2008 - Marketing Educators' Association

Cost-Quality Analysis
Working with designers and manufacturing
engineers, marketers contribute to the cost-quality
tradeoff needed to shape the superior value needed
in a new offering. Quality is ultimately reflected in
market share and the price customers are willing to
pay. Therefore, the basic set of questions is how
good is the offering? Does it satisfy customer
needs? Is it robust and reliable? Cost, on the other
hand, determines how much profit accrues to the
firm for a particular volume and price. This leads to
the question, what are the manufacturing costs of
the offering, including capital equipment and tooling
as well as the incremental costs of producing each
unit of the offering?
Innovative companies show the ability to achieve the
highest level of quality while controlling costs. They
create a structured process to make tradeoffs and
decisions that generate a product concept meeting
the specific needs of the target customers. The
management of this tradeoff is essential in creating
value to the consumer. If it is given that product
design should be driven by user needs, then
understanding that consumer needs will range from
essential to insignificant is critical in the design
process of delivering on the essential and
eliminating or at best satisfying on the insignificant.
Consider the development and launch of the Lexus
automobile as described by Lilien, Rangawamy, and
DeByen (2007). First, Toyota identified a segment of
potential customers who would like to buy a
European brand (such as BMW or Mercedes) but
thought they were overpriced. If they could build a
car to the design standards of a Mercedes and sell it
at a significantly lower price, it should appeal to
these customers. With this goal in mind, and this
“smart buyer” as the target segment, Toyota
developed the Lexus. On the benefit level of the
value equation, the engineering, safety, style, fit and
finish of the Lexus were at least equivalent to that of
the Mercedes. On the price level of the equation, the
car sold at a major discount relative to the
Mercedes. How the development team at Toyota
“engineered” out unnecessary costs without
compromising quality is typical of the Toyota
approach of knowing their customers better than do
their competitors. Students need to learn the
creative process of understanding value from the
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customers’ perspective to “shake” out non-value
added attributes which lead to lower costs but to do it
in a way that overall customer value is enhanced in the
process. Creative minds relish this challenge.
SUMMARY
Innovative and customer-oriented firms can be
benchmarked by three indicators. They are:
• ability to identify the needs of customers,
• aptitude to quickly create products and services
that meet these needs, and
• ability to produce at a cost such that when
priced will provide exceptional value to
customers and a satisfactorily profit to the firm.
By imbedding creative thinking into organizational
thinking rather than trying to append this process
into a traditional-thinking firm, successful products
and services in the form of innovative design are
more likely. The mindset in today’s innovative firms,
such as Apple, is “there is nothing that can’t be
done.” If something can’t be done yet, it is only
because the thinking hasn’t yet been creative and
inspired enough. Creative workers never see
constraints as the enemy but rather as challenges to
solving the task at hand, making the potential
solution that much more rewarding (Martin, 2005).
This way of thinking should be at the very center of
our marketing education.
To this end, business schools need to imbed topics
such as innovation, design and development into the
business curriculum to cultivate students’ right
brained skills to work effectively in the creation of
value inherit in successful offerings. Through
courses like Innovation, Design and Development,
business schools can push business students, more
accustomed to financial analysis and bottom line
analysis, to think and act more creatively and to
discover the basic tools, methods and organizational
structures used in creativity, design and
development. There needs to be a more imaginative
process that uses experiential activities that
transform the traditional business school problem
solving to a more effective creative problem solving
model to challenge students to go beyond the
“usual” by developing the skills and ability to
generate new and original product and service
ideas.
References Available on Request.