Ethical Dilemmas in Business: Extended Warranties and Spyware

Case 1: Extended Warranties at Kudos

Case 1 (Ch.9)

Isabella Lopez is the northern area sales manager for Kudos Kitchen and Recreation, a large retailer of household appliances and consumer electronics with stores across North America. Kudos is losing market share to online retailers, such as Nile, and needs to extract more profit from the sales that it does make. One advantage that Kudos has over Nile is the personal contact between Kudos’ sales staff and Kudos’ costumers. Personal contact allows the Kudos sales staff to sell more extended warranties than Nile is able to sell online. Extended warranties are an important profit centre for Kudos, as they are for other appliance and electronics retailers. Yesterday, Isabella’s boss and Kudos VP  of sales, Roger MacDonald, circulated an email to his five area managers asking their opinions on a new sales policy regarding extended warranties. The new policy would aim to increase extended warranty sales by allowing store managers to raise the commission on extended warranty sales for high performing salespeople. The standard is 15%. The new policy would allow store managers to raise the rate to 20% for any warranty sales over $2,000 per month. Kudos would also allow store managers to reveal each salesperson’s warranty sales at monthly sales meetings and to terminate any sales staff who failed to sell at least $1,000 worth of extended warranties for two months in succession. Roger’s hope is that this new policy will increase the incentives for sales staff to sell extended warranties and thereby help Kudos’ bottom line. Isabella worries about the effect of this policy on the interaction between sales staff and customers. Three-year extended warranties are highly profitable because appliances and electronics are most likely either to break down from manufacturing defects soon after purchase, or to break down from wear and tear toward the ends of their designed life. The probability of a payout on a three-year extended warranty is low because the manufacturer’s warranty covers the first year, and most products are designed to last longer than three years. In order to sell extended warranties, sales staff must avoid telling customers the return rate for the second and third year of a product’s life, and must get customers to focus on horror stories regarding the very few products that customers actually do return. Isabella’s worry is that Kudos’ store managers may use the new policy to increase their staff’s usage of hard-sell practices. Roger has asked for opinions from his area managers, and their views often sway his decision. Isabella is almost certain that West, Central, and South will get behind the policy suggestion, but that East will criticize it. She is worried about the consequences of the new sales policy, but she also wants Kudos to be profitable and for Roger to see her as a team player.

Case 2: The Spyware Conundrum at ALAC

Case 2 (Ch.10)

Jake Markos is a very clever young man. He graduated summa cum laude in computer science from a prestigious west coast institute of technology, and has never encountered a computer-programming task that he could not handle easily. Jake’s problem is that he is unbearably shy. He does not like meeting new people or even looking people in the eye. Though he is attracted to women, he has never felt comfortable talking to them or trying to get to know them better. After graduation, many companies courted him. He accepted a job as the programmer at ALAC  Marketing where he could work mostly on his own. He likes his job because it is challenging enough to be absorbing, and he dreads ever going through the process of finding another one. Jake’s boss is Nathan Brook. Nathan well understands Jake’s skills and vulnerabilities. One day, the Diabetes Foundation asks ALAC  to construct a tool for its website that would survey Diabetes Foundation donors on the directions that the Foundation should take in its support for new research. As part of its corporate social responsibility mandate, ALAC  does work for the Diabetes Foundation at cost. ALAC  also has a highly profitable contract to market an expensive new drug, Circulex, for a large pharmaceuticals company. Circulex aids blood circulation in the legs, and will be useful to diabetics who have circulation problems in their extremities. Nathan realizes that the Diabetes Foundation donor list includes many well-off people with diabetes, just the sort of potential customers to whom the pharmaceutical company wishes to market Circulex. The next day, Nathan visits Jake’s workroom in the basement of the ALAC  building. He suggests to Jake, purely orally of course, that Jake embed a bit of extra code in the survey tool that Jake is constructing for the Foundation. This code would transfer the email addresses, though not the passwords, of Foundation donors to Jake’s computer. Nathan’s intent is to use these email addresses to market Circulex. Nathan justifies this idea by pointing out that ALAC ’s work for the Diabetes Foundation is non-profit and that the survey tool does not explicitly promise anonymity to the donors who take it. He further suggests that unless Jake complies, Jake will have to look for work elsewhere. Jake is visi b ly reluctant and upset. The following day, Nathan sends his assistant manager, Maia Harrick, to see Jake. Maia is about Jake’s age and is both very attractive and very ambitious. After reminding Maia that her performance review is coming up soon, Nathan indicates to Maia that she should get Jake to add the spyware to the survey tool by any means possible. Maia knows very well how to use her good looks to get what she wants. She pays a lot of attention to Jake, pretends interest in the intricacies of hiding spyware in otherwise legitimate software, and acts as if she is impressed at his skill. On leaving, Maia implies that she will visit Jake often to see how the project is going.

 Questions

Ch. 9: Should Isabella support the plan to sell extended warranties?

Ch. 10: Should Jake embed the spyware?