The Business Book

320

T

here is an adage that

quality sells, and many

companies believe that the

best way to attract buyers is to

produce a superior product.

Businesses that put quality first

believe that the other factors

affecting demand, such as

promotion, distribution, and the

price, are much less important than

the product itself.

At first this approach may seem

irrational. In some markets, after

all, low prices are critical. For

example, Ryanair’s competitive

advantage over its rivals is based

on its low-cost business model,

which enables the airline to charge

lower fares than its rivals. Yet some

low-cost goods or services can

represent a false economy for

customers, especially if the goods

are of poor quality, necessitating

extra costs for the customer to

repair or replace them.

Another possible way to boost

revenue is to increase the volume

of goods sold. Some companies

attempt to achieve this goal by

using advertising campaigns to

steal market share from their rivals.

However, the problem with trying

to grow revenue through promotion

is that it is usually expensive. In

the UK, for example, in 2013 a

30-second television commercial

cost up to $80,000 (£50,000).

Offering a quality product is

an alternative to these low-cost

or high-volume approaches. This

strategy can achieve the same

goal of boosting a company’s

revenues, improving customer

retention by offering clients a

product of a high standard that

they will want to keep or to buy

again and again.

What is quality?

To appreciate the role played by

quality, it is first necessary to

understand what is meant by this

term. In a manufacturing context,

quality is achieved when a

company is able to supply reliable,

durable goods that meet or surpass

consumer expectations and are

free of defects.

High-quality products inspire

trust. Take, for example, high-

quality car tires. They often have

deeper treads than poor-quality

tires, making cars that have them

less likely to skid in emergencies or

bad conditions. In this case the

quality of a car tire could be the

QUALITY SELLS

...results in a

product or service

that will sell itself.

High-quality

components and

design...

...plus added value

that the customer was

not expecting...

IN CONTEXT

FOCUS

Defining quality

KEY DATES

1924 German pen maker

Montblanc launches its luxury

Meisterstück (“masterpiece”)

fountain pen, which is still an

icon of superior quality today.

1970 The Hamilton Watch

Company develops the first

digital watch. It succeeds

despite its $2,100 price tag.

1985 Management guru Peter

Drucker publishes Innovation

and Entrepreneurship, which

states that quality is the most

important factor to affect

sales. Drucker says that the

consumer is the ultimate

arbiter of a product’s quality.

2005 Entrepreneur Richard

Branson announces that he

plans to offer the first trips into

space. The price of $120,000

fails to deter rich and famous

potential customers.