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The quality of a product or service is negatively impacted where a business’s main driver is profit.

October 05, 2019

Maximize Quality Profits

The main goal of quality improvement is improved profitability. Greater quality reduces manufacturing costs due to lower scrap levels, less rework and reduced raw material costs. It also increases customer satisfaction because of the quality level itself and faster deliveries, thereby increasing demand for the company’s products. For these reasons, high quality can provide a competitive advantage. Look at an approach that allows manufacturers to focus quality initiatives where they may make the biggest impact on profitability.
Maximizing profitability is the number one goal of manufacturers. However, most manufacturers do not succeed in achieving maximized profits. Why? First, they often do not have complete visibility into profitability at a granular level-by product, customer, market, sales region, plant or production line. This is often because of the presence of multiple systems, a gap between enterprise resource planning (ERP) and manufacturing execution systems (MES) and no central repository for aggregated data.
A positive effect of companies generating profits is the ability for companies to expand and grow their operations. Business profits allow companies to improve the livelihood of their owners, managers and employees. Losses resulting from business operations have the opposite effect of profits. Companies facing a reduced market share from lower consumer demand or a downturn in the business cycle may be forced to reduce operational output. Consistent business losses may force the company into bankruptcy.

How to Improve Your Profit Margins without Cutting Quality

The fastest way to grow your profits is often to improve your margins. Many businesses don't like to talk about margins because they feel increasing margins requires cutting quality, but that simply isn't the case. There are a number of steps you can take to improve your margins without sacrificing quality or service.
1. Know Every Number
Above anything else, you need to know every single number that's involved in your business. Your bookkeeping services should provide detailed reports breaking down each individual cost along with combined reports of related costs.
For example, a restaurant should know the cost of every single ingredient in every dish. If you only know your total sales and food costs, you might not realize specific dishes are actually costing you money. If you don't know the cost of a slice of cheese on a cheeseburger, you may not realize that using an expensive cheese is harming your margins without adding any perceived quality to your burgers.
2. Manage Your Inventory
Even when you think your costs are under control, poor inventory management could be raising your expenses. You should be able to ask your accounting services exactly what you have on hand and where it is at any time.
If you manufacture products by hand and a worker can't find a part, they might ask the manager to reorder it. By the time someone realizes you have more buried in the back of your warehouse, you may no longer use that part and now have wasted inventory.
With strong inventory controls, your purchasing manager will see there's more of the part somewhere in your warehouse before placing another order.
3. Always Negotiate
Everything is negotiable. While your suppliers want to protect their own margins, they also want to keep your business.
At least once a year, call your suppliers and ask for a better rate. If they say no, see if they'll do it if you offer a guaranteed minimum purchase, extended delivery time or an agreement to do business with them for a longer period of time.
While these types of offers might increase your risk, you can mitigate the risk with strong sales forecasting to see if you can actually use the increased supply.
4. Increase Speed
Working smarter is often better than working harder. Delays at any point of your manufacturing and sales process can increase your costs.
If your inventory moves slowly, you have increased storage costs, greater risk of spoilage and the possibility of unsold items no longer being in demand. If your workers are slowed down by not having the right tools, buying new equipment to help them work faster can boost productivity and reduce labor costs.
5. Cut Choices
Consumers say they value choice, but choices cost you money. Each additional product or service requires more employee training, more inventory and more risk of not selling.
Look for overlapping choices that won't affect your business. For example, a hardware store selling hammers with black or gray handles probably won't see any customers walking out without buying a hammer if they stop selling one of those colors.
Use your accounting reports to figure out which items have the highest margins, which items sell together and which items are purchased as replacements when another item is out of stock.

5 Ways Product Quality Impacts Your Brand

Improve your customer retention, build brand trust and boost your ROI by focusing on your product quality. 
Quality is what a product can do for a customer.
Product quality is also how well the product does what it's supposed to do, and how well it holds up over time. Some consumers view quality as a price point while others appreciate a product because it’s “greener.”
Regardless of the various viewpoints from the public, product quality is a competitive marker for brands that affects purchasing decisions and profitability.
Brands and marketers can’t afford to overlook product quality for the following five reasons.

  1. Builds Trust With Your Customers
  2. Fuels Word of Mouth & Social Media Recommendations
  3. Produces Less Customer Complaints & Returns
  4. People Care About Aesthetics
  5. Produce a Higher (ROI)

Factors that affect the profitability of firms

1. The degree of competition a firm faces. If a firm has monopoly power then it has little competition. Therefore demand will be more inelastic. This enables the firm to increase profits by increasing the price. For example, very profitable firms, such as Google and Microsoft have developed a degree of monopoly power, with limited competition.
2. If the market is very competitive, then profit will be lower. This is because consumers would only buy from the cheapest firms. Also important is the idea of contestability. Market contestability is how easy it is for new firms to enter the market. If entry is easy then firms will always face the threat of competition; even if it is just “hit and run competition” – this will reduce profits.
3. The strength of demand. For example, demand will be high if the product is fashionable, e.g. mobile phone companies were profitable during the period of rising demand and growth in the market. Products which have falling demand like Spam (tinned meat) will lead to low profit for the company. Some companies, like Apple, have successfully carved out strong brand loyalty making customers demand many of the new Apple products.
4. The state of the economy. If there is economic growth then there will be increased demand for most products especially luxury products with a high-income elasticity of demand. For example, manufacturers of luxury sports cars will benefit from economic growth but will suffer in times of recession.
5. Advertising. A successful advertising campaign can increase demand and make the product more inelastic demand. However, the increased revenue will need to cover the costs of the advertising. Sometimes the best methods are word of mouth. For example, it was not necessary for YouTube to do much advertising.
6. Substitutes, if there are many substitutes or substitutes are expensive then demand for the product will be higher. Similarly, complementary goods will be important for the profits of a company.
7. Relative costs. An increase in costs will decrease profits; this could include labour costs, raw material costs and cost of rent. For example, a devaluation of the exchange rate would increase the cost of imports, and therefore companies who imported raw materials would face an increase in costs. Alternatively, if the firm is able to increase productivity by improving technology then profits should increase. If a firm imports raw materials the exchange rate will be important. A depreciation making imports more expensive. However, a depreciation of the exchange rate is good for exporters who will become more competitive.
8. Economies of scale. A firm with high fixed costs will need to produce a lot to benefit from economies of scale and produce on the minimum efficient scale, otherwise average costs will be too high. For example in the steel industry, we have seen a lot of rationalisation where medium-sized firms have lost their competitiveness and had to merge with others.
9. Dynamically efficient. If a firm is not dynamically efficient then over time costs will increase. For example, state monopolies often had little incentive to cut costs, e.g. get rid of surplus labour. Therefore before privatisation, they made little profit, however with the workings and incentives of the market they became more efficient.
10. Price discrimination. If the firm can price discriminate it will be more efficient. This involves charging different prices for the same good so that the firm can charge higher prices to those with inelastic demand. This is important for airline firms.
11. Management. Successful management is important for the long-term growth and profitability of firms. For example, poor management can lead to a decline in worker morale, which harms customer service and worker turnover. Also, firms may suffer from taking wrong expansion plans. For example, many banks took out risky subprime mortgages, but this led to large losses. Tesco suffered from expanding into unrelated business, like garden centre. This led to over-stretching the company and losing sight of their core business.
12. Objectives of firms. Not all firms are profit maximising. Some firms may seek to increase market share, in which case profits will be sacrificed to gain market share. For example, this is the strategy of Walmart and to an extent Amazon.
13. Exchange rate. If a firm relies on exports, a depreciation in the exchange rate will increase profitability. A fall in the exchange rate makes exports cheaper to foreign buyers. Therefore, the firm can sell more or choose to have a bigger profit margin. If the firm imports raw materials, a depreciation will increase costs of production.

Google dominates the world of search. No surprises there, of course. But as our infographic below shows, the scale of its dominance varies according to device. On desktop, Google enjoys a global market share of 80.5 percent. Moving on to mobile this jumps to 95.9 percent but you really hit 'peak Google' when looking at consoles. Here, the world's search engine of choice has no distance left to run, utterly dominating PlayStation et al. with an ironclad 99.4 percent market share.

When it comes to global active smartphones, Samsung and Apple had a collective market share of more than 50% for years. That changed in September 2018, when the two tech giants made up 49.9% of the global smartphone market. While the companies still have a duopoly.
In September 2018, the two most popular brands by active smartphones were Samsung and Apple, with market shares of 26.2% and 23.7%, respectively.
The #3 brand was Oppo, which had a market share of 10.4% in September 2018—compared to 7.6% in September 2017.
the #4 brand globally, with a market share of 8.7% in September 2018.
Xiaomi was the #5 brand, boasting a market share of 8.5%—an increase from the company’s 6.3% market share in September 2017.
Vivo is the #6 brand, with a market share of 7.1% (up from 5.2% in September 2017).

According to the data published by Statcounter, on a global level, Facebook's market share dropped from 75.5% in December 2017 to 66.3% in December 2018 in favor of Pinterest (16.3%), Twiter (8.2%), YouTube (4.8%) and Instagram (1.8%). Tumblr had 1% market share and Reddit 0.8% in December 2018, while other social media platforms (Vkontakte, Google+, Linkedin) below 0.5%.

In June 2018, Facebook marked its lowest market share (63%), while Youtube noted its highest monthly market share in 2018, reaching almost 10%.


Perfecting product quality has numerous benefits for any company. The positive correlation between product quality and sales should be reason enough to make quality a top priority in a business strategy. The trust, credibility, and loyalty that comes from happy customers builds repeat sales and ignites positive recommendations about a product that helps a company reach new audiences.

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