exposure and subsequent sanction would undermine the entire business models major brand-profile companies that have huge troves of user data.

Abuse of data is also emerging as a material issue for network operators affected by ‘Over-the-top’ (OTT) agencies, such as WASPS who may abuse the network and violate the privacy of the network operator’s customers. Society generally doesn’t allow the network host to absolve itself from the responsibility to protect customers’ privacy and personal data, even when the gathering of such data is by a third party.

Protection of user data against attack
Banks, car dealerships, retailers (stores and e-commerce), mobile network operators, content providers and distributors, as well as business process outsourcing (BPO) service providers, are custodians of large databases of customer and user information that requires protection from negligent loss, or malevolent cyber-attack, including the likes of ransom-ware. The Protection of Personal Information Act (POPI) governs regulations around this issue in SA, with equivalent legislation in other jurisdictions.

The direct threat of cyber-attack, or accidental breach by a supplier, that could result in service interruption and/or breach of confidential data, impacting on the company’s ability to maintain service to its customers and end consumers, in turn impacting on revenues and reputation, as well as potential costs associated with fraud and/or extortion. Examples include:

• Malicious code spreading onto a system
• Brute force attrition to compromise, degrade or destroy systems, including authentication mechanisms, passwords, digital signatures, etc.
• Website, or web-based application attacks that steal credentials, or redirect to a fake site that exploits browser vulnerability to install malware
• Email attacks that exploit users through email messages and their attachments
• Violation of acceptable usage policies
• Loss or theft of equipment, such as laptops, smartphones and data storage devices

In worst cases, banking information can be used to effectively steal funds from unsuspecting customers’ banking accounts.

[This issue is distinguished from SOCIETY: External risks: Government intrusion, where customers’ rights need to be balanced against those of various security and enforcement agencies that are legally entitled to request customer information, and to instruct the operator to suspend service in certain circumstances.]