QUALITY
RELATIVE INDUSTRY PRODUCTS + SERVICES QUALITY IN THE TRADE
CELL
The following chart
provides a general representation of relative Products & Services quality in the
various Trade Cell markets.
INDUSTRY TRADE CELL RELATIVE QUALITY INDEX
COUNTRY |
Index |
Industry Trade Cell Market / Sector 1 |
**** |
Industry Trade Cell Market / Sector 2
|
**** |
Industry Trade Cell Market / Sector 3 |
**** |
Industry Trade Cell Market / Sector 4 |
**** |
Industry Trade Cell Market / Sector 5 |
**** |
Industry Trade Cell Market / Sector 6 |
**** |
Industry Trade Cell Market / Sector 7 |
**** |
Industry Trade Cell Market / Sector 8 |
**** |
Industry Trade Cell Market / Sector 9 |
**** |
Industry Trade Cell Market / Sector 10 |
**** |
Industry Trade Cell Market / Sector 11 |
**** |
Industry Trade Cell Market / Sector 12 |
**** |
Industry Trade Cell Market / Sector 13 |
**** |
Industry Trade Cell Market / Sector 14 |
**** |
Industry Trade Cell Market / Sector 15 |
**** |
|
Index of Quality over Time
The above chart shows relative Trade Cell
quality for products and services. The mid-point line, indicated as '100'
represents the Trade Cell average quality of Products & Services.
[ CORPORATE DATABASES: The section marked indicates the
average quality for products and services marketed by the Company. This will
show the relative quality differential between the Company's product quality
and the various quality norms. ]
INDUSTRY PRODUCTS + SERVICES QUALITY
It is essential
for the Company to be fully
aware of the importance and criticalness of Products & Services Quality.
The arbiter of product quality must be the end user and thus any definition
of quality must be decided upon by the customer.
It is not intended
here to analyze the actual product quality demanded for Products & Services. This
is an evaluation exercise outside the scope of this study, however many End
Users perceptions and attitudes are covered in the various survey sections.
Product Quality includes both Products & Services as well as associated or
ancillary services, delivery promptness, after-sales services, et cetera.
Products & Services Quality must be analyzed in relation to other product in the
market as well as the Company's interaction with the marketplace.
The definition of Product Quality should not consider relative prices or
pricing as being part of the definition of Quality.
VALUE SCALE FOR QUALITY
The following Value Scale for Quality will be used below:-
HQP-LQP
Where,
HQP = % OF SALES
FROM HIGH QUALITY PRODUCTS
LQP = % OF SALES
FROM LOW QUALITY PRODUCTS
PROFITABILITY & INDUSTRY PRODUCTS + SERVICES
THE TARGET COMPANY PROFITABILITY & INDUSTRY PRODUCTS + SERVICES
|
****
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****
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****
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****
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****
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****
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****
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****
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****
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ROIc=%
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+200%
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+180%
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+160%
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+140%
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+120%
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+100%
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+80% |
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+60% |
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+40% |
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+20% |
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0% |
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-20% |
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-40% |
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-60% |
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-80% |
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-100%
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-120%
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-140%
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-160%
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-180%
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-200%
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10 |
15 |
20 |
25 |
30 |
35 |
40 |
45 |
50 |
|
VALUE SCALE |
|
It will be noticed that
if the Company produces no high quality products and services it is less likely
to achieve a high profitability.
Producing a relatively high
proportion of Products & Services output as high quality products will tend to
achieve a higher level of profitability.
By producing a very high
proportion of the Product Range output as high quality products will
undoubtedly gain the highest levels of profitability.
RELATIVE INDUSTRY
PRODUCTS + SERVICES QUALITY & PROFITABILITY
CIRCUMSTANCES WHERE ROI IS
GREATER THAN THE INDEX
RELATIVE
INDUSTRY PRODUCTS + SERVICES QUALITY &
PROFITABILITY
|
CIRCUMSTANCES WHERE ROI IS
GREATER THAN THE INDEX |
TOTAL NUMBER of SUPPLIERS % |
. |
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100% |
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90% |
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80% |
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75% |
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70% |
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65% |
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X |
60% |
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X |
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55% |
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X |
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50% |
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X |
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45% |
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X
|
X
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40% |
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X
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35% |
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X
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30% |
X
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25% |
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20% |
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15% |
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10% |
-20 |
-10 |
-0 |
10 |
20 |
30 |
40 |
50 |
60 |
|
RELATIVE PRODUCT QUALITY
VALUE SCALE |
|
THE TARGET COMPANY
INDEX of YEAR-on-YEAR ROIc = %
|
2008 |
****% |
2009 |
****% |
2010 |
****% |
2011 |
****% |
2012 |
****% |
2013 |
****% |
2014 |
****% |
2015 |
****% |
2016 |
****% |
2017 |
****% |
2018 |
****% |
2019 |
****% |
2020 |
****% |
...
to 2028 |
****% |
Producing higher quality
Products & Services is more likely to achieve a
higher profitability for the Company.
QUALITY / PROFITABILITY & CONCENTRATED MARKETS
QUALITY / PROFITABILITY &
CONCENTRATED MARKETS |
THE TARGET COMPANY |
QUALITY VALUE SCALE
|
LOWER |
SAME |
HIGHER |
MARKET CONCENTRATION
|
LOW |
ROIc=****% |
ROIc=****% |
ROIc=****% |
MEDIUM |
ROIc=****% |
ROIc=****% |
ROIc=****% |
HIGH |
ROIc=****% |
ROIc=****% |
ROIc=****% |
The
benefits of producing high quality products are most dramatic in highly
concentrated market situations.
The higher the product quality
produced the greater the profitability in a highly concentrated market.
Market Concentration is defined as being the percentage of the market
accounted for by 50% of the End Users (in terms of numbers).
INDUSTRY PRODUCTS + SERVICES QUALITY & RELATIVE MARKET SHARE
INDUSTRY PRODUCTS + SERVICES QUALITY & RELATIVE
MARKET SHARE |
THE TARGET COMPANY |
QUALITY VALUE SCALE
|
LOWER |
SAME |
HIGHER |
RELATIVE MARKET SHARE
|
LOW |
ROIc=****% |
ROIc=****% |
ROIc=****% |
MEDIUM |
ROIc=****% |
ROIc=****% |
ROIc=****% |
HIGH |
ROIc=****% |
ROIc=****% |
ROIc=****% |
Both high
Products & Services quality and a high
level of relative market share will generate greater profitability.
In most cases high product quality can mitigate against a low level of
market share and similarly a high market share can mitigate against low
product quality.
INDUSTRY PRODUCTS + SERVICES QUALITY / PROFITABILITY & MARKET GROWTH
High Products & Services
quality is essential to profitability during low market growth periods.
INDUSTRY PRODUCTS + SERVICES QUALITY /
PROFITABILITY & MARKET GROWTH |
THE TARGET COMPANY |
QUALITY VALUE SCALE
|
LOWER |
SAME |
HIGHER |
SHORT-TERM REAL MARKET GROWTH
|
LOW |
ROIc=****% |
ROIc=****% |
ROIc=****% |
MEDIUM |
ROIc=****% |
ROIc=****% |
ROIc=****% |
HIGH |
ROIc=****% |
ROIc=****% |
ROIc=****% |
In having high quality products
the Company will enjoy a substantially higher level of profitability even
during periods of low market growth.
QUALITY IMPROVEMENT EFFECT FORECASTS
This section analyses the effects of a Quality Improvements programme
and its associated expenditure in terms of the Company's Financial and
Operational results.
Quality Improvement involves the
re-engineering, repositioning and remarketing of existing products to
meet and serve more up-market segments. In general terms the expenditure
incurred is some product development costs plus additional marketing
costs.
This tactic is regarded as a short or medium-term
operation where the benefits are seen over a short period.
Quality Improvement
NEW PRODUCTS / PRODUCT QUALITY & PROFITABILITY
NEW PRODUCTS / PRODUCT QUALITY
& PROFITABILITY |
THE TARGET COMPANY
|
VALUE SCALE OF QUALITY
|
LOW |
AVERAGE |
HIGH |
NEW PRODUCTS AS A FUNCTION OF
TOTAL SALES |
LOWER |
ROIc=****% |
ROIc=****% |
ROIc=****% |
SAME |
ROIc=****% |
ROIc=****% |
ROIc=****% |
HIGHER |
ROIc=****% |
ROIc=****% |
ROIc=****% |
The Company,
if experiencing a high level of
Products & Services new product introduction, will suffer in terms of overall
profitability if their product quality is low.
The Company, if experiencing a high level of Product Quality, may actually
benefit in profit terms in periods of limited new product introductions.
INDUSTRY PRODUCTS + SERVICES PROFITABILITY / PRODUCT QUALITY & MARKETING COSTS
INDUSTRY PRODUCTS + SERVICES PROFITABILITY /
PRODUCT QUALITY & MARKETING COSTS |
THE TARGET COMPANY |
MARKETING COSTS / SALES RATIOS
|
LOWER |
SAME |
HIGHER |
PRODUCT QUALITY
|
LOW |
ROIc=****% |
ROIc=****% |
ROIc=****% |
NORMAL |
ROIc=****% |
ROIc=****% |
ROIc=****% |
HIGH |
ROIc=****% |
ROIc=****% |
ROIc=****% |
A low Product Quality is especially
critical to profitability in situations which have a high level of Marketing
Costs.
When the Company has high Product Quality it is less affected by high
Marketing Costs and its profitability is damaged less.
QUALITY / INDUSTRY PRODUCTS
+ SERVICES LIFE CYCLE / PROFITABILITY
QUALITY /
INDUSTRY PRODUCTS + SERVICES LIFE CYCLE /
PROFITABILITY |
THE TARGET COMPANY |
QUALITY |
LOWER |
SAME |
HIGHER |
STAGES IN THE LIFE CYCLE
|
EARLY |
ROIc=****% |
ROIc=****% |
ROIc=****% |
DYNAMIC |
ROIc=****% |
ROIc=****% |
ROIc=****% |
MATURE |
ROIc=****% |
ROIc=****% |
ROIc=****% |
It will be seen from the above that
profitability will not be dramatically different if Products & Services quality is
regarded as being 'low' or 'average'. Conversely, if Products & Services quality is
regarded as being 'high', then there will be a significant improvement in
profitability.
There appears to be little change in profitability at
any given Quality level as Products & Services progress from introduction to the
mature stage of the life cycle.
INDUSTRY PRODUCTS + SERVICES PROFITABILITY / DEVELOPMENT EXPENDITURE & PRODUCT QUALITY
INDUSTRY PRODUCTS + SERVICES PROFITABILITY /
DEVELOPMENT EXPENDITURE & PRODUCT QUALITY |
THE TARGET COMPANY |
PRODUCT QUALITY
|
LOW |
AVERAGE |
HIGH |
DEVELOPMENT divided by SALES
|
LOWER |
ROIc=****% |
ROIc=****% |
ROIc=****% |
SAME |
ROIc=****% |
ROIc=****% |
ROIc=****% |
HIGHER |
ROIc=****% |
ROIc=****% |
ROIc=****% |
Mid-Range Development Expenditure appears
to be very attractive in terms of profitability if used to improve Product
Quality. Mid-Range Development Expenditure can benefit the Company,
irrespective of the existing quality of their products, if it is applied to
the improvement of Product Quality.
THE RELATIONSHIP BETWEEN THE TARGET COMPANY TRADE CELL PRICING AND PRODUCT
QUALITY
There is a significant difference in the
Products & Services market between large
share companies and their smaller competitors and their relative retail
prices and product quality.
The Products & Services market is willing to
accept higher prices from market leaders because it is perceived that the
products from these companies will be of a higher quality. Thus market
leaders have a truly attractive competitive position and are able to
generate better margins and a higher profitability.
The market
perception of quality not only includes the physical properties and
characteristics of the product, but also the service aspects. Frequently the
service aspects are more important to customers than the actual product.
CONCLUSIONS
If the Company are seeking profitability then the
following questions must be asked:-
1. |
Does
the Company provide their customers with value for money?
|
2. |
Are the Company's
products of good quality? |
3. |
Does
the Company provide a quality service to customers? |
4. |
Does the Company's
distribution channel provide their customers with value for money, a
quality service, et cetera? |
5. |
Do
the Company adequately police their distribution channels and ensure
that they are not transgressing the rules of the quality -v- price
relationship? |
If the answers to the above questions are in the affirmative then
the Company will undoubtedly be relatively more profitable.
THE TARGET COMPANY'S CUSTOMERS AND BETTER PRODUCTS
In contrast to the smaller
competitors in the Products & Services industry the market leaders tend to spend a
relatively higher proportion of their turnover on investing in Development
thus they are in the position of producing more advanced products.
This factor combined with product quality tends to ensure that large share
companies are not only market leaders but also product leaders.
CONCLUSIONS
The above rationale is self-evident and the
conclusions implicit here are equally evident:-
1. The need for
constant product innovation and leadership
2. The need for a programme to
identify customer needs and
product benefits
3. The dangers of producing
"me-too"
products
4. The need for an
effective new product development programme
QUALITY CONTROL PROCEDURES
Target Company
|
Base Reference
|
QUALITY CONTROL PROCEDURES
|
|
|
Overall Rating |
Competitive Rating |
Formalized Quality Control Systems
|
Quality Control Efficiency
|
Quality Control Development
|
Performance Grid Definitions |
HISTORIC FINANCIAL INDUSTRY DATA
HISTORIC FINANCIAL INDUSTRY DATA
Financial Definitions
|