by Hirotaka Takeuchi and John Quelch

FROM THE JULY 1983 ISSUE

Corporate executives and consumers have in recent years adopted divergent views of

product quality. Several recent surveys indicate how wide the quality perception gap is:

Three out of five chief executives of the country’s largest 1,300 companies said in a 1981 survey

that quality is improving; only 13% said it is declining. Yet 49% of 7,000 consumers surveyed in a

separate 1981 study said that the quality of U.S. products had declined in the past five years. In

addition, 59% expected quality to stay down or decline further in the upcoming five years.

Half the executives of major American appliance manufacturers said in a 1981 survey that the

reliability of their products had improved in recent years. Only 21% of U.S. consumers expressed

that belief.

Executives of U.S. auto manufacturers cite internal records that show quality to be improving each

year. “Ford quality improved by 27% in our 1981 models over 1980 models,” said a Ford

executive. But surveys show that consumers perceive the quality of U.S. cars to be declining in

comparison with imported cars, particularly those from Japan.

Mindful of this gap, many U.S. companies have turned to promotional tactics to improve their

quality image. Such efforts are evident in two trends. The first is the greater emphasis

advertisements place on the word quality and on such themes as reliability, durability, and workmanship. Ford, for instance, advertises that “quality is job one,” and Levi Strauss proffers the

notion that “quality never goes out of style.” And many ads now claim that products are “the best”

or “better than” competitors’.

The second trend is the move to quality assurance and extended service programs. Chrysler offers a

five-year, 50,000 mile warranty; Whirlpool Corporation promises that parts for all models will be

available for 15 years; Hewlett-Packard gives customers a 99% uptime service guarantee on its

computers; and Mercedes-Benz makes technicians available for roadside assistance after normal

dealer service hours.

While these attempts to change customer perceptions are a step in the right direction, a company’s

or a product’s quality image obviously cannot be improved overnight. It takes time to cultivate

customer confidence, and promotional tactics alone will not do the job. In fact, they can backfire if

the claims and promises do not hold up and customers perceive them as gimmicks.

To ensure delivery of advertising claims, companies must build quality into their products or

services. From a production perspective, this means a companywide commitment to eliminate

errors at every stage of the product development process—product design, process design, and

manufacturing. It also means working closely with suppliers to eliminate defects from all incoming

parts.

Equally important yet often overlooked are the marketing aspects of quality-improvement

programs. Companies must be sure they are offering the benefits customers seek. Quality should be

primarily customer-driven, not technology-driven, production-driven, or competitor-driven.

In developing product quality programs, companies often fail to take into account two basic sets of

questions. First, how do customers define quality, and why are they suddenly demanding higher

quality than in the past? Second, how important is high quality in customer service, and how can it

be ensured after the sale?

As mundane as these questions may sound, the answers provide essential information on how to

build an effective customer-driven quality program. We should not forget that customers, after all,

serve as the ultimate judge of quality in the marketplace.

The Production-Service Connection

Product performance and customer service are closely linked in any quality program; the greater the

attention to product quality in production, the fewer the demands on the customer service

operation to correct subsequent problems. Office equipment manufacturers, for example, are

designing products to have fewer manual and more automatic controls. Not only are the products

easier to operate and less susceptible to misuse but they also require little maintenance and have

internal troubleshooting systems to aid in problem identification. The up-front investment in

quality minimizes the need for customer service.

Besides its usual functions, customer service can act as an early warning system to detect product

quality problems. Customer surveys measuring product performance can also help spot quality

control or design difficulties. And of course detecting defects early spares later embarrassment and

headaches.

Quality-improvement successes

It is relevant at this point to consider two companies that have developed successful customerdriven

quality programs: L.L. Bean, Inc. and Caterpillar Tractor Company. Although these two

companies are in different businesses—L.L. Bean sells outdoor apparel and equipment primarily

through mail-order while Caterpillar manufactures earth-moving equipment, diesel engines, and

materials-handling devices, which it sells through dealers—both enjoy an enviable reputation for

high quality.

Some 96.7% of 3,000 customers L.L. Bean recently surveyed said that quality is the attribute they

like most about the company. Bean executes a customer-driven quality program by:

Conducting regular customer satisfaction surveys and sample group interviews to track customer

and noncustomer perceptions of the quality of its own and its competitors’ products and services.

Tracking on its computer all customer inquiries and complaints and updating the file daily.

Guaranteeing all its products to be 100% satisfactory and providing a full cash refund, if requested,

on any returns.

Asking customers to fill out a short, coded questionnaire and explain their reasons for returning the

merchandise.

Performing extensive field tests on any new outdoor equipment before listing it in the company’s

catalogs.

Even stocking extra buttons for most of the apparel items carried years ago, just in case a customer

needs one.

Despite recent financial setbacks, Caterpillar continues to be fully committed to sticking with its

quality program, which includes:

Conducting two customer satisfaction surveys following each purchase, one after 300 hours of

product use and the second after 500 hours of use.

Maintaining a centrally managed list of product problems as identified by customers from around

the world.

Analyzing warranty and service reports submitted by dealers, as part of a product improvement

program.

Asking dealers to conduct a quality audit as soon as the products are received and to attribute

defects to either assembly errors or shipping damages.

Guaranteeing 48—hour delivery of any part to any customer in the world.

Encouraging dealers to establish side businesses in rebuilding parts to reduce costs and increase the

speed of repairs.

How Do Customers Dene Quality?

To understand how customers perceive quality, both L.L. Bean and Caterpillar collect much

information directly from them. Even with such information, though, pinpointing what consumers

really want is no simple task. For one thing, consumers cannot always articulate their quality

requirements. They often speak in generalities, complaining, for instance, that they bought “a

lemon” or that manufacturers “don’t make ‘em like they used to.”

Consumers’ priorities and perceptions also change over time. Taking automobiles as an example,

market data compiled by SRI International suggest that consumer priorities shifted from styling in

1970 to fuel economy in 1975 and then to quality of design and performance in 1980. (See Exhibit

Changes in the importance to customers of U.S. automobile characteristics

In addition, consumers perceive a product’s quality relative to competing products. As John F.

Welch, chairman and chief executive of General Electric Company, observed, “The customer…rates

us better or worse than somebody else. It’s not very scientific, but it’s disastrous if you score low.”

One of the major problems facing U.S. automobile manufacturers is the public perception that

imported cars, particularly those from Japan, are of higher quality. When a 1981 New York Times-

CBS News poll asked consumers if they thought that Japanese-made cars are usually better quality

than those made here, about the same, or not as good, 34% answered better, 30% said the same,

22% said not as good, and 14% did not know. When the Roper Organization asked the same question

in 1977, only 18% said better, 30% said the same, 32% said not as good, and 20% did not know.

Further, consumers are demanding high quality at low prices. When a national panel of shoppers

was asked where it would like to see food manufacturers invest more, the highest-rated response

was “better quality for the same price.” In search of such value, some consumers are even

chartering buses to Cohoes Manufacturing Company, an apparel specialty store located in Cohoes,

New York that has a reputation for offering high-quality, designer-label merchandise at discount

prices.

Consumers’ perceptions of product quality are influenced by various factors at each stage of the

buying process. Some of the major influences are listed in Exhibit II.

Exhibit II Factors influencing consumer perception of quality* *Not necessarily in order of

importance.

Watching for key trends

What should companies do to improve their understanding of customers’ perspectives on quality?

We know of no other way than to collect and analyze internal data and to monitor publicly available

information.

Internally generated information is obtained principally through customer surveys, interviews of

potential customers (such as focus group interviews), reports from salespeople, and field

experiments. Recall how L.L. Bean and Caterpillar use these approaches to obtain data on how their

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current and potential customers rate their products’ quality versus those of competitors’.

Publicly available information of a more general nature can be obtained through pollsters,

independent research organizations, government agencies, and the news media. Such sources are

often helpful in identifying shifts in societal attitudes.

Companies that try to define their customers’ attitudes on product and service quality often focus

too narrowly on the meaning of quality for their products and services; an understanding of

changing attitudes in the broader marketplace can be equally valuable.

Toward the end of the last decade, too many U.S. companies failed to observe that the optimism of

the mid-1970s was increasingly giving way to a mood of pessimism and restraint because of

deteriorating economic conditions. Several polls taken during the 1970s indicated the nature and

extent of this shift; for instance, Gallup polls showed that while only 21% of Americans in the early

1970s believed “next year will be worse than this year,” 55% held this pessimistic outlook by the end

of the 1970s.

Pessimistic about what the future held, consumers began adjusting their life-styles. The

unrestrained desire during the mid-1970s to buy and own more gave way to more restrained

behavior, such as “integrity” buying, “investment” buying, and “life-cycle” buying.

Integrity purchases are those made for their perceived importance to society rather than solely for

personal status. Buying a small, energy-efficient automobile, for example, can be a sign of personal

integrity. Investment buying is geared toward long-lasting products, even if that means paying a

little more. The emphasis is on such values as durability, reliability, craftsmanship, and longevity. In

the apparel business, for example, more manufacturers have begun stressing the investment value

of clothing. And life-cycle buying entails comparing the cost of buying with the cost of owning. For

example, some might see a $10 light bulb, which uses one-third as much electricity and lasts four

times as long as a $1 conventional light bulb, as the better deal.

These changes in buying behavior reflect the pessimistic outlook of consumers and their growing

emphasis on quality rather than quantity: “If we’re going to buy less, let it be better.”

By overlooking this fundamental shift in consumer attitudes, companies missed the opportunity to

capitalize on it. If they had monitored the information available, managers could have identified and

responded to the trends earlier.

Ensuring Quality After the Sale

As we suggested earlier, the quality of customer service after the sale is often as important as the

quality of the product itself. Of course, excellent customer service can rarely compensate for a weak

product. But poor customer service can quickly negate all the advantages associated with delivering

a product of superior quality. At companies like L.L. Bean and Caterpillar, customer service is not an

afterthought but an integral part of the product offering and is subject to the same quality standards

as the production process. These companies realize that a top-notch customer service operation can

be an effective means of accomplishing the following three objectives:

1. Differentiating a company from competitors. As more customers seek to extend the lives of their

durable goods, the perceived quality of customer service becomes an increasingly important factor

in the purchase decision. Whirlpool Corporation promises to stand by its products rather than hide

behind its distribution channels; it has parlayed a reputation for effective customer service into a

distinct competitive advantage that reinforces its image of quality.

2. Generating new sales leads and discouraging switches to alternative suppliers. Keeping in regular

contact with customers so as to deliver new information to them and gather suggestions for product

improvements can ensure the continued satisfaction of existing customers and improve the chances

of meeting the needs of potential purchasers.

3. Reinforcing dealer loyalty. Companies with strong customer service programs can also broaden

their distribution channels more easily to include outlets that may not be able to deliver high levels

of postpurchase customer service on their own.

The customer service audit

To be effective, a customer service operation requires a marketing plan. Customer services should

be viewed as a product line that must be packaged, priced, communicated, and delivered to

customers. An evaluation of a company’s current customer service operation—a customer service

audit—is essential to the development of such a plan.

A customer service audit asks managers the following questions:

What are your customer service objectives?

Many companies have not established objectives for their customer service operations and have no

concept of the role customer service should play in their business and marketing strategies. Every

company should know what percentage of its revenue stream it expects to derive from service sales

and whether the goal is to make a profit, break even, or—for reasons of competitive advantage—

sustain a loss.

What services do you provide?

It is useful to develop a grid showing which services your company provides or could provide for

each of the products in your line. These might include customer education, financing arrangements,

order confirmation and tracing, predelivery preparation, spare-parts inventory, repair service, and

claims and complaints handling.

How do you compare with the competition?

A similar grid can be used to chart the customer services your competitors provide. Through

customer surveys, you can identify those areas of customer service in which your company rates

higher or lower than the competition. In areas where your company is weak, can you invest to

improve your performance? Where you are strong, how easy is it for competitors to match or exceed

your performance?

What services do your customers want?

There is little value in developing superior performance in areas of customer service most customers

consider only marginally important. An essential ingredient of the audit is, therefore, to understand

the relative importance of various customer services to current and potential customers. Distinct

customer segments can often be identified according to the priorities they attach to particular

services.

What are your customers’ service demand patterns?

The level and nature of customer service needed often change over the product’s life. Services that

are top priority at the time of sale may be less important five years later. Companies must

understand the patterns and timing of demand for customer services on each of their products.

These they can graph, as Exhibit III shows.

Exhibit III Postpurchase service demands for two products

Product A in the exhibit is a security control system, an electronics product with few moving parts.

A high level of service is needed immediately following installation to train operators and debug the

system. Thereafter, the need for service quickly drops to only periodic replacement of mechanical

parts, such as frequently used door switches.

Product B is an automobile. Service requirements are significant during the warranty period because

of customer sensitivity to any aesthetic and functional defects and also because repairs are free (to

the customer). After the warranty period, however, service requirements beyond basic maintenance

will be more extensive for B than for A, since there are more mechanical parts to wear out.

What trade-offs are your customers prepared to make?

Excellent service can always be extended—at a price. You should know the costs to your company of

providing assorted customer services through various delivery systems (an 800 telephone number, a

customer service agent, a salesperson) at different levels of performance efficiency. At the same

time, you should establish what value your customers place on varying levels of customer service,

what level of service quality they are prepared to pay for, and whether they prefer to pay for services

separately or as part of the product purchase price.

Customers are likely to differ widely in price sensitivity. A printing press manufacturer, for example,

has found that daily newspaper publishers, because of the time sensitivity of their product, are

willing to pay a high price for immediate repair service, whereas book publishers, being less time

pressured, can afford to be more price conscious.

The Customer Service Program

The success of the marketing program will depend as much on effective implementation as on

sound analysis and research. After reviewing several customer service operations in a variety of

industries, we believe that managers should concentrate on the following seven guidelines for

effective program implementation:

1. Educate your customers. Customers must be taught both how to use and how not to use a product.

And through appropriate training programs, companies can reduce the chances of calls for highly

trained service personnel to solve simple problems. General Electric recently established a network

of product education centers that purchasers of GE appliances can call toll free. Many consumer

problems during the warranty period can be handled at a cost of $5 per call rather than the $30 to

$50 cost for a service technician to visit a consumer’s home.

2. Educate your employees. In many organizations, employees view the customer with a problem as

an annoyance rather than as a source of information. A marketing program is often needed to

change such negative attitudes and to convince employees not only that customers are the ultimate

judge of quality but also that their criticisms should be respected and acted on immediately. The

internal marketing program should incorporate detailed procedures to guide customer-employee

Interactions. (To be Continued)