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High Quality vs Low-Cost Bargain: The Current Dichotomy (XX). The Meaning of High Quality.

Have a beautiful weekend. Aujourd’hui we will continue with one short philosophical episode. We have spent the last 9 weeks sailing the waters of the currents of pricing. We have endured the concept of value-based customer pricing, not just from the rationale of why is the correct method to capture the customer value, but also because somewhere in between our country’s status of markets, we have the duty and the obligation to do the things right. When we live in pure free-market competition, the value-based method for pricing is superior not just to high margins for the manufacturers and sellers, but also for the customer. In addition, the EVC (which includes the perception of the customer) is the only offer oriented to the Value Equivalence Line needs and wants, because it targets the benefit attributes from the clients’ perspective; and fairly, returns appropriately in profits for the companies who sell them.

Calabasas Party. Painted on Fabriano Artístico Traditional White Satinée 300 GSM. This oeuvre is not for sale (NFS). When we segment prices by a different type of clients, we are opening our profits pool. When we compete only by cost/plus formula, we are undermining our profits and we create unharvested value, price wars, and we destroy the artisan opportunities too.

Value-Based Approach for pricing. When there is pure competition, the EVC, and its value-based customer approach work perfectly, without any doubt. But in reality, we don’t live in a world of pure competition. We live in a business planet of collusion or confabulations (instant understanding between the monopolistic competitors in every industry), where the cost-based pricing has been privileged. When pricing specialists dismiss the value-based approach and start to utilize the cost-based one with the purpose to produce more through efficient value chains, we flipped the pancake wrongly. With the internet, social media and massive instant messaging, and everything being priced under the cost-plus formula, there are no value differentials. And that effect slaughters possible or potential arbitrage opportunities.

Pricing and arbitrage opportunities in the middle of our obsession with cutting costs?. Those who work in financial markets, know that the key for making revenues in financial trading is the profitable arbitrage chances that occurs to take advantage of differing prices for the same asset: when performing the simultaneous buying and selling of securities, currency, or commodities in different markets or in derivative forms. But when there are monopolies, monopolistic or oligopolist competition, and all products and services are cost-based calculated: and on top of that, there is no asymmetric information between buyers and sellers (as it is right now), what type of possibilities are for value-added differentials?

When differentiation is weak, price competition becomes paramount (Peter Doyle). When defining high quality, we are honoring differentiation. And philosophically, differentiation is what makes each of us unique, not just in our daily quotidian lives, but also in our products and services. To become distinct has made us profit since beyond 4000 years ago. Even if others copy us, innovation is always making us different, and this has helped us to evolve and to compete transparently. All our sources of innovation are based on our processes to make things that are perceived differently by those who require our oeuvres. No big hit on earth (measured in terms of profits or ideas or recognition) has ever happened because it is the same and plain thing, but because it has been different. And to be different implies a price that needs to be charged. These value differentials only happen when we do high-quality, because cheapskates can be replicated all the time, and are sold at a “rotten potato” price.

Towards a definition of High Quality. High Quality means to think, design, make and offer the outcome of our effort (in any industry) with a superior degree of excellence. The term “high-quality” is tied to or expresses an inherent or distinguishing characteristic. Since thousands of years ago, all our civilizations were conceding “high quality” a supreme essence. Regardless if we work in the economy/medium-segment/premium quadrant. Whenever we make things with perfection and high standards, we are following a philosophy of leaving a legacy for the next generations. And that is what God has commanded us to do, not just in the Old Testament but also through Jesus parables.

Let me share the meaning of “High Quality” in the context of Christianity. The words from Paul to the community of Corinthians at 1st Corinthians 3: 9-15. “9For we are co-workers in God’s service; you are God’s field, God’s building. 10 By the grace God has given me, I laid a foundation as a wise builder, and someone else is building on it. But each one should build with care. 11 For no one can lay any foundation other than the one already laid, which is Jesus Christ. 12 If anyone builds on this foundation using gold, silver, costly stones, wood, hay, or straw, 13 their work will be shown for what it is because the Day will bring it to light. It will be revealed with fire, and the fire will test the quality of each person’s work. 14 If what has been built survives, the builder will receive a reward. 15 If it is burned up, the builder will suffer loss but yet will be saved—even though only as one escaping through the flames“.

I wished to share this bible paragraph because the term High-quality has always been acknowledged and stamped in our minds through thousands of years and centuries of history. For Paul, the term high quality was associated with a metaphor of the “wise builder”. Paul recognizes the wise capacities associated with building with care. He speaks of the type of materials utilized for the foundations, and how the fire test the quality of each person’s work. He states that a reward comes for those who build with ‘”high-quality standards”, meanwhile those who lose, even though can survive, won’t be given the recognition, nor recompense, or prize of watching the product of its work “on point”. How many of us have been following incorrect business frameworks that won’t remain for the long run? How many of our products or services won’t endure the difficulties, or as Paul expresses it, don’t or will not pass the fire tests?

High Quality means a commitment to integrity. High Quality was and has always been inherent to all our capabilities expressed in thoughts, actions, and oeuvres. In business, there is always a “quality control”, that ensures the proper standards of any manufacturing goods that we originate. In terms of high-quality control, we are speaking of more than a random inspection. We guarantee that our work will last the crudeness of time, and it will not only be useful for what it has been made of, but it will also help our world to be a better place in our families, communities, countries, and the world.

Characteristics of High-Quality Manufacturing:

  • It is conceptually well designed with high attention to the details, considering all the contexts and implications. Please re-visit the theory about this analysis in my posts from 18th and 20th July-2018.
  • It is committed to superior quality during the whole value chain process. From inputs to manufacturing processes, to packaging, to delivery, and the rest of support activities. Please see the value chain analysis (VCA Framework) for your refreshment below. I wrote about this framework during the Volvo Ocean Race 2017-2018 Strategy Regatta, and you can click here:
  • It is committed to the environment. It requires that our products and services promote, protect and prevent any damage to the environment at all levels during the whole manufacturing process and after sales.
  • It is involved with the well-being of the humanity. A high-quality product or service won’t affect negatively to the customers, the company workers, or the society.
  • It is devoted to make profits, but at the same time improving the quality of life of all who participate in the value chain activities. It is impossible to sell products using labor force mistreated as slaves or earning below US$28,800 dollars/year (global average); that is the superior tier of the low working class, which means that per family, the income per month must be at least US$2,400.00
  • It is wholeheartedly dedicated to educate all the stakeholders inside and around the company to be integral for the benefit of the society
  • It is engaged coherently to make this world a better place in whatever social cause or charity of its preference. The ample range of helping causes is limitless: from addressing solutions to finish multidimensional poverty; addressing education to rebuke ignorance; stopping domestic violence or armament/weapons; reducing the consumption of vice substances as drugs and alcohol; helping people to stop their technology addictions; caring for the vulnerable groups that need support such as widows, orphans, elders; supporting governments to block corruption; working for the global, regional or local peace; aiding the poor to leave precariousness and begin their own journey towards the Middle-class; assisting and guarding the traditional arts and the crafts industries; giving relief to those in state of emergency because of climate change; improve the environment situation; preserving human history ; upgrading the health and education systems with high quality for everyone; undertaking special projects to solve specific conditions in countries demanding help, etc.
  • It is strongly balanced between opposites: the old and the new, the hand/made and the automated, the quick and the slow, the emotional and the rational, the past and the future, the longstanding and the ephemeral, the traditional and the disruptive, the unmanageable disorder and the tidy neat freak, the cheap and the expensive, long term and short term, etc.
  • It is consecrated to create things for a legacy of at least 4 generations in certain industries, or at least it is designed to accommodate for the recycling circular economy model or fixing/adapting it to last much more than to throw it away when fails.
  • It is set to never release products or services that will affect the society, as individuals and collectively. For example, never release tech applications that annihilates our right to privacy, or tech products that expose our identity information or financial accounts to be hacked, or tech communication interactions that hurt the dignity of others.
  • It is bestowed to never harm or hurt humans health (physically and mentally). For example, why to use plastics for everything, meanwhile the oceans are being polluted with it! Why do we want to force kids to digital education, if we know in advance that is not good enough, or it doesn’t accomplish the minimum required standards of the traditional education model?

Any high quality mind will always elevate people and its societies, not the other way around.

Eleonora Escalante

Our next strategic reflections saga will begin soon. “The Hare and the Tortoise: The race is not to the speedy”.

I will leave this episode here. Next week we will proceed to define the Low-Cost Bargain, and you will understand why I tagged it as low-cost instead of low-price. There is always a reason behind my labels. Blessings and thank you for reading to me.

Source of theory reference cited in this article

Disclaimer: Illustrations in Watercolor are painted by Eleonora Escalante. Other types of illustrations or videos (which are not mine) are used for educational purposes ONLY. Nevertheless, the majority of the pictures, images, or videos shown on this blog are not mine. I do not own any of the lovely photos or images posted unless otherwise stated.

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