Product balancing under conditions of quality inflation, cost pressures and growth strategies

Abstract This paper analyzes an organization that has a well-defined strategy providing a sustainable competitive advantage. This advantage is expressed by at least one dimension of quality on which the product or service exhibits outstanding performance. Using decreasing and increasing exponential demand functions for price and quality, respectively, the optimal quality level is characterized when dollar sales volume (under a cost-based price floor) and profit are maximized. However, as quality inflates, the same quality performance is worth less tomorrow than today. This paper shows that continuous and simultaneous improvement of operational efficiency and quality is a must and is independent from price setting policies. The condition of optimal trade-offs among quality dimensions is found for the case when the company competes on multiple quality dimensions. Finally, the conditions are analyzed when the resources of quality are utilized in other market segments as well. It is found that the corporate level quality (or the utilization level of resources) is lower (higher) than the highest (least) individual business unit (product) quality.

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