Not all unethical customer behavior is equal. In this context, interesting questions arise such as how to distinguish between different types of unethical customer behavior, how to consider its consequences and how to respond to it as a manager. In a recent study by Zhao Yang, René Algesheimer and Utpal Dholakia, the authors study how retailers should respond to unethical customer behavior.

When considering how retailers deal with ethical transgressions of customers, there are two opposing moral philosophies: what constitutes ethical behavior and how people should respond to it can be viewed from a deontological and a teleological perspective. The deontological perspective, exemplified by Kantian ethics, focuses solely on the inherent correctness or incorrectness of an action disregarding its consequences. Emphasis is given to the individual’s motives for acting with the ultimate goal of behaving in a certain way for the right reasons. Contrarily, the teleological perspective, which has its conceptual foundations in the Utilitarianism School developed by British philosophers Jeremy Bentham and David Hume, weighs the cumulative positive and negative effects of consequences and does not focus on the nature of the behavior itself. Under its purview, a behavior is considered as moral and it is encouraged as long as its total beneficial consequences outweigh its harmful consequences.

The conventional wisdom in retailing implicitly endorses deontological ethics. This is because retailers fail to distinguish between unlawful and lawful unethical customer behavior. They treat all unethical customer behavior as if it were unlawful and harmful. Not surprisingly, this leads to the belief that any time an unethical customer behavior is detected, retailers should use all available means to stop it.

The authors point out that the retailer should distinguish between unlawful and lawful unethical behavior when deciding how to respond. When the behavior is lawful but unethical, the retailer should consider what makes it unethical and consider the long-term consequences for itself and its other customers. Consistent with teleological ethics and customer relationship management principles, the authors propose that lawful customer behaviors that are unethical because they violate retailer policy can have various consequences for the customer’s relationship with the retailer. The authors conduct a study in cooperation with a Swiss online shopping retailer whose business model is a combination of social gaming and heavy discounts. They analyze the behavior of 48,000 customer accounts covering seventy weeks and validate their intuition that in some situations, unethical customer behavior could have beneficial effects for the company and other customers.

In today’s digital, information-dense, privacy-conscious and customer relationship-oriented environment, many companies have adopted conservative, tradition-based policies of what is allowed and not allowed by customers. Many retailers treat all unethical customer behavior as if it were unlawful and harmful to the bottom line. They fail to realize that some customer behaviors are unethical not because of the customer’s fault but simply because of the way they have designed their policies. If the policy is simply modified, an action that was previously a violation (and unethical) would become acceptable. To find out how managers respond to unethical customer behavior, the authors conducted a “What would you do” study of 136 US-based owners or managers of small and medium-sized retail businesses. The results showed that far more managers embrace a pragmatic consequentialist approach to deal with unethical customers who bring them money. With this finding, the authors developed a model of how managers should respond to unethical behavior that is based on three factors: (1) the type of customer’s unethical behavior, whether lawful or unlawful; (2) the consequences of the unethical behavior for the company, the customer and other customers; and (3) the range of responses that the manager can use.

This research raises the possibility to consider ethical customer transgressions in more nuanced and balanced ways, especially when such behaviors arise from violating retailer policies. Companies are encouraged to devise solutions that are equally nuanced and lead to the best possible outcomes for the customer base and retailers, even when customer actions do not fall strictly within the parameters set forth by any one of the influential moral philosophies alone. A clear distinction between unlawful and lawful ethical transgressions is a necessary condition for any nuanced consideration of customer transgressions. Retailers should not yield to ethical customer transgressions without carefully thinking about the nature of the behavior.


References and further readings:

Further information about the author: Zhao Yang, René Algesheimer, Utpal Dholakia