Quality vs. price

Published On: March 1, 2012Categories: Management

During a recent management meeting, our vice president of marketing presented an updated global business plan. In the process, he did an analysis of our competition over the past 10 years.

Interesting to note was the number of businesses that went by the wayside. I would say the majority failed due to tough economic times, followed by poor business planning. This leads me to the topic of how we position ourselves in the marketplace. Are we a giver or a taker? Are we all about getting a piece of the pie, or about building a bigger pie for everyone to share?

I would propose that the value (quality) of anything determines its worth (cost). In these difficult economic times, it becomes alarming how often we are willing to discount price before we prove value. From the viewpoint of the buyer, there are two sides to “value;” price and cost. Price is what one pays for a product or service; cost is what the investment is over the lifetime of its use. If the perceived “value” is questioned, then “price” becomes relevant. This is where “value added” comes into play. What do you do to your product or service that enhances it in the eyes of the consumer?

When you hear: “I can get it from XYZ company for 20-percent less.” And if your response is: “We will match it,” then in the long run, you lose. However, if you have proven the benefits long before price enters the discussion, you have a fighting chance of holding on to quality over cost.

Pick two of the following three: price, service or quality. There is no way of obtaining three options at once. If you choose to lower your price, something in service and/or quality will suffer.

Let’s look at what goes into providing service and quality.

Innovation. Since inception 19 years ago, we have found that innovation has been our guiding factor. This is not a one-time thing, but ongoing. Reinventing the business and being willing to take on risk in a measured manner provides opportunities not available without it. Through innovation, we continue to build perceived value. Without it, we revert back to a price issue.

Expectations. We live and die through meeting deadlines. Heard that one before? With us, if the show opens tomorrow, delivering one day late is not acceptable. If you prove your capabilities, in not only delivering a satisfactory product, but in a specified time allocation, you are not only offering this quality and service, but a verification of the value that you add to the mix—factors that are critical in justifying client satisfaction.

Training. Your workforce is the key to your success. If you continue to advance their skills, you add value to your products and services. Are you expending efforts to certify these skills? Are you making your client aware of your efforts to improve not just for today, but the future? Without continuous improvement in our staff, we cannot expect to continue to grow and expand the value in what we do and who we are.

Technology. For us, the technology introduced in 2001 was outdated and replaced in 2008 at a time that one would least expect major capital investment. This occurred in equipment and facility. It has paid off by expanded capabilities, and further in the confidence given our clients to meet their value expectations.

Understanding markets. All too often, we enter markets based on perceived opportunity without thoroughly understanding the directions undertaken. Once involved, we are committed by our investments of funds and manpower, with no option other than grabbing what market we can just to survive. In the end, what did we accomplish? With luck, you will hang on until something better comes along. In the meantime, what effect did your strategy have on the market itself? What did you add? How did you make it better? Did it expand because of your participation, or were you just trying to get your piece of the pie?

If you factor the above points into the value you bring to your market, you are then entitled to be compensated in a fair manner. We continue to amaze ourselves at the amount of work we do for nothing. All in the name of “whatever it takes.” If we prove our case in advance in what we will provide, in what time frame, and at what cost, we have then justified our value-added position. Overlooking any cost in name of getting the order is nonsense.

When evaluating markets served or opportunities to enter new markets, I suggest that you ask yourself the following questions in determining your position on value versus price: Do you understand the market and its conditions to enter, or continue serving? What are the financial commitments? Do you have an understanding of your labor needs? Are you really covering overhead? Do you consider development costs on a per-sale basis? Have you established budgets for the addition of new equipment and technology?

For our company, we are not willing to enter any market on price alone.

Let’s all start building bigger pies.

Pat Hayes is founder and chairman of Fabric Images Inc., Elgin, Ill., and a former director on the board of the Industrial Fabrics Association International.