Business Ethics Assignment: Case Analysis Of Woolworths

Question

Task: Business Ethics Assignment Task
Identify a current real world case in which there are concerns related to the morality and ethics of consumption in an Australian Business. (for example, issues of product safety, pricing, advertising, regulation, which deal with the relationship between a company and its customers). Write a report that addresses the issues in the case as outlined below. This will require students to undertake research, using online business media (e.g. ABC, Sky News Business, Financial Review, company reports, consumer protection organisations or regulators. Links to some of these resources will be discussed in class.

N.B. Current means any case that occurred after June, 2021.

Answer

Introduction
Businesses nowadays are increasingly becoming aware of importance of adopting ethical ways of performing their operations to ensure a high level of satisfaction of their key stakeholders. Corporations strive to establish proper business ethics for gaining consumer trust. However, in some cases, organisations end up setting their product prices in ways that can seem to be unethical to their customers. A sudden increase in product prices could be due to inflation, difficulties in supply-chain and so on. For instance, Woolworths has warned about a significant increase in prices of certain products due to some constraints in its supply-chain and inflation issues. This sudden increase in prices is likely to raise ethical concerns that can lead to customer dissatisfaction, as it will reduce customers’ ability to purchase products. It will result in deterioration of relationship between Woolworths and its customers. Purpose of this study is to analyse and evaluate ways managers are trying to address this issue and propose some actions that this organisation can take in future to mitigate negative impact of sudden price hikes due to unavoidable circumstances. It will further recommend actions that could be considered for effective institutionalisation of ethical behaviour within Woolworths for addressing stakeholders’ concerns.

Case summary
Covid-19 restrictions have resulted in significant constraints in supply-chain and due to this, prices of raw materials such as crops, red meat and much more have increased. According to CEO of Woolworths group, due to several issues in supply-chain, suppliers of supermarkets are demanding price rises which are more than normal (Thenewdaily.com.au, 2021). Apart from this, increased restrictions during Covid-19, supply of materials such as wooden pallets have made it challenging to distribute the product, which has further caused prices to go up. Long-term impact of this pandemic is likely to result in cosmic shifts in grocery prices. It has been due to labour shortage in freight and farming sector, shuttered interstate and international borders and many more issues. Besides that, inflation has also led to increase in prices.

Figure 1: Factors leading to increase in cost of raw materials

A substantial number of distributors have started requesting for increasing prices, which is justified as prices of distribution raw materials have increased to a significant extent. The Cost of containers is also mounting at a rapid pace, leading to an increase in overall prices. CEO of Woolworths has predicted a significant increase in prices of some grocery products in the coming three months. This will cause this company to face ethical concerns, as consumers might not be aware of reasons behind an increase in product prices. Profit margin at grocery products are thinner as compared to other products and for this, at times of price pressure, supermarkets such as Woolworths are left-with no option; however, to enhance prices of their products to maintain their profitability (News.com.au, 2021). Rise in prices would lead to a rise in costs of living and would put enormous pressure on customers.

Lack of focus on managing this situation would raise price-related ethical issues as most people have lost their jobs during this pandemic and there has been a reduction in their affordability. Hence, an increase in prices of essential grocery products would be challenging for them and it would cause them to develop immense dissatisfaction as they would lose their ability to purchase essential products and loss of purchasing power is likely to degrade relationships between customers and businesses. According to Woolworths’ CEO, this organisation is striving for making the christmas affordable and managers are always concerned with ensuring customers’ convenience during price rises due to certain issues in microenvironment (Thenewdaily.com.au, 2021). Supply-chain has been so disrupted that stocks are being travelled from one distribution centre to another for management of inventory and sales. All these issues are leading to an increase in prices of groceries.

Evaluation
a. Evaluating Managers’ decisions using theories
Managers of Woolworths have decided to work closely with its suppliers to manage mountaineering prices to ensure that there is modest inflation in upcoming days. This will help in making suppliers understand importance of keeping prices in control for retaining existing customers and ensuring their loyalty during this pandemic situation (Afr.com, 2021). In this context, Virtue Theory could be analysed for evaluating this decision of Woolworths’ managers. This theory represents an interconnection amongst opportunities, rationale and pressure (pressure in external or internal business environment) (Greenwood & Freeman, 2018). According to Virtue theory in business context, managers and other individuals associated with a business should not only focus on rules that are generally followed in a situation; however, they should focus on practicing things that are ethical.

Hence, managers of Woolworths are not only depending on the fact that as profit-margin on groceries is low they are supposed to follow the trend of price hikes during an increase in cost of raw-materials. They have decided to converse with their suppliers regarding the most probable implications of sudden increase in product prices for their business and possible impact on customers that can lead to low profitability for both the business and the suppliers. Apart from this, leader of this organization has paid special attention to making Christmas affordable to the customers amidst Covid-19 related complications.

However, as CEO has found a legitimate reason behind price hikes by suppliers, this supermarket giant can ask its consumers to pay slightly higher prices as compared to before (Afr.com, 2021). It can comply with principles of Deontological theory, as according to principles of this theory, people need to act with moral integrity irrespective of consequences. Therefore, managers have taken into consideration interests of suppliers more as compared to that of the customers. It can lead to rise of ethical concern and in this context, utilitarianism theory (one teleological theory) could be analysed. This theory requires individuals to perform actions that could ensure well-being of many people. Hence, managers of Woolworths should have focused on increasing supplier-base and procuring products of different prices to consumers belonging to different customer-groups.

b. Ways different perspectives of economic distribution might have influenced managers’ decisions and customers’ expectations
Economic distribution involves ways income; wealth and total output are distributed amongst production factors such as land, capital and labours or individuals. As cited by Bilan et al. (2020), equalities in income distributions can result in a large-scale transformation in structure of human resources and ensure a high-level of work motivation. Inequalities in income can further pose a significant challenge to a certain group of consumers that reduces their affordability. A high level of income inequality can shape some consumers’ expectations in ways that they start to demand products at cheapest possible prices.

Hence, an increase in prices of products would be a significant ethical concern for consumers belonging to low to middle-income groups. Apart from this, in case of sudden price hikes, consumers can start perceiving that Woolworths is offering its products for people belonging to high income groups only that would lead to a notable deterioration of relationship amongst Woolworths and its customers (Bonacini et al. 2021). On the part of managers, different perspectives of economic distributions can have significant influence on their decisions. For example, there exists Unequal distribution of resources such as labours there exist a need for increasing wages to motivate and retain the existing labours of organisation. Therefore, there will be an increase in operating costs and hence, managers will be left with no alternative except increasing prices of products. Besides that, CEO of Woolworths has found it legitimate for suppliers to enhance costs of raw materials due to an increase in labour costs and shipping prices. Hence, it can further influence managers’ decisions to increase prices of some groceries. On the other hand, Woolworths’ leader has also focused on increasing product prices at minimum level. This decision might be a reflection of his concern regarding income or wealth inequality due to inflation.

c. Recommendations for future actions considering “business cannot handle it argument” and “Let the government do it argument”
High inflation has caused an increase in income inequality in Australia and has resulted in a reduction in consumers’ affordability. In this situation, an increase in prices of essential grocery items would worsen conditions of Woolworths’ customers. However, increase in costs of raw materials would cause this company to impose a higher price on its products as compared to earlier to maintain its profit margin (Dalisova et al. 2019). Therefore, there can be an argument regarding the government's responsibility to handle inflation and reduce restrictions on supply of materials, as business would not be capable of managing this situation.

Moreover, it is essential for Woolworths to develop proper strategies to manage adverse impact on customers due to increase in prices. For instance, it should focus on making customers informed regarding reasons behind changes in their prices (Borgesius and Poort, 2017). It will be beneficial for gaining trust of customers and making them convinced to pay a higher price as compared to earlier. Besides that, Woolworths needs to develop a proper pricing strategy for ensuring convenience of customers belonging to all income groups.

Figure 2: Actions to be taken

During inflation, as many consumers are facing financial constraints, it is one of the corporate social responsibilities of Woolworths to take care of its stakeholders such as consumers. Hence, an ethical pricing policy should be adopted for ensuring a high level of consumer satisfaction and it should not always follow real demand-supply in the market (Schlagwein et al. 2019). Ethical pricing would require this organization to examine the constraints such as price pressure from suppliers and set prices by considering best interests of key stakeholders such as customers and suppliers.

d. Ways Woolworths can institutionalise ethical-behaviour for addressing stakeholder concerns
Woolworths needs to develop a code-of-conduct for institutionalisation of ethical behaviour in business for making employees at all levels understand the importance of taking care of best interests of customers by developing proper strategies. Managers need to understand the best ways of satisfying customers amidst challenges in the market or macro-environment. For instance, in Woolworths, managers are concerned regarding suppliers’ interests for increasing prices of raw materials. For this, managers are planning to enhance prices of their products to a moderate extent. However, it is essential for this company to provide proper training to employees for importance of considering the interests of all stakeholders including suppliers, customers and investors (Portna et al. 2020). Managers should follow utilitarianism theory for ensuring well-being of a large number of stakeholders instead of focusing much on ensuring well-being of a specific group of stakeholders.

Managers should be provided with proper training on ways of understanding customers’ expectations during Covid-19 so that they can set strategies ethically to address consumers’ specific needs and changes in their demands. Most importantly, CEO of Woolworths should ensure ethical payment system as well for workers to ensure their motivation and reduce risks of worker shortages during a pandemic that is one of the fundamental reasons behind rise in prices of products. Focus should always be on development of a value-based culture within this organisation to enhance morale of employees that would have significant positive influence on their decisions regarding companies’ services that would enhance value to customers. Managers would be morally driven to enhance organisational reputation by building good relationship with customers through the launch of proper pricing strategies during inflation.

Summary
Finally, it can be concluded that Woolworths has paid special attention to increasing its prices at a minimum level to make sure that customers would not have to face any significant problem while purchasing their essential groceries. However, any increase in prices can have negative impact on consumers’ attitudes, as they might not be able to find a legit reason for the increase in prices. Hence, it would enhance risks of facing ethical obligations by this business. Therefore, Woolworths should focus on adopting proper pricing strategy to mitigate negative impact of inflation and to address changes in customers’ expectations regarding prices during Covid-19. Managers should be able to understand impact of changes in factors of economic-distribution on customers’ situations to adopt proper pricing strategies that would help in reducing chances of unethical pricing issues. This would require managers of this organisation to communicate properly with stakeholders regarding prices of raw materials and products to address their concerns.

Bibliography
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