MEMO: Concerns about the Marketing and Sales Proposal

To: Marketing and Sales Departments

From: Legal Department

Subject: Legal and Ethical Concerns Regarding Proposal to Increase Rewards Memberships in

Low Income Markets

Executive Summary

We appreciate the Sales and Marketing team’s desire to expand the rewards membership programs into

low income markets and their consideration of potentially mutual benefits to company profitability and

the communities we serve. However, there are two legal requirements and three ethical concerns we

need to address before taking this community outreach proposal further.

The Two Legal Requirements

Because the program you are proposing makes specific claims about the benefits of membership and

presumably captures personal data, we begin with a discussion of two

legal requirements:

1. Truth in advertising

2. Data collection and privacy

Truth in advertising. The U.S. Federal Trade Commission requires that all advertising be truthful and be

supported by evidence.

Pursuant to that, we require that ABC Rewards Membership marketing materials must meet these

requirements drawn from our interpretation of the law.

Requirement 1: We need to be precise in making statements about the program’s benefits.

Requirement 2: Commercial speech must be non-deceptive.

Requirement 3: Advertisers must be able to substantiate direct or implied superiority claims.

While the plan we reviewed is high level and does not detail a complete advertising campaign, some of

the themes outlined in the “Ad Lines” section appear to fail the test of these requirements. Please

address these.

Data collection and privacy. Because this will be a national program, we must ensure compliance with

the most restrictive laws on data collection and privacy. Those laws are found in the state of California.

According to the Office of the Attorney General of California, the California Consumer Privacy Act of

2018 (CCPA) secures new privacy rights for California consumers including “the right to know about the

personal information a business collects about them and how it is shared and used, the right to delete

personal information collected from them (with some exceptions), the right to opt out of the sale of

their personal information, and the right to non-discrimination for exercising their privacy rights.” As

such, we need to ensure we are not collecting any more data than is needed for the purposes of

contacting consumers and shipping merchandise. We must make it convenient and accessible for

consumers to opt out of data sharing.

Even if we are in full compliance with the CCPA, we are particularly concerned about marketing your

program in high schools to children under the age of 18. While high-school aged youths are among our

biggest customers, they are not legal adults and the contractual terms a rewards membership program

would entail, not to mention the data you would collect, would put the schools in an awkward position.

Schools are mandated to protect the privacy and data of their students, including those who are 18.

If you plan to market a rewards program that supports local high schools, you are required to come up

with an alternative approach that does not require the kind of membership that students under 18 must

purchase and that they must share sensitive data to use.

Ethical Concerns

Beyond legal requirements, there are also three ethical concerns that need to be addressed.

1. Direct marketing to low-income populations

2. Transparency in language

3. Collection and use of consumer data

Direct marketing to low-income populations. The populations you are targeting are financially

vulnerable and should be approached only if the company can add value to their lives. It is essential that

the company does not come across as practicing predatory marketing. ABC will need to build trust and

show that the membership program will not be another revenue-generating opportunity that

disadvantages these consumer groups by making promises of paybacks to individuals and communities

that do not come to fruition. Furthermore, we need to ensure that rewards do not encourage excessive

non-discretionary spending among individuals who are struggling just to make ends meet.

An essential aspect of ethically marketing to low-income populations is ensuring that the program is

culturally, economically, and socially appropriate to the market. As such, we need to demonstrate that

the goals of the program align to the areas these consumers desire to improve. At the same time, we

must consider that low income populations are extremely diverse and not everyone will share the same

values.

We know, for example, that in our current, middle- and upper-income rewards program markets, 27.8%

of loyalty members never redeem their points. They enjoy special discounts on purchases that we

sometimes apply to products for card members, but they don’t apply their points. 67% of these non-

redeemers are on auto-renewal plans, which means they choose to pay for yearly memberships they do

not fully use. And 12% of our non-redeeming members who do renew do not make enough purchases

with built in discounts to recoup the cost of their membership.

We do not believe the same under-redemption and under-use practices should occur in a low-income

market. In addition to the ethical issues, we risk negative public relations and other reputation hits if our

rewards memberships end up costing low-income customers more than they redeem.

Another area of concern on this issue is your plan for rewarding local business owners for signing up

members. The fee for processing payments is standard business. The incentives for signing up members

can lead to abuses. For example, if a store employee lives in the neighborhood and that employee gets a

customer to join the rewards program, why does owner receive points on his or her rewards

membership account? And why do store owners get a free membership? We have similar concerns on

this front around giving discounted memberships to influential high school students.

Please suggest changes to the issues we listed above. It is important at the very least that customers in

this market break even on their memberships and that incentives for signing up new customers are

ethically applied.

Transparency in language. It is the responsibility of the company to ensure that all consumers

understand what they will receive from their rewards memberships. Standard language and exchange

for middle-income and high-income populations will need to be adjusted for the low-income population

that may have had fewer educational opportunities or less experience with managing personal finances.

All terms need to be reviewed with low-income populations to ensure their understanding of what the

terms indicate and what their obligations are. Care needs to be taken to clearly articulate the standard

“fine print” in culturally and educationally appropriate language without being condescending or

misleading.

We are particularly concerned about the complexities of the Pro Rata Coupon plan described in the

memo. While we understand a contract may make it clear that the method is in use, which would shield

us at least from a deceptive practice frame, we are concerned at the complexity of the method.

We are also concerned that language in the proposal about plans for donations to local charities and

schools is vague about how precisely that would work. We know that details are to be worked out, but if

you do not have a clear and transparent vision here, you risk not being transparent on roll out. What will

the contributions be based upon? How will they be tracked and reported? What kind of cost will these

be recorded as for TBL purposes?

Please address the pro rata coupon issue and the need for clarity around how charitable contributions

will be determined.

Collection and Use of Consumer Data. Beyond legal requirements, it is critical to ensure that the

collection and use of consumer data does not create vulnerabilities for the low-income populations.

Behavioral profiling is a key issue related to vulnerable populations. It enables companies to offer goods

at different prices to extract the most revenue from everyone—a concept known as price discrimination.

Given the existence of such disreputable practices, we must consider that some low-income populations

may feel targeted and not wish to engage in data collection practices many companies use. As such, the

company must use culturally and linguistically appropriate marketing, and design messaging that

considers the socioeconomic barriers faced by the low-income populations

We mentioned earlier our concerns with data in the context of pre-adults, but we are also concerned

specifically about the plan to ask parents (and grandparents we assume?) for information about their

children’s or grandchildren’s ages and birthdates as part of the membership sign up.

The minimal amount of information you need to sell, issue, and renew a membership rewards card and

number to a consumer is their name, age, address, and if they wish to provide a credit card or ACH

checking account number for auto-renewals, that data.

Please review the birthday dates idea. It is okay to ask for this kind of additional information, but you

must explain how that information will be used, protected, and whether we will share it with other

product lines in the company or third parties.

Course Documents/MBA 500 Project Three Milestone Response Memo Template.docx

MEMO

Executive Summary

[Insert a 3- to 4-sentence summary of the legal team’s concerns, what you were asked to do, and the nature of your recommendations.]

Addressing One Legal Issue

[Insert your description of one of the legal issues you have identified.]

Addressing One Ethical Issue

[Insert your description of one of the ethical issues you have identified.]

Providing a recommendation