50 Case Studies

Case 1: Hank Greenberg and AIG
Hank Greenberg was the formidable CEO of AIG, the largest insurer in the United
States. Mr. Greenberg was removed from his position when the SEC raised issues regarding
the company’s accounting practices and the accuracy of its financial statements. AIG
eventually released financial statements that reduced its profits by $4.4 billion. Mr.
Greenberg maintained then and maintains now that he did nothing wrong. A story from his
youth offers some insight into his ethical philosophy. When he was stationed in London
during World War II, the United States and its military command were concerned about
the impression the soldiers left and their conduct. They also recognized the need for the
soldiers to have some recreation. The commanding officers gave the soldiers extra leave
days if they used them for cultural events. The commanding officers had the theater, the
symphony, and the ballet in mind as culture, not the usual activities for leave, such as
drinking and chasing women (and, all too often, catching the women). The only
requirement for the extra leave day was that the soldiers had to bring back a playbill or
program from whatever cultural event they had attended. Mr. Greenberg would buy a ticket
to the theater, go in, collect the playbill, and then head out the side exit to spend the time
on other activities, the types of activities the commanders were trying to have the soldiers
avoid, to wit, carousing. Mr. Greenberg had his proof of cultural activities, but he also had
his usual fun.
Questions:
1. Did Mr. Greenberg violate any rules as a soldier? Isn’t the lack of clarity on the part of
the commanding officers what caused the problem? What’s wrong with using a loophole
in the system?
2. Do you believe that a pattern established in youth surfaced as he was running AIG?
3. In a 2006 AP survey of adults, 33 percent said it is “okay” to lie about your age,
although only to make yourself younger, not for purposes of underage drinking. What
rationalization( s) are the 33 percent using?
Incredible Shrinking Potato Chip Package
Topic: Cost vs. price vs. value issues
Characters: Julie, Brand Manager for potato chips at a regional salty snacks manufacturer
Dave, Marketing Director for the regional salty snacks manufacturer
Julie has been concerned about the profitability of the various items in her line of
potato chips. According to her potato suppliers, the recent drought caused a 35 percent
reduction in the potato crop compared to one year ago, resulting in a 25 percent hike in
potato prices to large buyers like Julie’s company. Potatoes accounted for almost all of the
content of her chips (which also consisted of vegetable oil, one of three different flavoring
spices, and salt), plus there were packaging costs. To hold the line on margins, which of
late had been slim at only about 5 percent due to fierce competition from several other local
and regional brands, Julie would need to raise potato chip prices about 15 percent. On her
most popular 7.5 oz. size, which had a price spot of $1.59 on the package, this would
require a price hike of $.24, bringing the price up to $1.83. Julie wondered what would be
the appropriate strategy to deal with this unfortunate circumstance. She was very reluctant
to raise the price to maintain the margin. First, she feared incurring the bad will of her loyal
customers; it wouldn’t be perceived as fair by them. Moreover, she was worried about
competitive responses; her other larger competitors might be willing to incur a loss in the
short-run to keep their customer bases and to attract price-hiking rivals’ customers. Julie
couldn’t afford such a strategy since she was evaluated solely on the basis of monthly net
profits. Historical data in this industry revealed another possible competitive maneuver in
the face of rising ingredient costs: hold the line on prices and package size while reducing
the net weight of the package. Julie was concerned that this might be a deceptive practice.
She recalled from a Consumer Behavior course she had taken in college a concept known
as the “just noticeable difference.” This said that relatively small changes in a stimulus
(such as a price hike or content shrinkage) go unnoticed by consumers. Julie felt intuitively
that the price increase necessary to maintain margins would be noticed, given the price
sensitivity of buyers for snack foods. However, the past industry data suggested that
perhaps buyers might not notice the package size reduction needed to sustain profits, which
in this case would be 1.1 ounces. Julie asked her boss, Dave, the Marketing Director, about
the advisability of reducing the net weight of the potato chips. Dave said that this was a
practice known variously as “downsizing” and “package shorting.” It was a very common
practice among packaged goods manufacturers. For instance, he said, candy bar
manufacturers are subject to constantly fluctuating ingredient prices, and because there are
expected (“fair” or “reference”) prices for candy bars, package sizes are frequently adjusted
without informing consumers. Jim said that was a nonissue since marketers have been
above board in labeling products accurately as to weight, serving size, price, and quantity.
Furthermore, the Food and Drug Administration had no laws against the practice. Dave
recommended downsizing the potato chips, but he made it clear to Julie that the ultimate
decision was up to her. Julie still had her doubts. After all, it would seem that consumers
who are in the habit of buying a particular product size generally don’t scrutinize the net
weight label on subsequent purchases. If this were true, it seemed to Julie that downsizing
would be a deceptive practice.
The Pizza Puzzle

Topic: Deceptive Advertising
Characters: George Hansen, General Manager, Augusta Marigold Inn, Subsidiary
of Hospitality Enterprises
Sharon Coombs, Food Services Manager, Augusta Marigold Inn
George Hansen is General Manager for the Marigold Inn in Augusta, Georgia.
Sharon Coombs is Restaurant and Food Services Manager for the Inn. She reports to
George. Two years ago, Sharon noticed a decline in room service business, the highest
margin portion of her operation. This decline coincided with an increase in the national
sales of pizza delivery and carryout firms as well as an increase in the number of empty
pizza boxes from these firms being left in guest rooms in the Inn. Her immediate response
was to install a pizza oven in the kitchen and offer room service pizza to guests. The effort
met with modest success, though it was well below her expectations. Questionnaires
completed by departing guests revealed a problem of product quality. Focusing on this
problem, Sharon improved the Inn’s pizza until blind taste tests judged it at least equal in
quality to the products of the two major pizza delivery competitors in Augusta. Sales did
not improve, convincing Sharon that the problem was a perceived mismatch between the
hotel’s image and guests’ expectations of pizza makers. Guests simply did not seem to
believe that the traditional steak and seafood restaurant at the Inn could make a high-
quality, authentic pizza. Based on this conclusion, Sharon presented the following proposal
to George:
“Sales of room service pizza are stagnant due to guests’ misperception that our
product is lower in quality than that of competitors. This misperception is based on the
belief that until we disassociate our pizza from the Marigold Inn name. Therefore, to
capture more room service pizza business, we should create a ‘Napoli Pizza’ image for our
guest room delivery service by: · Preparing ‘Napoli Pizza’ brochures for each guest room,
complete with a phone number with a prefix different from that of Marigold Inn. The
number will reach a special phone in room service, which will be answered, Napoli Pizza,
authentic Italian pizza from old, family recipes.’ · Using special ‘Napoli Pizza’ boxes for
delivering room service pizza to guests. · Issuing ‘Napoli Pizza’ hats and jackets to room
service personnel for use in pizza delivery. Room service waiters and waitresses will wear
these garments to deliver pizza. They will change to their regular uniforms for other
deliveries.”
How should George respond to this proposal?
The Movie Ticket
You and your friend have purchased movie tickets to see Spiderman III. After seeing
the movie, you realize as you are walking down the multiplex hallway that no theater
employees are there and that you could slip into Pirates of the Caribbean III and see that at
absolutely no cost. Your friend says, “Why not? Who’s to know? Besides, it doesn’t hurt
anyone. Look at the price of a movie these days. These people are making money!”. You
find you hesitate just a bit. Should you take in the extra movie for free?
Discussion Questions
1. Evaluate the dilemma with the theories of ethics.
2. Offer your final decision on the second free movie and your explanation for your
decision.
Dad, the Actuary, and the Stats Class

Joe, a student taking a statistics course, was injured by a hit-and-run driver. The injuries
were serious, and Joe was on a ventilator. Although Joe did recover, he required therapy
for restoring his cognitive skills. He asked for more time to complete his course work, but
the professor denied the request. Joe would have to reimburse his employer for the tuition
if he did not complete the course with a passing grade. Joe’s father works with stats a great
deal. Joe’s father went and took the course final for Joe, and Joe earned an “A” in the
course.
Discussion Questions
1. What school of ethical thought does Joe’s father follow?
2. Was Joe’s father justified in helping Joe, and innocent victim in an accident? Does your
answer change if you learn that Joe’s father is an actuary?
3. List those who are affected by Joe’s father’s actions.
4. Can you think of alternatives to Joe’s father’s solution?
5. Evaluate the systemic effects if everyone behaved as Joe’s father did.

50 Case Studies

Uploaded by

Copyright:

Available Formats

50 Case Studies

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

50 Case Studies

Uploaded by

Copyright:

Available Formats

Case 1: Hank Greenberg and AIG

The Pizza Puzzle

Dad, the Actuary, and the Stats Class

You might also like

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.