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Punished for quality or the Hong Kong Jade Market problem

My parents bought a Kenwood stereo in 1987. They still have it, it works perfectly and has never been broken. I bought a Maglite for myself in 1993, I will probably never have to replace it. In 1996 I bought a Carhartt hooded sweat that over the past 16 years has faded somewhat and looks a little worse for wear but I’m still wearing it as we speak. I have a Henkels knife set that is 15 years old. My dad still has a Marks & Spencer woolen sweater from 1982 that he wears.

Heroes

These products are my heroes. They work as advertised, have long lifespans and deliver on quality as well as value. In a world of disposable products they persevere by focussing on making the best products they can. They buck the trend to ever more beautiful landfill and ever more fleeting romances with products. They don’t make tops or T-shirts that you wear for one season only to toss out. They don’t make consumer electronics that are built to fail. They don’t focus on marketing and imagined value but deliver on real value. Ideally these companies should be rewarded for their quality. They should be the stars, the heroes and become successful through word of mouth and the appreciation of their products. A question: Who makes the best quality cars in the world? Name the top ten car brands in the world in terms of reliability.

Car quality

The TÜV is a german engineering organization that tests and validates cars and many other things besides, their TÜV reports use feedback and testing of cars to measure the overall reliability of cars. If one looks at the TÜV report quality surveys of cars the Porsche 911 is almost always on top. This, as well as the iconic design, history of the marque, price and marketing helps to shore up the Porsche brand. It helps people buy the car and this revenue feeds back into making better cars. It is as it should work, all is well with the world.

But, if we look at car quality over the years we can see some surprises as well. The Mazda MX-5 also appears near the top of the quality surveys. In the 2005 survey for cars that are between 10 and 11 years old it is in second place behind the 911. In the 2004 report for ten to eleven year old cars the MX-5 has a fault rate of 12% compared to an average of 26% and only is preceded by the Mercedes SL, S and Porsche 911. Its worst result over all surveys since 2004 is 20th place for the 2006 model year. But if we look at that ranking, it has the Mazda 6 in 12th place the Mazda 5 in 7th place, Mazda 3 in 3rd place and the Mazda 2 in second place. The Mazda car models seem to be named for their expected positions on quality surveys. The average fault rate in a Mazda 2 is 2.4%, 2.6% in a 3 whilst the average fault rate overall for cars 2-3 years old is 5.1%. The fault rate on several 10-11 year old Mazdas is much lower than that of some very popular 2-3 or 4-5 year old cars. Look at this summary of recent Mazda survey results from a Mazda press release:

J.D. Powers in Germany
•    Mazda3:  Highest-scoring model of all 117 models on survey
•    Mazda3:  1st in the compact class
•    Mazda2:  1st in B-car class

J.D. Powers in the UK
•    MX-5: 1st in the Sports Car category, ahead of luxury models cars like Audi TT, the Mercedes-Benz CLK and SLK

Auto Bild 100,000 Endurance Test
•    Mazda3:  Finishes test without breakdown, earns top score
•    Rankings:  Mazda has three of top four models (Mazda3, 5, 6) from 80 models

Latest TÜV Report Germany
(from over 7 million inspections per age-class, 215 models in total)
•    3 years old:  Mazda2 (2nd), Mazda3 (8th)
•    5 years old:  Mazda2 (6th), Mazda3 (10th)
•    7 years old:  Mazda2 (6th), Mazda3 (7th)

Mazda? Really Mazda?

And yet, I doubt many really considered Mazda to be very high in quality. Did you when you started reading this consider Mazda to be one of the best car brands in the world? If I were to ask you how good Mazdas were what would you have said? Even if you knew about the statistics, would you have felt that Mazda was amongst the best cars in the world? Was Mazda on your list of top ten car brands? Statistically according to surveys it is probably one of best car brands in the world, but Mazda has been unable to sell this quality aspect well. The same thing goes for Subaru. The Subaru Forrester has placed very high in the TÜV surveys. Despite a poor, for the brand, showing in the recent survey coming in 69th place and one showing in 22nd place, all other surveys the Forrester is in put it in the top ten of all cars.

Quality against the odds.

The remarkable thing about both Subaru and Mazda is that both are not premium brands but compete with premium brands in quality rankings. Both make very affordable cars much lower in price than many of their competitors in their class. So they have less margin and less revenue to spend on development. Yet they have higher quality. At the same time it is good to note that both Mazda and Subaru are small. If we look at November autosales for the US market Mazda sold 21,691 cars and Subaru 28,206. Daimler sold 32,649 cars and GM 186,505, Ford 177,092 and Toyota 161,695. Kia, Nissan, VW, Chrysler, Honda, BMW they all sold more cars than these two brands. If we look at the total number of produced cars in 2011, Mazda is in 16th place with 1.1m cars while Subaru is in 26th place with 528,234 cars. Over the same period GM sold 6,867,465 cars, Volkswagen  8,157,058, Toyota  6,793,714  and  Hyundai 6,118,221. Ford, Nissan, PSA (Peugeot and Citroen), Honda, Renault, Suzuki, Fiat, BMW and Daimler follow each making between 3m and 1.8m vehicles. Compared to these companies Mazda and especially Subaru lack scale. So, they have less volume over which to spread out their innovations and processes.

But, amazingly totally uncomprehendingly amazingly to me Mazda and Subaru manage to outcompete much larger brands in quality even though several of these brands sell at a significant premium and all have much larger vehicle volumes. This is virtually impossible to me. Cars is almost a pure scale play. To be able to make a better car while selling it cheaper and making less of them is an incredible achievement. But, why aren’t these brands being rewarded more for their efforts through vehicle sales? The most obvious reasons to me are that both Mazda and Subaru suck in the styling and design department. Their relative lack of success is due to a focus on quality and due to our searching for the wrong clues when assessing quality.

1. You can’t feel quality but you think you can. Through material selection and engineering you can engineer tactile experiences for the consumer that give that consumer a better feeling of quality without having to actually make a quality product. e.g. the cover of a MacBook feels very high quality irrespective of the quality of the device.

2. Companies can put effort in either perceived quality or actual quality. Perceived quality is what the consumer sees and this would result in higher sales.  When you close a car door it makes a resoundingly reassuring thump. If you look at this metal frame bolted onto a chassis that is a car you probably already start to realize that the thump has been faked. And you’d be right. The sound and feeling a car door makes when being closed is an important differentiator for consumers. The “car door closing experience” is a key indicator of overall car quality for the consumer. Car companies spend an inordinate amount of effort in engineering car door closing sounds and the feeling the door makes when it closes. So if I’m better and making my door closing experience than you, then I will sell more cars and have a higher perceived quality even though you may make better cars.

VW cars are good and also widely admired for their interior trim. Higher interior trim leads to a better tactile experience and a better perceived quality. The buttons on VW cars just feel right and are very solid. Meanwhile Subaru is not very good at this aspect of car building. From this review, “But the interior doesn’t feel very premium at all. There are too many hard plastics and mis-matched colours and grains.” Or this review, “The usual Subaru story here. It depends on how you define quality. You get superb longevity and reliability, but many of the cabin materials look and feel cheap.” This is exactly the point for me. Both VW try to make good cars but VW concentrates its efforts on perfecting interior trim which gives a much higher feeling of quality. Meanwhile the nice people at Subaru are trying to work on other aspects of the vehicle.

3. We look for indicators of quality in all the wrong places. If you walk by a restaurant in a foreign country a nicely worded menu in perfect English with some good graphic design will give you a feeling of quality about the restaurant and may cause you to eat there. But, bereft of information and devoid of methods by which you can fairly and critically evaluate the tourist restaurants in your current location you grasp irrelevant information and make your decision based on that.

4. Excellence in sales and marketing is not an indication of product quality but we feel that it is. Meanwhile, excellence in sales and marketing might actually be an indicator of bad quality and we never realize this. A well worded menu might actually mean that the restaurant is crap so it has to focus on things like menus in order to survive. So the restaurant that looks the best might be the worst. But, because our clues depend on what we can perceive we focus on things like graphic design and the english on the menus because we can not determine food quality. So we end up always eating in the worst restaurants.

5. A brilliant marketeer is most likely not a brilliant quality guy. But, you won’t be able to know if a company is quality or marketing driven from the outside looking in.  One guy will be in charge though. I’m a marketeer, an excitable likes to think of himself as a dreamer chap who thinks in big ideas and inspiring things, sales, sale cycles, online and understands people and trends and all that fun gooey soft marketing stuff. I am not well suited to sit somewhere behind a production line and do six sigma optimization and implement ISO standards and continually day by day ensure the quality of that production line does not slip. Ask me to show consumer’s X Company’s quality and I could sell it brilliantly. Asked to ensure that Y Company ramps up this quality and I would fail. So companies that look like they have amazing quality might actually just have amazing marketeers, while companies that don’t look very special might just have bad people selling the story.

6. Quality oriented people are modest. When selling things modesty is not always the best policy. People who are very focussed on quality are humble and modest and always trying to improve themselves. They are more likely to qualify their statements and speak modestly about themselves or their products. People who don’t care much about quality are better at selling the story. Look at the difference between for example the Subaru website and other car sites. The Subaru site has a vehicle comparison tool to let you compare your Subaru with other cars. Also compare the copy of the Subaru site and the modesty of their language and images with other manufacturers bombast. I’m willing to bet that the nice people at Alfa Romeo have never thought for a millisecond about implementing a vehicle comparison tool on their site.

7. Quality is harder to get right than marketing and quality costs more. Companies take a long time to develop the habits, infrastructure, methods and policies that ensure quality. They have to continually invest in process optimization and R&D to stay ahead of the curve. Investments in quality will leave much less money left over for styling, marketing and sales and this will be detrimental to long term performance.

8. A lone focus on quality is a riskier path than a more diversified brand or experience. Toyota got hit hard when doubts about Toyota quality began to emerge. Imagine a similar crisis with Alfa Romeo. Would it have hurt them as much? No, Alfa is an emotional sell. Many would have just shrugged and said, “well I never bought it for the quality”, “but it still feels like such a sporty drive” or “I knew that already.” Also by focusing on emotion Alfa creates a deeper brand and deeper connection than a rational quality connection. And quality is something that can be disproven, something a brand has to earn every day. Emotion? Excitement? Styling? Is something you can pay someone to easily implement for you.

9. Higher quality products are likely to increase confidence in other products in that category and might cause people to leave the brand. A friend of mine has driven Lexus for 10 years and has had next to no problems with it. Because of his confidence in Lexus, his overall confidence in cars has increased. He can’t help it but he feels more confident about the driving experience and car quality of all cars. He hasn’t had problems in over a decade so doesn’t really remember car trouble as trouble. He therefore is not sufficiently pricing this into his car buying decisions and is now looking further afield at cheaper and more exciting brands.

10. Consumers who are more focused on quality are more modest people, they are less capable salespeople for you. People who buy Subarus are likely to be no nonsense people who weigh their options and make the most rational choice. They are less likely to be swayed by branding or marketing and emotion. These are just the type of rational individuals who are not good at being salespeople for your brand. Meanwhile people who buy Alfa Romeo’s are likely to be people who will not shut up about how amazing their car experience is. These people are likely to believe the hype and feel a strong emotional connection with their car and this is what these passionate individuals will be able to convey. This will help emotional brands and hurt rational ones.

11. Selling crappy things is a good business model even though its bad for everyone, it gives outsized returns to those selling crappy things. Or, the Hong Kong Jade Market problem. In Hong Kong can buy jade for a good price at the Hong Kong jade market if you are a shark. Non sharks will probably pay too much or not get jade at all.  Once upon a time every stall would sell real jade at a good price. Then haggling tourists would come and the guy with the lowest quality would be able to give the tourist the best deal and so sell more. The high quality handmade, true jade guy could not compete with the low quality guy and so would go out of business. The fake jade guy would make even more money and in time would drive other people out of business. Cheating and producing low quality goods became the only way to survive in a market with little transparency, reputation and much focus on price. So over time there have been more dishonest traders and lower quality jade (including last time I was there some pretty amazing jade looking plastics) and more ripped off tourists. Meanwhile the tourists all get nice low prices and feel like they’re getting a wonderful deal.

12. We are hard wired to mistake beauty for quality. Symmetry can indicate that an individual is less effected by disease and more healthy and therefore a better partner. Symmetry is therefore the basis of much of our conscious and unconscious thinking about beauty. Symmetry, Golden ratio thinking and beauty ideas influence us disproportionately.  When we see a beautiful person we are more likely to ascribe good qualities to that person and think that they are better people. The same thing is true about products. If a product is not as pretty we will undervalue it, not only because of its relative looks but we will also underestimate other aspects of this product as opposed to a pretty one.

In our current flat and diversified world its difficult to build a reputation especially with many more competitors entering the market all the time and many more products being introduced. I got inspired to write this article after spending many hours looking for quality suppliers for products on Alibaba and being unable to find quality and sometimes picking the wrong ones based on the wrong information. At the same time, after having deftly avoided many a tourist trap and visiting Spain many times I managed to in a choice between a crappy tourist restaurant and an honest eatery with good food make the wrong choice. I chose based on the wrong cues, the “hygienic marketing information.” I think in a globally competitive world we will all increasingly make the wrong choices. I think we’ll be seduced by the marketeers again and again while the quality people take the more difficult path and do not get rewarded for it. I’m especially worried about fonts of quality such as Japanese industry who make high quality amazing value products but risk being undercut by the Chinese and out marketed by everyone else. I’m concerned that good things and good companies will lose out to bad things and bad companies. Thank you for getting through this piece!

 

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DamianMory’sPhotographyAldenJewel, PudPudduck, WM Jas, X-Ray Delta One, MSMCComb.

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