Avoiding Causes of Ethical Issues for Solopreneurs, Entrepreneurs and Small Business Owners

Solopreneurs, entrepreneurs, and other small business owners are sometimes under a very great deal of pressure to “make it” in an incredibly competitive world.?When numerous influences put pressure on small business owners, entrepreneurs and solopreneurs, there are some predictable (and preventable) ethical considerations that should be recognized to avoid backsliding into unethical practices.?Ethical predicaments can develop for small business leaders, such as decisions related to product quality, marketing practices, pricing strategies, and supplier relationships. ?Having to balance profitability with ethical considerations can be a challenge, especially if there is pressure to “succeed.”?Let’s take a quick look at some of the possible unethical issues and start with considering the decisions related to product quality.

Unethical Decisions Related to Product Quality

Some small business owners may engage in the sale of counterfeit or imitation products, misrepresenting them as genuine or of higher quality than they really are. ?This can deceive consumers and violate intellectual property rights.?Likewise small business owners may intentionally mislabel or misrepresent products to make them appear more valuable or of better quality than they truly are. This can include false claims about ingredients, certifications, or manufacturing processes.

In some cases, small business owners may be aware of defects or safety issues with their products but choose not to disclose them to consumers. ?This can lead to potential harm or hazards for customers.?Some may cut corners or ignore quality control by using substandard or unsafe materials in the production of their products. This compromises the quality and safety of the items and puts consumers at risk. ??Or they may neglect quality control processes, such as proper testing, inspections, or quality assurance measures, resulting in inconsistent or poor product quality.

Another unethical tactic with products is engaging in deceptive pricing practices.?Small businesses might manipulate pricing information to deceive customers. This can involve artificially inflating the original price to make a discount seem more significant or using misleading pricing strategies to create a false sense of urgency or scarcity.?

It is important to emphasize that most small business owners prioritize delivering quality products and maintaining customer trust and these examples represent unethical behavior practices.?These examples are not representative of the ethical standards followed by most small businesses. ?However, even if the product is solid and authentic there may be issues with the marketing practices.?Let’s look at some of the unethical marketing practices of small businesses.

Unethical Marketing Practices

Unethical marketing practices can damage the reputation and trust of a small business. While most small business owners prioritize ethical marketing strategies, here are some examples of unethical marketing practices that have been studied:

• False or misleading advertising: This includes making false claims about a product or service, exaggerating its benefits, or providing misleading information to deceive customers.
• Bait-and-switch tactics: This involves advertising a product or service at a low price to attract customers, but then attempting to upsell or switch them to a more expensive alternative once they are interested.
• Spamming or unsolicited communications: Sending unsolicited emails, text messages, or promotional materials without the recipient's consent is considered unethical. Additionally, repeatedly contacting individuals who have expressed a desire to unsubscribe or opt-out of communications is a violation of ethical marketing practices.
• Deceptive pricing strategies: small business owners may engage in practices such as price gouging, false discounts, or artificially inflating prices before offering discounts to create a false sense of value.
• Astroturfing: This refers to the creation of fake online reviews or testimonials to manipulate public opinion and deceive customers. Small business owners should refrain from engaging in this practice as it erodes trust and credibility.
• Exploiting vulnerable or disadvantaged individuals: Targeting vulnerable populations, such as children, the elderly, or individuals with limited resources, in a manipulative or exploitative manner is unethical. This can include using aggressive or deceptive marketing tactics to sell products or services to these groups.
• Unfair competition: Engaging in practices that unfairly harm competitors, such as spreading false information, sabotaging their marketing efforts, or copying their intellectual property without permission, is considered unethical.

Small businesses, solopreneurs, and entrepreneurs should try hard to engage in transparent, honest, and respectful marketing practices that build trust, provide accurate information, and deliver value to their customers.?But sometimes the “profit motive” creates a situation where the price point or pricing strategy may go a little…let’s say, sideways!?

Unethical Pricing Strategies

Unethical pricing strategies can harm both customers and competitors, as they involve deceptive practices and undermine fair competition. ?A few of the unethical practices involve price fixing, predatory pricing, price gouging and price discrimination.?Price fixing involves collaborating with competitors to set prices at an agreed-upon level to eliminate competition and manipulate market prices.?As an example, two small retailers operating in the same town secretly agree to “fix the prices” of a particular product they both sell. They might agree to maintain the same high price for that product, eliminating the need to compete on price. This practice restricts competition, artificially inflates prices, and harms consumers who are deprived of the benefits of fair market competition. Price fixing is illegal in most areas as it violates antitrust and competition laws.?

Predatory pricing is another pricing strategy which involves deliberately setting prices unrealistically low, often below cost, with the intent to drive competitors out of the market. Once competitors are eliminated, the business can raise prices to exploitative levels.?This is very similar to the practice of price gouging which involves exploiting customers during times of crisis or high demand by significantly increasing prices for essential goods or services to an unjustifiably elevated level. ?The best and most recent example of this was when Covid first started, and toilet paper and disinfectant wipes became scare.?The prices for TP and wipes went up to several dollars per roll in some places.?And people paid it because they needed it. ?This unethical practice takes advantage of consumers' urgent needs.

Another unethical pricing scheme is price discrimination.?Price discrimination involves charging different prices for the same product or service based on arbitrary factors such as race, gender, or other protected characteristics, rather than legitimate cost or market considerations.?Starting January 1, 2023, California prohibits higher prices for products marketed to a particular gender.

The law specifically takes aim at higher prices on products marketed for women, sometimes known as the “Pink Tax.” California’s new ban broadens the scope of the state’s existing gender-based pricing discrimination laws and follows a similar New York law that took effect in September 2020.?Product, marketing, and pricing all can become unethical, but there is another one to also recognize that involves relationships with suppliers.?

Unethical Supplier Relationship Issues

Unethical supplier relationship issues can arise in the context of small businesses when improper, and frequently illegal practices occur between the business and its suppliers.?The first of these is straight-forward, supplier bribery and corruption.?Engaging in bribery or corruption to secure preferential treatment, favorable contracts, or better prices from suppliers is not only unethical it’s frequently illegal and can involve offering illicit payments, gifts, or other incentives to influence supplier decisions.?A lesser recognizable situation involves exploitive relationships.?

Exploitative supplier relationships happen when businesses engage in unfair or exploitative practices with suppliers, such as demanding excessively low prices, extending payment terms unreasonably, or engaging in coercive behavior that takes advantage of the supplier's vulnerable position.?This is very similar to predatory pricing and price gouging but involves the supplier and not just the retailer.

Another pretty clearcut illegal practice is counterfeit or “gray market” products.?This practice occurs when small businesses may knowingly or unknowingly engage in purchasing and selling counterfeit or gray market products from suppliers. This can involve infringing on intellectual property rights, deceiving customers, and compromising product quality.?While teaching in the Vice Investigations class for California Peace Officer Standards and Training (P.O.S.T.), one of the presented would bring in counterfeit Nike shoes, Rolex watches, sport team jackets, music CD’s, pirated video’s, etc.?

These practices usually are caused by failing to maintain relationships that support transparent and accountable relationships with suppliers that can lead to unethical behavior. ?Some of the practices include not disclosing relevant information (prior repaired damage to cars in a used car lot), intentionally misleading suppliers, or go back on (defaulting on) contractual obligations. ?These also involve violation of supplier labor rights.?Businesses may unknowingly or intentionally source products from suppliers that exploit their workers or violate labor rights (this is also a symptom of human trafficking for labor)which can involve engaging with suppliers that use child labor, practice unsafe working conditions, or violate wage and hour laws.

A lesser-known ethical issue is supplier discrimination.?This happens when discriminating against suppliers based on arbitrary factors such as race, gender, or personal relationships rather than assessing them based on merit, quality, and competitive pricing, very similar to price discrimination but based on the supplier and not the price.?

Conflict of interest is another practice that involves ethical considerations.?This is very well-known in political and government organizations, but not as much in bottom-line driven businesses.?This occurs when business owners or agents engage in supplier relationships that involve a conflict of interest, such as favoring suppliers based on personal relationships or receiving kickbacks for selecting particular suppliers.

Strive for Ethical Actions

Just like personal ethical predicaments or ethical dilemmas, the pressure from a situation or the drive to “fill a need,” “create profit,” or be “successful” causes people to do things that may not otherwise do and be totally “above board.”??Small business owners are also subject to this pressure (maybe more so than people in large corporations), yet small business owners should strive to prioritize delivering quality products, maintain customer trust, and engage in transparent, honest, and respectful marketing practices that build trust, provide accurate information, and deliver value to their customers.

It's also critically important for small business owners to prioritize ethical pricing practices, which involve transparency, fairness, and adherence to applicable laws and regulations. Likewise, maintaining a competitive yet ethical pricing strategy helps foster trust, build customer loyalty, and promote a healthy marketplace. ?It is crucial for small businesses to establish ethical supplier relationships built on trust, transparency, and fair business practices. This includes conducting due diligence checks on suppliers and maintaining open and honest communication while adhering to contractual agreements and treating suppliers with respect and fairness.

About the Author:?Dr. Chris Fuzie is the owner of CMF Leadership Consulting?and?is currently is the Business/HR Manager for a District Attorney’s office in California.?Chris is a Leaderologist II and Vice President of the National Leaderology Association (NLA) who holds a Doctor of Education (Ed. D), M.A. and B.A. in Organizational Leadership, and has graduate certificates in Human Resources and Criminal Justice Education.?Chris is a developer, trainer, consultant for leadership of public, private, profit, and non-profit organizations since 2010.?Chris is a graduate of the FBI National Academy and a former National Instructor for the International Association of Chiefs of Police and California P.O.S.T. Courses. Chris is the author of "Because Why... Understanding Behavior in Exigencies." and of "S.C.O.R.E. Performance Counseling: Save the Relationship, Change the Behavior." Chris is honorably retired from the Modesto Police Department after 28 years of public service leading such teams as the Homicide Team, the Hostage Negotiations Team, the Street-Level Drug Team and the School Police Officer Team.