Years ago there was a press campaign that complained about ‘Rip off Britain’. Journalists had discovered that products like cars could be sourced overseas at much lower prices. They deduced from this that the consumer was being ripped off in Britain. Why this phenomenon uniquely applied to Britain was never clear but we rarely hear of this issue any more.
However, there are serious dislocations in some markets which might indicate that they are not always as efficient as they could be. I have had the following recent experiences. I buy most of my shoes these days from a mail order supplier. The shoes are good quality and considerably cheaper than high street prices. One pair I have had for several years had worn down at the heel while the uppers were still fine. I took them to be reheeled by a branch of a well-known repair shop. They wanted £65 for new heels. I pointed out that a new pair of identical shoes would cost me £35. Some years ago after I had earned a good bonus I decided to reward myself with a good quality Swiss watch. I researched the market and found something that suited me. It was not ostentatious but its style seemed timeless (forgive the pun) and would last me a lifetime. But one thing I had not factored in. It ran on a battery and I would have to take it to one of the manufacturer appointed service agents to replace. The battery lasts about a year so I have got used to this annual service cost which last year was £80. I took it to the same place, found it had relocated from Bond St to Regent St and was told that the price was now £145. That was simply too much. I researched online and found someone in the Midlands who would do a full service including replacement battery for £55. He was very friendly too.
There has been much talk in the media about the squeeze on the major supermarket chains between high quality service retailers like Waitrose and the big German discount chains like Aldi and Lidl. I habitually do all our grocery shopping at one of the established players but I decided to check out one of the discounters. (Forgive that pun too).Living where I do it took a while to find one but there is a branch of Aldi about six miles away. I was astonished. The prices on many items were not just a little cheaper, they were a lot cheaper. The range, particularly of fresh food, was much more limited, but I have resolved to now split my shopping between the two styles. I did a bit more research because I had assumed that the reason the German companies’ prices are lower is because they are even larger chains at the European level than some of our UK based companies and have greater buying power. But much of Aldi’s range appeared British sourced to me. I looked into it more.
Firstly, the question of wine. My son-in-law buys me an annual Christmas present, a book that recommends and rates the best wines in the supermarkets.[i]
The author, Ned Halley, knows that most of the wines sold in supermarkets are global brands that all taste the same. But the supermarkets try hard to differentiate themselves by sourcing good quality wines on an exclusive basis. By cutting out the middle man they can offer excellent value. Halley tastes thousands of wines to select 500 that he can recommend. Pricing is the one complication so he rates according to how much he enjoyed a wine at the price. So if a wine gets his maximum score of 10 it means it was among the best at that price. I.e. a wine that scores 10 at £15 will probably be better than one that scores 10 at £10. The traditional supermarkets’ habit of offering regular discounts complicates this further while Aldi and Lidl sell at the same prices all year round.
The buyer at Aldi is Mike James. He told Ned Halley that all the wines in the 500 UK stores are bought for all of us, the discriminating Brits. Well, except one, the Toscana Rosso which was the discovery of Mike’s counterpart in Austria. Halley scores this one at 8 but scores three of Aldi’s wines at 10 and five at 9. Lidl doesn’t manage any 10s but gets nine at 9 including three champagnes, all under £13.
I then wondered if this was just about wine which is a highly specialised market. I talked to a contact who works for one of the majors. He told me that the buyers at Aldi and Lidl are exceptionally well paid. The difference is less about buying power which, after all, Asda as part of Walmart and Tesco as a global player in its own right have plenty of, and more about buying skill. And buying skill is more about recognising product quality and finding it at competitive prices.
I wrote the following on product quality in my book The 20 Ps of Marketing:
“Another factor in the success of the Product is quality. Quality is a very difficult word, for it has both relative and absolute status. Football commentators describe a player as “quality” when they mean he is of good quality, not poor quality. A Product must meet a quality standard to be successful and a good manufacturing, or sourcing, company will have its quality control procedures to ensure this. These quality control procedures will vary enormously according to the risk of unacceptable quality. A medicinal drug manufacturer will have an extremely high standard as the risk of failure is too great and unacceptable to society. However, the quality standard has to be built into the Product as it is impossible to test 100% of the Production. In consequence this Product has a very high Price which in most developed countries is subsidised by the state and in undeveloped countries is largely unaffordable.
Marginally down from that standard is the food industry, at least with perishable foods that have a risk of salmonella, E. coli or other bacterial risk. Sometimes disproportionately high standards are applied as a small degree of salmonella will be present in many foodstuffs and most People are tolerant of that. Nevertheless, the manufacturer cannot take undue risks and so when I was in charge of a food processing factory for Pillsbury, the Quality Assurance management reported separately from the Production management and had the Power to stop Production and despatch pending tests of a suspect batch.
Such standards are not held in manufacturing of electronics where the Price competition is very high and the customer would not pay for the cost of perfection. Nevertheless standards of quality are considerably higher today than they used to be. Engineers attempt to design out the risk of defect.
In the British television industry of the 1950s and 1960s quality was so poor that the majority of customers preferred to rent, and thus pay for a constant service of maintenance. The dealers who effectively sold the same set many times over became very rich. However, as the Japanese gradually took over the industry in the 1970s and 1980s with their vastly superior Products the rental industry slowly died out as the cost of acquisition came down in relative terms and the risk of acquisition also came down.
As Managing Director of Sony UK I used to receive a number of consumer complaints from people who had bought their Sony TV twenty years before, had watched it on average for 50 weeks a year, 35 hours per week, had never had to spend a penny on maintenance or service, and now found that it was beginning to give up the ghost. Their complaint was that they thought they had bought a “quality” Product and were disappointed that after 35,000 hours of maintenance free use the Product needed replacing!
Quality in food does not just mean safety, though that is paramount. It also means enjoyment. Successful food and drink companies will have developed research techniques that identify the degree to which their Products, present and future, satisfy consumers on an hedonic scale and they will have established benchmarks which new Products must meet before expensive resources are committed to launch. In my time at Mars such hedonic scales were sacred and the company then had an excellent record in developing major new Products with fewer failures than the norm. It is an astonishing fact that most New Product Development (NPD) fails and while the reasons are not always about standards I am prepared to wager that a considerable proportion are.
When I joined Pillsbury to run its very Profitable Green’s of Brighton subsidiary I found that similar hedonic scales had been established but had been overlooked by the previous management who, charged with an imperative to maintain an active NPD programme, had cut corners and launched Products which did not meet their own internal benchmarks.
I reviewed all the recent history of Product introductions and compared them with well-established and Profitable lines. It was clear that for some time we had failed to launch any new Products that lived up to the long term reputation of the company. I then set in motion a new programme of Research and Development, supported by a strict rule that new Products would only be launched if they came up to the benchmark. Our subsequent launches were all much more successful and indeed one new Product quickly broke into our top five selling lines.
Such practices would not be tolerated in industries with sophisticated Product development processes pioneered by Toyota in the car industry. However, these processes are now generic and not really a source of competitive advantage as all major companies follow them. Companies that ignored them have largely gone to the wall. Toyota however has had the foresight and discipline to customize tools and technology to fit within a broader framework, one that includes People and processes.
Notwithstanding its recent financial difficulties because of a worldwide collapse in demand for new vehicles, over the long-term Toyota can lay claim to be the world’s outstanding large company (I don’t think it’s practical to try and identify the world’s outstanding small company). Its philosophy is to constantly seek improvement, even if of a small nature. This process of Kaizen
is not unique to Toyota or indeed to Japanese industry any more, but it was perfected by Toyota who set the standard.
Toyota, until 2008-9, had enjoyed uninterrupted sales and Profit growth for many years. But each year, rather than indulging in excessive celebration, its top management ask what went wrong and could be improved. The workforce is fully involved in making a contribution to this effort.”
That comes from Chapter One on Product in my book, The 20 Ps of Marketing
published by Kogan Page. You can order it from the link on the home page of this website.