What Is Quality?

Five simple lessons to remember

Published: Tuesday, June 28, 2011 - 04:30

In my work with both manufacturing and nonmanufacturing organizations, I have been faced with the challenge of improving quality. Toward that end, I'd like to offer a few simple lessons that I have learned.

• Know the set of attributes that customers in your industry use to measure value, and the expected levels of each as they apply to your firm.

• Minimize variation.

Remember that: Customer value = Perceived benefits – Price

Based on this, I define quality as the adequate and consistent provision of value, as defined by, or in excess of, what is defined by the customer.

For the selling firm, there is another element, and that is profit. Because firms seek to make money, they are forced to decide to what extent they will provide the elements that the customer values. Firms are often not able to maximize provision of all of the attributes that customers find valuable because that policy would result in uncompetitive prices.

Lesson 1: Customers are the sum of their expectations. Any market can be broken down into the distinct attributes that the customers in it consider to be valuable. Market segmentation often uses these criteria to allow for more specific promotion to target segments within a given market. The desired value may include such attributes as convenience of location, fair prices, and durability. Based on this, we can describe any customer group by the set of attributes that it uses to judge value.

Lesson 2: Marketing and sales make us aware of expectations. On a macro level, the marketing function is responsible for gathering market information and relaying customer preferences back to the firm. If marketing is done effectively, the firm will know each of the attributes that is valued by customers in the firm's target market segments. On a micro level, once a lead has been generated, it is the sales team’s responsibility to identify the particular expectations of individual customers, since they may differ from the market as a whole.

Lesson 3: For each relevant quality attribute, there is an optimum level. A firm must know which attributes are perceived as valuable to customer groups as well as to individual customers. Firms must try to identify the level of value that the customer perceives each attribute as having. This will differ by target segment, and by individual customer.

The firm’s goal is to design its value offering to meet or exceed the expected level of each relevant attribute within profitable boundaries. Such an offering represents the firm’s cost structure. Simply trying to offer the maximum level of each attribute, without regard to the impact of provision to cost structure, can cripple a firm.

Maximizing the provision of every attribute, without direction from a cost, benefit, or niche provision strategy, leads to a firm being “stuck in the middle,” which reduces the firm’s potential level of profitability. It is up to the firm to understand customers well enough to know when providing higher levels of an attribute ceases to be beneficial enough for the customer to be willing to pay for it. For this reason, all firms must be committed to marketing. Offering higher levels of attributes than customers are willing to pay for drives the firm’s cost structure up too high without an adequate economic return. Ignoring the fact that fair price is also a valued attribute is a mistake.

Lesson 4: Be different. Beyond meeting the relevant expectations of customers, firms must design uniqueness into their offerings. This is accomplished by doing one of the following: 

• Strategically selecting attributes and offering them at a higher level than the competition

• Offering an attribute that has been overlooked by the competition

This requires a firm to be dedicated to marketing. Without it, the firm will lack the customer knowledge required to select the most profitable attributes to differentiate by, or to identify and exploit attributes that have been overlooked by competitors.

The following quality attributes graph shows how two firms in the same industry can both offer equal quality in completely different ways because they target customer groups with different expectations. It is up to the firm to know their customers’ expectations, as well as the ways that competitors are meeting or failing to meet each valued attribute.

Lesson 5: Minimize variation. Once the value proposition has been designed, the firm must consistently deliver against this promise. This means that reducing variation in the value attributes. It requires bringing the processes that create and deliver the needed value into a state of statistical control. This requires improving the processes that create and deliver the needed value and is often accomplished by moving processes through cycles of PDCA (plan, do, check, act) or the DMAIC (define, measure, analyze, improve, control) of Six Sigma.

Finally, it is critical to ensure your firm’s capabilities in the areas of marketing and innovation in order to gain the information needed to design your value offering, and to differentiate effectively from your competition.

About The Author

Angelo Lyall

Business Economist Angelo Lyall is a partner with Anderson Lyall Consulting Group, a Toronto-based consulting and advisory firm that helps firms develop their competitive advantage. He draws upon his background in economics and competitive strategy to help firms build profitable competitive strategies, business models and marketing plans, as well as to gain valuable market knowledge. Lyall helps companies understand and gain new insights into their business environment in order to create or strengthen competitive advantages. He has advised clients in the manufacturing, service, and distribution industries on issues of competitive strategy, marketing, pricing, and customer profitability.