Overview
There is a paradox in goods manufacturing between quality and demand. Consumers expect high-quality products while brands seek to create repeat business. All this has to happen while innovating to create new models. This article aims to explore that dynamic and how it relates to recommerce.
Demand
Is there a more critical word when developing a product for sale? Does the market want this? How often will the market want this? What is the total addressable market? These questions are foundational.
Companies need to create demand, and that demand is ideally cyclical. In countless surveys, consumers list quality, experience, and price as the top three purchase decision factors, so there is a direct link between creating high-quality products and generating demand.
There is, however, a catch when you look at ongoing growth. The higher the quality of your product, the more secure your market share becomes. Also, the higher the quality of your product, the longer it stays in the market resulting in lower chances for repeat purchases. When innovation slows, companies have to find new paths to revenue.
“The Paradox:
Quality is necessary for demand
High-quality goods create self-competition due to reuse over time lowering demand"
Historically, Companies Struggle to Find a Balance
Famously, American auto manufacturers chose not to implement TQM quality processes presented by W. Edwards Deming in the 70s. They recognized that higher quality could lead to longer product life and lower customer repurchase rates. TQM was instead adopted in Japan, resulting in the explosive growth of brands like Toyota and Honda. Quality cannot be ignored.
How Consumers Define Quality
Before we move forward, let’s take a quick look at how consumers define quality. We know that quality is a critical component of purchasing products and services. Quality also plays a significant role in the price you can charge for those products. So what exactly is quality?
A 2021 study of 2,500 US consumers was used to create definitions for quality across eight dimensions. The authors aggregated these quality metrics into what they have titled CEPQ or ‘Customer Experience of Product Quality.
As you can see below, they touch on many dimensions you would expect. Performance was the top quality measure reported in this survey.
Paulssen, M. & Das Guru, R. (2021). Customer experience of product quality: a new metric. Research Outreach, 123. Available at: https://researchoutreach.org/articles/customer-experience-of-product-quality-a-new-metric/ (Accessed 2022/08/01)
So we can define quality as an aggregate of aesthetics, durability, ease of use, features, performance, reliability, serviceability, and the materials used. Products that fit that criteria should expect high demand and command higher prices. They will also stay in the market for an extended time.
Responding to the Paradox
So what can a brand do to balance the need for quality and demand? High-quality products stay in the market for years while companies must drive comp growth. If you can’t make a significantly better mouse trap, then brands are selling against themselves because high-quality goods demand a high residual value on the secondary market.
As is often the case, we can look at the past to predict future courses of action. The companies that struggled the most with this paradox in the past, auto manufacturers, have adopted new models that allow them to produce high-quality products, generate revenue, and stay connected to their customers. How? They started selling used goods. Once they realized it was their brand name on the products regardless of age and ownership - they embraced the secondary market.
At one time in the United States, used car lots were everywhere. Ads on television were a regular part of life, with characters like 'Crazy Larry' boasting prices that were “INSANE!” When manufacturers realized they could create revenue and profit from servicing previously sold products, though, Larry and his friends had to move on.
According to Experien (2022), the auto industry has shifted to a primarily used goods market. 15.3M new cars were sold in 2021 compared to 43.1M used cars. That is with 61% of consumers preferring to purchase from a dealership. Overall that means that the industry has shifted over the past 35 years to a 74% used market.
"High-quality products stay in the market for years while companies must drive comp growth. If you can’t make a significantly better mouse trap, then you are selling against yourself."
So what conclusions can we draw? First, consumer expectations for quality are not going away. It will always be one of the principal deciding factors in demand and price. Second, high-quality devices will carry forward that residual value. We see this over and over again in the existing secondary market. Finally, we can conclude that companies who want to create recurring revenue and stay relevant while producing high-quality goods must have a strategy to re-engage with existing products in the recommerce space. That is why Vert Consultants exists. We recognize that companies need to adopt this strategy in addition to it being the right thing to do for our planet.
“companies who want to create recurring revenue and stay relevant while producing high-quality goods must have a strategy to re-engage with existing products in the recommerce space.”
If you’re ready to get started on your recommerce strategy, or you want to partner on improving your existing recommerce program, reach out to Vert Consultants today.
Mike Gergye is the Founder and Principal at Vert Consultants
Contact the company at info@vert-consultants.com
Visit us online at: www.vert-consultants.com
References
https://www.experian.com/content/dam/noindex/na/us/automotive/market-trends/q4-2021-experian-auto-market-trends.pdf
Paulssen, M. & Das Guru, R. (2021). Customer experience of product quality: a new metric. Research Outreach, 123. Available at: https://researchoutreach.org/articles/customer-experience-of-product-quality-a-new-metric/ (Accessed 2022/08/01)
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