Are you striking the cost vs. quality balance?

One common issue that I always find intriguing within the psychology of a purchase is the trade-off between the quality of what is being bought, against the relative cost, including the potential compromises that the average buyer is willing to stretch to. Within this article, I’ll be paying attention to whether we really can have both low cost AND high quality?

“Dinner ladies”

I was recently approached to provide a quotation for fulfilment services to a well-regarded prospect who described his current fulfilment providers as follows; “they’re like a bunch of dinner ladies running the warehouse”. A pretty stern, but probably quite frank assessment! It was easy to see why he was looking to move on, as the provider was sending out duplicate stock, dispatching orders late and in some cases not sending orders out at all. His first question was “do you have processes and systems in place” – sounds like the start of the ideal new business meeting! The problem was though, that in subsequent conversations, the prospect held our proposal benchmarked against the pricing structure that he currently had in place with the “dinner ladies”. It just so happened that we were marginally more expensive, (by about 10p per order). It was as if the prospect couldn’t bring himself to pay a few pence more to ensure continuity and excellence of service. It got me thinking about quality and pricing.

A considered decision

When it comes to buying any product or service, unless you’re dealing with a monopoly or patent scenario, there is almost always a multitude of choice available. People want different things and of course, companies offer unique selling points to differentiate their own individual proposition.

The internet has accelerated the fragmentation of suppliers in almost every field, this is especially true in eCommerce. It’s vital to consider what is important to you when making a purchasing decision, whether that be for your food at lunch, or an important business decision such as electing an outsourced fulfilment service partner.

In any purchase situation, there can be tens or even hundreds of factors that play a role in influencing the direction of your final decision; locality and demographic, a sales person, your personal preference, innovation, design, social and cultural factors; to name just a few.

So what should you base your assessment of cost vs quality on?

  1. The quality scaleAll products and services have a perceived quality value which can often evolve from the diverse spectrum of ‘human involvement’, determining how good something is. Usually, the more involvement humans have in a service, the better it is. Conversely, in a highly technological environment it’s the automation of otherwise manual processes that can provide the quality seal of a product.When a product or service is created, the attention to detail and robustness of the important product ingredients can be wildly variable, therefore the overall fitness for purpose that may elevate it to a higher category of ‘quality’ also fluctuates. Although there are exceptions to the rule, generally speaking the more attention to detail that is paid, and the more robust the product ingredients, the better the overall quality will be.

    So in the case of a technology driven service, you could say that there are many thousands of hours that have been spent developing every single process into an easy to use piece of software – this shows strong attention to detail and a lot of time and effort, thus a higher quality of product prevails.

  2. The cost of qualityI’ve tried to explain the fundamental reasons for quality variance, but what then becomes the ‘cost’ of quality? How can this be determined for the consumer and more importantly for you, can it be justified?Well in the literal sense, the more labour time and the hardier your materials, the higher the quality cost will be. It stands to reason that if a business has spent money on creating a product or service, to remain in business, it should break even or make a profit margin on the outlay. This could be the material costs of a product or the cost of paying someone to deliver a product/service, or a combination of both. The more that is spent, the more has to be charged to re-coup spend.

    In its simplest form, the cost of quality is the cost to create the product or service plus a margin of profit. “It’s not as straightforward as that”, I hear you say? Correct, there are other factors that then come into play when determining the price point, mainly things such as volume, efficiency, the likelihood of cross-selling and competitor pricing, but it’s really not much more complex than this. It’s these factors that allow lower costs to start creeping into good quality products or services.

  3. Quality can be difficult to findWith this in mind, the conclusion could be that if you want to have good quality, you either have to pay extra for it, or find a provider that can leverage one of the other cost factors mentioned above. The fundamental problem with this, though, is that people don’t always recognise quality when they see it, plus even if they do see it, they don’t want to pay for it – the providers then have a job to persuade otherwise!

This leads nicely back to the original question, can we have both low cost AND high quality? Luckily for the consumer, companies that offer quality sometimes have a trump card up their sleeve, so yes you CAN have both, but it’s difficult to find. Whether it’s because of ‘scale’ such as with Tesco, being ‘first to market’ like with Ford, or having a strong ‘technological heritage’ such as Samsung, the trump card exists. It’s for you to find out who offers quality competitively, and equally for the providers to do a good job of communicating their good value so that it can be found.

As for the “dinner ladies”, it remains to be seen as to whether or not the prospect will continue or sacrifice some of his product margin to ensure much better quality elsewhere. One thing is for sure though; a few extra pence can be a worthy investment if in return you receive a significant improvement in quality!

What do you think? How difficult is it to really find good quality at a low cost? Feel free to comment or send us your thoughts.

by Austin Waddecar on 16/09/2013

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