Jim Burrows is the Managing Director of Sofa World plc, a large furniture store with branches across the United Kingdom. After a series of very tough years he now realises that Sofa World desperately needs to increase its sales to ensure its future. When Jim Burrows originally took over the management of Sofa World it was known as Burrows Ltd, and was a small family business. Since then he has managed to develop it into a nationwide chain of shops. Burrows prides himself on managing the company in an ethical and honest way and genuinely feels that it is this ethical approach that has led to the company's success.
With the impending retirement of his marketing manager, Burrows seeks a suitable replacement. Darren Swift has a reputation as a brilliant and smart businessman who is thought to be more than capable of rejuvenating any firm and selling any product. Discounting the rumours that "this Swift sometimes sails a bit close to the wind", Burrows decides to give him the job.
Swift soon realises that Sofa World is in a serious situation, suffering along with its competitors from a general decline in furniture sales. While Swift appreciates that Sofa World must draw customers away from its competitors, the small profit margins leave little room for manoeuvre.
Following the long recession, Swift senses a new mood in the market and suggests that certain models be sold offering interest-free credit over five years. Sofa World has relatively good relations with its banks and is able to borrow money at a preferential fixed rate of 10% p.a., compared to an average borrowing cost to the consumer of around 17%. Swift explains, "We could sell a sofa usually priced at £1,000 for £2,000. Borrowing £1,000 will cost us £1,600. However, if a customer was to borrow £1,000 from the bank over five years it would cost them almost £2,200, so we are doing customers a favour! And we make an additional £400 on each sofa." He concludes, "I can already picture the advert: 'Sofa World, where sofas cost just £33 a month!'"
Burrows agrees to the promotion. However, while sales start to pick up, it soon becomes apparent that interest-free credit is not enough to increase Sofa World's market share significantly.
Swift decides that the sales staff needs to be more proactive. He explains to Mr Burrows: "Sales staff are not here to help people with their colour schemes; they are here to sell furniture. If they were here to give advice we would call them advisers. But we don't; we call them sales staff!"
Thus, the sales staff are instructed to push harder for sales and to ensure that even people only coming in for enquiries are encouraged to "just put their name down" for a sofa. They can cancel the order without any penalty, provided they make the request in person within thirty days of placing the order. Sales staff are offered substantial cash commissions on all interest-free sales.
A series of limited offers are introduced with 'Now or Never' promotions, including free televisions and microwave ovens for anyone signing up by the end of the week. While these are limited offers, Sofa World plans a series of similar promotions on an ongoing basis.
Jim Burrows is delighted to see that sales are slowly picking up. However, although the added incentives are small, they are making inroads into the already tight profit margins. As ever, Swift has a solution. "What these people need is insurance. Sales staff should be offering them a twelve-month no-quibble insurance guarantee. For a small amount, say £8 a month, they can insure their furniture against breakages or damages to fabric." Burrows is very uncomfortable about this idea: technically, most of this guarantee is covered by statutory rights. However, Swift encourages him, assuring him that people know their statutory rights yet still prefer the extra cover. So the sales staff are instructed not only to force a sale but also strongly to encourage insuring the goods.
Sofa World is fast becoming a market leader and Swift feels the time is right to widen its portfolio. He opens the 'Jim'll Fix It' department, employing carpenters to fix broken furniture. Swift shows Burrows the new advertising campaign stating 'Jim'll Fix It: Good As New'. Burrows is delighted to see his own name in lights and acknowledges that it is a natural extension to the insurance plan as they were already reconditioning damaged furniture they had insured.
Swift explains to Burrows that this department is very cost-effective as it primarily uses off-cuts and end-pieces as well as lower-quality wood normally discarded when making new furniture. This enables Sofa World to fix furniture cheaply, using waste materials; consumers would be satisfied as it would be unreasonable to expect a reconditioned item to be as good as new. Burrows remains unsure. He is beginning to feel Sofa World is no longer the same company he established, based on the ethical foundations of integrity and honesty.
At first sight there seems to be little wrong ethically with interest-free credit. The merchant succeeds in attracting customers and the consumer benefits on two accounts. She is able to make a purchase of an item which would normally be too expensive, and she can borrow money at a rate lower than that charged by many commercial lenders. However, the problem lies in the marketing. Participants at the seminar claimed that the term 'interest-free' is misleading. There is no such thing as free credit; the cost of the credit is incorporated into the purchase price, pushing it up above the going market rate.
Some might argue that this is not a problem. Customers are not stupid and would know very well that they are paying money for the privilege of making extended payments. But how much are they actually paying? And how much is too much?
In the case of some goods, such as microwave ovens, it might be easy for customers to gauge just how much they are over-paying, but furniture is a particularly tricky area. Sofas range in price from hundreds to thousands of pounds. The true worth of an object may not be known and consumers may not be aware of the specific amount they are over-paying for their sofa.
The pro-interest free credit group responded to this by asserting that many consumers are less concerned with the price of the product than their own cash flow situation: the amount of income they have at their disposal. A consumer may set aside fifty pounds a month for long term purchases such as cars, furniture and budget in terms of the scale and duration of a loan. But even if this is so, all customers are going to have to pay more, whether they intend to benefit from the offer of interest-free credit or not.
When does an enthusiastic sales spiel become harassment? All but the most extravagant and self-assured shopper may need a little bit of persuasion now and then before spending money on a luxury item. A shopper might just want someone to confirm the quality of his choice or she may wish to be assured of the standard, price and aesthetic appeal of the product she wishes to buy. The point at which most people would feel that the salesman has gone too far is when the consumer has decided that she does not want the product, but the salesman insists that she does. In that situation an obvious line has been crossed, but in the case of Sofa World the tactics of persuasion are a lot more subtle. Shoppers are encouraged only to "add their name to a list". The salesman offers bait of which the shopper may not be aware of the consequences. Participants discussing this issue at the seminar expressed concern over this, as well as about time-related no-quibble refund policies, which relied on shoppers falling into error. Participants also felt uncomfortable about other inducements such as free gifts, which can be seen as being aimed at diverting the consumer's attention from the quality of the products they are most interested in purchasing.
Shops may be providing customers with a useful service by offering in-house insurance but it was widely agreed that the customer had a right to know that the insurance policy only marginally improved on the purchaser's statutory rights.
Many people felt that the practice of using off-cuts and waste materials was commendable for its friendliness to the environment, but it was important to make customers aware that they are not paying for new or first-rate materials.
While there is certainly room in Jewish law for fair competitive practices, Jewish tradition does not approve of overly aggressive marketing if it involves deceiving consumers, or if its aim is to put competitors out of the market altogether.
The biggest moral danger with the interest-free credit campaign is that customers may not be aware of what they are paying for. Jewish concern with disclosure places a duty on the seller to inform the customer of the true value of every offer that is presented to him. For example, the Rabbis forbid the painting of old utensils to make them look new. The relevant concept is Ona'ah, the command not to deceive another person, and the injunction against placing a stumbling block before the blind. The question whether it makes a difference if most people understand the underlying principles behind an offer has only limited relevance. Judaism endeavours not to penalise those who lack 'street wisdom'. In any event, in the case of interest-free credit, since many firms do not budget for this service by charging more for the item, a customer cannot be blamed for believing that the price reflects the worth of any particular product.
The policy of hard selling is fraught with danger from the ethical point of view. It is one thing actively to seek out new customers, but the methods here seem to be relying on customers trapping themselves, which is quite another story. Salespeople often have to make a real effort to tell customers honestly what is best for them. Swift is making this extremely difficult by exhorting his sale staff to turn every shopper into a buyer.
Swift undoubtedly lacks certain humane qualities, and does not seem to value customers as autonomous thinking individuals. Purely from the standpoint of good management, one must query whether such an approach will benefit the company in the long run, especially when the principles it was established on include honesty and integrity.
The concern from a Jewish point of view in both these schemes is whether the customer is aware of what he or she is paying for. This concern can be met by ensuring disclosure of the relevant facts.