"The bitterness of poor quality remains long after the sweetness of a low price is forgotten" - Benjamin Franklin.
POINT TO PONDER
“When it comes to your Defects Per Million (DPM) level quality goal, I don’t care as long as I do not get that one DPM” - Customer’s answer in a supplier survey about an acceptable quality level goal in 1987.
In the early '80s, companies used terms AQL (Acceptable Quality Levels) or LTPD (Lot Tolerance Percentage Defective) to define the levels of quality of the products being shipped to customers. Simply put, it meant that with certain level of confidence (defined by statistics) a certain percentage of materials shipped to customers can be defective (defined by AQL, LTPD level).
One term was called "Producer's Risk" and the other term was called "Consumer's Risk". In reality there was risk all the way, the risk in shipping something that was defective to customers ‘with confidence’.
The first encounter with “pragmatic” use of this term happened in 1981 when a company did final testing on a production lot where 100% of product units turned out good. The production manager (who had the full blessing of the Plant Manager) went to the operator and asked for rejected product from another lot. He did some calculations on paper, took certain numbers of good units out of the lot and replaced them with bad units and stirred the container containing that production lot.
To satisfy my naïve curiosity, he mentioned that he had made a “Business Decision” to ship to promised AQL level and nothing more. “Give customer what he pays for” was his final statement. However messed up his understanding of statistics may have been, his understanding of consumer behavior was even poorer.
Sometime later, the company lost many customers. Their offers to drop prices significantly to regain these customers fell upon deaf walls. In 1984, that company closed its doors.
There are numerous such cases, where customer will never deal with a business once they have been burnt by poor service or poor product quality, no matter how low is the price.
Here is a first hand account of five restaurants near my office: all of them were thriving at one time. But two of them, even after significantly dropping the prices, are running empty - because quality of food is on decline. The other three, however, have not dropped prices even one cent - and their businesses have gone up 1.5X to 2X in number of customers, even in this economic environment.
Except for some very basic needs, consumer always has a choice whether to buy something or not. And that choice is not between you and your competition; it is between buying a thing or not buying at all. Consumer behavior in current economic environment is a good example of this.
Cost is important to consumer but in addition they want the one that fulfills their expectations; and those expectations are very high and uncompromising nowadays.
*reposted from 8/20/2009