Profit through product quality and quality service

Abstract

Many technical and business papers have been written proclaiming that companies which provide high quality products and high quality service will market share and profitability. Although the theory of the positive relationship between quality and profitability (i.e. higher product quality and service leads to higher profits) is commonly accepted, few studies have attempted to quantitatively justify this theory. The overall goal of this report is to present a quantitative framework that supports this commonly accepted positive relationship.

Two major difficulties arise when attempting to assess this relationship quantitatively. First, the relationships which link product quality and service to profitability are interdisciplinary and often imprecise. These relationships involve the social behavior and feelings of customers, the competitive marketing environment, the service policies and technical competence of the producer, and of c:6urse the economic evaluation of improvements to quality and service.

Second, to accurately assess the impact of product quality and service on profitability the assessment must be done over time. This is very important, because the improvements in product quality and service are strategic policies for improving long-term profitability. Evaluation methods which measure the short-term effects and/or the static effects of product quality and service on profitability will be inaccurate.

To overcome these difficulties, first an extensive review of the literature on· product quality, service and customer satisfaction was performed. This research led to the development of the many interdisciplinary cause-and-effect relationships which link product quality and service to profitability. Then the interaction of these causal relationships was evaluated by using a dynamic modeling language (DYNAMO III).

The model results support the literature, indicating that companies providing both high quality products and high quality service will reap higher profits. Furthermore, the model provides a framework which, if further refined, could be used to help optimize the design of specific products.