Case:What Does ”Product Quality” Really Mean? Analysis

1. Case:What Does ”Product Quality” Really Mean? Analysis • Context • Quality with relation to: Price, Advertising, Market Share, Cost, Profitability • Product • Quality management • Research methods • Philosophical • Statistical, experimental evidence • Literature review David A.Garvin Harvard University, Sloan Mangement Review 1984

2. Concept Map- content of the article David A.Garvin Harvard University, Sloan Mangement Review 1984

3. Synthesis • The Strategic Importance of Quality based a recognition of: • Performance (suorituskyky) • Features (ominaisuudet) • Reliability (luotettavuus) • Conformance (yhdenmukaisuus) • Durability (kestävyys) • Serviceability (varmuus) • Aestetics (esteettisyys) • Perceived Quality (haluttu laatu) David A.Garvin Harvard University, Sloan Mangement Review 1984

4. Synthesis • Mutual dependence of: • Quality and Price • Quality and Advertising • Quality and Market Share • Quality and Cost • Quality and Profitability David A.Garvin Harvard University, Sloan Mangement Review 1984

5. 1. Quality and Price • quality and price relation can be • positive, if price and quality is expected • depending on the amount of information for consumers • negative • no sufficient information to evaluate product quality • customer will rely on other cues making the decision of buying • resulting repricing • quality cannot be defined precisely • we learn to recognize it only through experience David A.Garvin Harvard University, Sloan Mangement Review 1984

6. 2. Quality and Advertising • American and British data research adresses positive relationsship • numerous researches, numerous opinion • some advertised product have apparently better quality than nonadvertised • some advertised product have poor quality as other products • Nelsons claim and survey of consumers attitudes adresses that advertised product were no more likely to be dependable than unadvertised product • product charactesterics e.g., reliability and durability can learned only by ”search” and ”experience” David A.Garvin Harvard University, Sloan Mangement Review 1984

7. 3 . Quality and Market Share • relationship depends how quality is defined • product quality with superior performance or numerous features weak demand and high priced • product quality with suitability for use superior aestetics or improved conformance, how to know which attributes are for quality and which for consumer satisfaction David A.Garvin Harvard University, Sloan Mangement Review 1984

8. 3. Quality and Market Share cont • marketing analysis based on • Profit Impact of Marketing Strategies (PIMS) data base • all studies used the same aggregated measure of quality • analysts founded a strong positive association between quality and market share • cross-sectional studies using bivariate and multivariate methods confirmed the positive association between Q&MS David A.Garvin Harvard University, Sloan Mangement Review 1984

9. 4. Quality and Cost • product based approach • quality and direct cost are positively related • quality differences reflect variations in product attributes and costs of material, labour unit… • operation management based approach • quality and direct cost are inversely related • improving quality vs. savings in rework, scrap and warranty expanses • more studies for this field • continuous improvement David A.Garvin Harvard University, Sloan Mangement Review 1984

10. 4. Quality and Cost cont Reduce total quality cost • method PAFF-model • Prevention, cost of doing it right the first time • Appraisal, cost of checking it is right • internal Failure cost, occuring before delivery • external Failure cost, detected after delivery • improved conformance less manufacturing cost improved productivity • Plan, Do, Check, Act (PDCA) circle David A.Garvin Harvard University, Sloan Mangement Review 1984

11. upside of quality Customer perceived quality Price Turnover Quality assurance and improvement Strategic options Volume Operating point NET PROFIT Cost reduction Costs downside of quality • reduce cost of poor quality (cost of Non Corformance) • innovations in the area of quality can have strategic impact David A.Garvin Harvard University, Sloan Mangement Review 1984

12. 4. Quality and Cost cont Studies of reserchers (Carvin): • found that quality and productivity are positive related • companies with formal quality systems had lower total costs of quality than companies without such systems • ¼ of companies were spending less than 5% of their quality costs on prevention and ½ of companies were spending less than 10 % • conclusion  greater expenditures on prevention would results in improved conformance and fewer defects (savings rework, scrap, warranty costs) David A.Garvin Harvard University, Sloan Mangement Review 1984

13. 5. Quality and Profitability • two way for improved quality might lead to higher profitability • throught the market • cost savings at production chain • empirical studies confirm that quality and profitability have strong associationproduces higher net profit return on investment (ROI) David A.Garvin Harvard University, Sloan Mangement Review 1984

14. Evaluation • Scientific and financial significance • worldwide research by PIMS • focus on consumer satisfaction and perceptions of quality • Quality is complex and multifaced concept • terminology, frequently fail to communicate • commitment and understanding • managers must learn to think influences of quality changes • organization must be tailored to support the desired focus David A.Garvin Harvard University, Sloan Mangement Review 1984

15. Evaluation • relationship between quality and such variables as price, advertising and direct cost is complex and difficult to predict • cost of complexity in management system is a critical issue  quality management system  corporate audit  corporate culture Sources: Statistical Process Control (John Oakland, 2008), Quality Management, Paul Lillarank, 2008 www.sfs.fi/iso9000/laadunhallinta www.fi.wikipedia.org/wiki/ISO_9000 David A.Garvin Harvard University, Sloan Mangement Review 1984