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Quality Managment

Low quality of products eventually leads to dangerously low profits

Low quality of products eventually leads to dangerously low profits
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You're reading Entrepreneur India, an international franchise of Entrepreneur Media.

Nestle India has been in the news in the past few months for all the wrong reasons. Food regulator of India had passed an order to withdraw all types of Maggi noodles from the market on 5 June. This was done after it was revealed that the product contained lead and monosodium glutamate in excess of prescribed limits.

It created a furore, intense debates concerning health issues; however, eventually favourite food of the younger generation was not available anymore. Maggi accounts for 30% of the company’s revenues; therefore, Maggi vanishing from the market was a big setback for Nestle India.

It is not a big shocker that Nestle India’s profit for the third quarter has registered a 60% fall from previous year same period due to low sales. Maggi brought the disastrous situation due to negative publicity under control when it won a case challenging the ban in the Bombay High Court.

On 13 August, the court set aside the order and the products were again tested. The laboratories found the products safe. The new products from the plants will be again tested in the same laboratories before they can be re-launched. Production has started but sales may start from November.

This brings us to an important question— how important is quality of the product for survival of any business? New entrepreneurs who are nurturing the dream to run a successful startup need to learn a lesson from this whole fiasco.

Consumer trust once gone is not easy to regain and Nestle India will have to invest substantially on advertising and positive promotion in the coming days to regain lost ground.

A hugely popular product like Maggi may still bounce back, even better than before due to the publicity (even though negative) but for any other business, especially new ones, quality is the most important factor contributing to the growth.

Reliability and reputation of the business is dependent on what kind of products or services you are offering to the customer. If a business fails in that aspect, ultimate loss and failure is almost certain.

It has been observed in various research surveys that most managers and entrepreneurs rank ‘high quality of product’ as one of the chief concerns while establishing a business. They believe that it is a powerful way to achieve customer satisfaction.

Marketing can aid in generating interest and creating a user-based definition of quality which ultimately leads to brand building. However, to survive in the competitive market, it is just ‘quality of the product’ that will help the organization to grow.

Therefore, it is a factor where no compromise is acceptable, especially if it is a startup. Excellent standards will soon lead to positive word-of-mouth publicity and that can be extremely beneficial for a business or organization which is still at a nascent stage.

Product-quality based characterization is common in economic research. Lower quality will lead to lower sales and thus, lower quantity or demand. This will eventually affect profits.

Inspite of the fact that quality goods in some segments are expensive because they are costly to produce an influence preferences at large, quality of a product is an aspect that is of paramount importance in the long term and cannot be ignored.

Edition: October 2016

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