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strategy and business
 / Spring 2005 / Issue 38(originally published by Booz & Company)


Beware the Product Death Cycle

Having tracked these statistics for a range of client companies, Mr. Brue says they correlate consistently with profitability in the long run. Companies that produce products with lower return rates after the warranty expires tend to have consistently stronger bottom lines over the long term than those whose product quality erodes more rapidly. These financial results don’t show up immediately; they typically appear five years or more after the product is introduced.

In other words, consumers stop buying products and brands they think are likely to break down. Although many top executives may decide that product failures and loyalty erosion aren’t all that important in the larger scheme of business, Mr. Brue says that’s not a responsible fiduciary attitude. “A product failure leaves a scar in a company’s reputation,” he says. “It makes the consumer wonder: Will the company get the next one right?”

Anecdotal history certainly supports the theory. I notice myself shying away from electronic, automotive, and household brands after one or two bad experiences. Mr. Brue believes I’m more typical than manufacturers realize. The value of a product, in this computerized age, is not determined just by its cost or price. It’s deeply linked to the experiences people have with it. We take a telephone or a coffeemaker into our lives. We learn how to program and control it; we meld our habits with its controls; we don’t really want to replace it. Companies that expect otherwise will see their market share erode.

No Way Out
Several experts argue that the solution to our latest quality crisis will emerge on its own from competition and innovation. Jack West, past president of the American Society for Quality, says that even Chinese companies are choosing to adopt Six Sigma techniques.

New technologies like radio frequency identification (RFID) chips also offer hope. If your DVD player needs a new loading tray, the RFID chip will detect the problem, notify the factory, and arrange delivery of the proper replacement part, ready to snap into place.

But it’s not self-evident that manufacturing companies will change as easily as they did in the 1980s. The advancing microchip, the falling price of products, and the global manufacturing environment may have permanently changed attitudes about product quality and the competitive environment in many industries.

Rather than retooling for continual upgradeability, manufacturers may simply assume unending consumer tolerance, and slide down the slope of cost reductions and quality erosion. Many former major brand producers will survive as commodity makers of retail house brands, with devices engineered for replacement every year or so. Consumers will live amid perpetually new things, tossing the discards into landfills. Barbara Tuchman’s fears will then finally come to pass.

And who will care? Maybe only the last few managers, of the last few quality brands, who, like monks in the Dark Ages, keep alive an ideal that others have forgotten — and derive premium profits that nobody else understands.

Reprint No. 05101

Author Profile:

Art Kleiner ([email protected]) is the “Culture & Change” columnist for strategy+business. He teaches at New York University’s Interactive Telecommunications Program. His Web site is Mr. Kleiner is the author of The Age of Heretics (Doubleday, 1996) and Who Really Matters: The Core Group Theory of Power, Privilege, and Success (Currency Doubleday, 2003).

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