Quality?

If you keep an ear open to both sides of the Pacific you’ll notice that the term “quality” gets tossed around like a stray sheet of paper in a typhoon. It’s everywhere and nowhere at the same time. I want to boil this down to Saipan’s tourism and business situation, but I’m taking a more general cut at things today.

Anyway, everybody agrees that “quality” is good. But I don’t see much agreement beyond that.

Ah, quality. What is it? Well, let’s ask this: Which is a higher-quality car, Toyota or Mercedes?

I’m not interested in actually comparing these cars. I’m just interested in the popular conception of them, so they can serve as labels for the sake of discussion. And, no sour grapes here, I like both brands.

Popular opinion would hold that Toyotas are more reliable and have lower repair costs, which, to the consumer, defines the mechanical benchmark of quality.

So when you say “Toyota is a quality car,” everybody knows what you mean. That’s why people buy so many Toyotas.

And yet some people will pay more, often a lot more, to buy a Mercedes.

Why?

We know why. The Mercedes has, well, certain qualities. Yikes, there’s that Q-word again, but now it doesn’t mean what it meant the first time around. This time, we mean the car has high performance, nice creature comforts, and is perceived as solid and safe.

So, again, I ask: Which is the higher-quality car? Well, that falls sort of flat now, doesn’t it? A more meaningful query would be, “Which characteristics do you want in a car, and what are you willing to give up to get them?”

Now we’re up against a mixed bag of tradeoffs. We’re talking the brute realities of optimization now. This is what economists call “constrained optimization,” and the main constraint in this case would be (for most people) costs.

Some people just want what is cheapest to buy, or, in the car context, want the lowest possible monthly payment. These are “price shoppers.” Quality often doesn’t matter at all here: if it will roll off the lot, some people will buy it.

Other buyers want what is cheapest to buy and operate. They’re willing to pay more for the up front purchase if they expect that the down stream ownership costs (insurance, fuel, repairs, etc.) will be sufficiently lower in the long run. Mechanical quality is, of course, an important element in these expected costs.

Still other buyers will pay due heed to the cost angle, but are willing to pay a premium for comfort, style, or various intangibles, which are other aspects of “quality.”

And still other people are willing to pay more, maybe a lot more, to drive highly-engineered, structurally-robust cars if they perceive them to be safer, so I guess we can call these “safety shoppers.”

We could slice things into more categories, but why bother? Point made: Different shoppers place different premiums on quality, and, furthermore, different shoppers will define quality in different ways. You can pick any good or service to see some or all of the same factors: shoes, food, dentistry, whatever.

In various industries, in various jobs, I’ve dealt with the entire spectrum, from where quality wasn’t a decision driver at all, to where it was one decision driver, to where it was the primary decision driver.

I once authored a survey and a related study for a U.S. firm that sold exclusively to price-shoppers. And there was no ambiguity on that note, you’d only be in one of those stores if you were looking for cheap, and I do mean “cheap” in all senses of the word. (I’m not deriding cheap. You should see what we ate and drank in college; then again, maybe you shouldn’t.)

Here’s the interesting thing: On my survey the vast majority of the customers chose “quality” as more important than “price” for the stuff at issue. However, they had just spent their money in the opposite way. Why? My take is that “quality” is a desirable trait, and people want to be associated with it. It’s a warm fuzzy. So everybody is for it until it’s time to pay up, at which point the market stratifies into its meaningful components.

Ah, now we’re getting somewhere. When I say “meaningful components,” I mean situations where cash is changing hands. Which means, for you business owners or investors out there, profits.

And on that note, there are big changes brewing in the Asia-Pacific realm. I think the conventional wisdom in this realm is totally wrong. Therefore, epic failures, and big successes, are on the way. Stay tuned.