Syllabus Reference:
Influences
quality expectations, cost-based competition
Quality Expectations
Customers often have a pre-existing idea about the quality that they will get from a certain product or brand. This is
known as quality expectations. They will have certain beliefs about:
• durability – how long the product lasts given a reasonable amount of use
• reliability – how long the product functions without needing maintenance or repairs
• fit for purpose – how well the product actually does all the things advertising claims.
This quality expectation can be simply based on the reputation of the brands’ products in general and the price paid
for the product. Operations do not necessarily have to make a high-quality product and sometimes the most popular
products are not the best quality. However, a business that falls short of the customer expectations will suffer long-
term damage to its goodwill and reputation in the market.
Customer’s perception of quality and price can be summed up in the diagram below.
Cost-Based Competition
Cost-based Competition ‘influences’ businesses as they aim to become a cost leader by offering lower prices than
their competitors.
A business can gain a price advantage over its competitors by using operational strategies that lower costs. In this way
the business can reduce its prices lower than its rivals. Sales and market share should
increase as well as profit.
A cost leadership strategy works best where there is little difference in the products being
offered by competitors and business’s attempt to get a competitive advantage by reducing
the costs to produce and supply so that they can offer their products at a lower price and yet
maintain the profit margin. This influence may force a business to seek its own cost
advantages through sourcing cheaper inputs, updating technology or outsourcing.
Alternatively, if the business cannot compete on costs then it may switch to a differentiation
strategy.
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Influences
quality expectations, cost-based competition
Quality Expectations
Customers often have a pre-existing idea about the quality that they will get from a certain product or brand. This is
known as quality expectations. They will have certain beliefs about:
• durability – how long the product lasts given a reasonable amount of use
• reliability – how long the product functions without needing maintenance or repairs
• fit for purpose – how well the product actually does all the things advertising claims.
This quality expectation can be simply based on the reputation of the brands’ products in general and the price paid
for the product. Operations do not necessarily have to make a high-quality product and sometimes the most popular
products are not the best quality. However, a business that falls short of the customer expectations will suffer long-
term damage to its goodwill and reputation in the market.
Customer’s perception of quality and price can be summed up in the diagram below.
Cost-Based Competition
Cost-based Competition ‘influences’ businesses as they aim to become a cost leader by offering lower prices than
their competitors.
A business can gain a price advantage over its competitors by using operational strategies that lower costs. In this way
the business can reduce its prices lower than its rivals. Sales and market share should
increase as well as profit.
A cost leadership strategy works best where there is little difference in the products being
offered by competitors and business’s attempt to get a competitive advantage by reducing
the costs to produce and supply so that they can offer their products at a lower price and yet
maintain the profit margin. This influence may force a business to seek its own cost
advantages through sourcing cheaper inputs, updating technology or outsourcing.
Alternatively, if the business cannot compete on costs then it may switch to a differentiation
strategy.
1
