Business & Marketing
Placing a value on quality
In the second half of the 20th century, W. Edwards Deming popularized the notion that quality was a virtue in the manufacturing world. His works are credited with the establishment of the Total Quality Management movement. These efforts validate this quote “…quality is not an act, it is a habit…”
June 1, 2011 By Rob Colman
Interestingly the quote comes from the Greek philosopher Aristotle in 350 BC. I guess it just proves that the value of quality is something that has been sustained through the ages.
John Ruskin stated “…there is hardly anything in the world that someone cannot make a little worse and a little cheaper…” Today I am asking you, on which side of the fence you have chosen to set up your operations.
The evidence of the value of quality is everywhere. Which of us does not want the best we can afford? But in our businesses there are other reasons for wanting to do a quality job. And these are all tied to this goal of sustainable profitability. The thing about it is this. The choice is entirely up to you. You can choose to be a ‘class act’ or you can choose to just get by. Let’s examine some of the consequences.
The reality is that the difference in price today between a quality product and its inferior competitor is pretty slim. So don’t be fooled by the illusion that a long warranty is somehow indicative of a quality offering. Remember, the manufactured cost of a product is well below the retail price. So a manufacturer of a product that fails and is replaced under warranty bears a relatively low out of pocket expense. Failure rates as high as 5-10 per cent may not be that much of an issue to them. In manufacturing, the real cost of high quality actually occurs in moving the needle from 95% to 99.9%, not in achieving 94 per cent in the first place.
But what is the cost to you?
First you have the cost of labour? And in doing warranty work, the cost is a double edged sword. Part one is the actual cost of labour which we identified in the first article as being something above $50 per hour for service / warranty work. The other edge of the sword though is the cost of lost opportunity. As long as you are performing costly warranty repairs, you are not engaged in productive, revenue generating activities. These activities are generating revenues in the order of $80-100 per hour at a minimum because you must consider both the lost labour revenue and also the lost product revenue that is tied to that activity.
So a warranty call is really costing you upwards of $150 per hour. Did you build that into your cost of sale? Did you save that much by recommending and selling a low cost alternative to the value product? As one sage asked “…if you don’t do it right the first time, how can you afford to do it right the second time…”
The second question that needs to be asked is this; what is the cost of the damage to your reputation? Remember that most of your clients do not know that much about the relative quality of products. They have come to you because, to them, you are their respected advisor, an expert of sorts who is certainly more knowledgeable than they are on the subject. They know they have a need and they expect your recommendation to address it.
When you represent a second or third tier product, you have tied your reputation to that product. And everything about that product becomes implied to you. So if you are trying to command a premium labour rate, your product selection may drag down your credibility.
Conversely, when your quote carries a product with a quality brand name, you have an implied credibility of personal quality. It is your reputation that is on the line and when you are looking for that reference after the installation, the quality of the work will go a long way to securing that recommendation.
How do you want to be known? The best does cost more. In the previous article I talked about offering a ‘good-better-best’ option to a client but remember that there are risks if the client takes the ‘good’ approach because the actual cost to you is likely going to be higher. Neither the client nor the manufacturer is going to pay you for the service costs to fix or replace products under warranty.
Be the dealer who ‘under promises’ and then ‘over delivers’ on all aspects of the work. This is the one who get the references and the call backs. It all comes from quality products and labour and it contributes to your ‘sustainable profitability’. a little cheaper.
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