"Quality is not an act--it is a habit." --Aristotle
High Impact Quality: Approach
High Impact Quality uses a straightforward description of the way customers and businesses interact to help owners, managers, and employees identify opportunities to create extraordinary relationships with those customers or clients. We’ll build a description of this model piece by piece over the next few pages to ensure the underlying concepts are clear.
Customers or clients (we use the terms interchangeably here, but define the key differences in the upcoming chapter devoted to the customer) purchase value from a business by paying less than they perceive that value is worth to them. Customers always strive to pay less than their perceived value for your product or service. Businesses always strive to increase their perceived value while attempting to reduce the cost of producing either the perceived value or the real value of their products and services. If they are in a position to reduce the costs on both sides of the value equation they will, although this can be a difficult position to maintain. Consumer demand for the product and/or the service provided by a business can decline percipitously once this reduction in value is highlighted by competitive alternatives.
Perceived value is a key concept because it calls out the difference between the value that is attributed or imputed to the product by the buyer and the actual value. A more detailed discussion of “value” will be provided in an upcoming chapter on creating and enhancing value for the customer. For the moment we will leave “value” mostly undefined, but note that value is used to cover those attributes of both tangible products and intangible services that customers desire.
Determining value is not a lengthy calculation for most customers. Customers make snap judgments about perceived value based on their knowledge of competitive alternatives, other buyers available to them, and their own assessments. A customer may purchase an antique clock from a roadside stand for $500 because they know they can sell it in their own antique store for $1,500. They may purchase the clock because its design and ornamentation make its aesthetic value equal to the $500 purchase price.
The actual value of the clock is debatable, but once the money changes hands, the perceived value is very clear.
In a business to business transaction, where there are experts on each side, this can be a much longer process. Businesses may engage in rigorous evaluations to assign a value, backed up by extensive testing and quantitative analysis.
The focus of High Impact Quality is to continually increase the perceived and actual value offered by your business to its customers, while continually reducing the cost of producing and delivering that value. This value enhancement effort lays the foundation for creating loyal customers. Value by itself, is seldom sufficient to create the highest levels of loyalty, but loyalty (i.e., a commitment to your company) is rarely produced without value as the underlayment. Both ends of this spectrum, from perceived value to real value, must be continually improved because competitors and new entrants are continually looking for opportunities to change the cost structure of the industry to their advantage. Customers, even loyal customers, will rapidly migrate to alternatives if your cost structure suddenly becomes non-competitive.
Although it would be intellectually interesting to also study companies who are principally interested in increasing their perceived value, irrespective of the actual value of the underlying product or service, these companies are missing a core requirement that leaves them outside of the High Impact Quality model. Such companies do not hold the production and delivery of real value at the core of their business model. A classic, and recent, example of a company that appears to be organized around the principle of perceived value is the Bernard L. Madoff Investment Securities LLC. Founded by a former NASDAQ Chairman with impecable credentials in the business, political, and philanthrophic communities, the firm is now charged with creating $50 billion in losses for its investors while appearing to create sustained, extremely attractive returns over an extended period. While there was an extremely strong delivery of perceived value through this firm, the underlying real value was illusory.
The Enron Corporation, which collapsed in 2001, is another example of the exposure engendered by gaps between perceived and real value. Enron was largely focused on creating higher prices for energy commodities through creative trading strategies. The perception of scarcity, which fed the value perception for these commodities, was unsustainable as a value proposition. The accounting firm, Arthur Andersen, went under during the same scandal when they were indicted for destroying evidene in the Enron case. Andersen, which actually was focused, with the vast majority of thier client, on creating real value, i.e., providing investors with the confidence that there were referees on the field, failed when confidence in their ability to deliver that core value eroded.
The simple lesson in these, and a plethora of other examples from the modern world of existential economics, is to focus your business on both perceived and real value. The priority on perceived value should be to ensure that your real value is recognized by prospects. When the priority shifts to supplanting real value with perceived value the federal marshalls are often not far behind.
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