Maintaining Product Quality In The Face Of Rising Costs

Rising component costs can wreak havoc on both pricing strategies and product quality.

How? Let’s explore this together.

In 2018 commodity prices were rising: oil, metals, rubber, grain, wool – the list goes on. Prices had all been fluctuating and were expected to continue on an upward trend. Consumers weren’t feeling the full effect yet, but manufacturers certainly were. At that point in time (August 2018) we said, “Costs of goods are increasing. Fuel prices and driver shortages are driving transportation costs up, forcing shipping costs to rise too. Many of these companies are struggling to make necessary profits (a problem that may worsen). They also find it difficult to pass these increased costs along, primarily as they get pushback from retailers who (a) fear consumers will walk away and/or (b) strive to protect their low-price positionings.”

Here we are now in 2021. Back in 2018 we didn’t know a pandemic was coming that would further complicate all these issues related to supply and costs of goods. The COVID-19 pandemic has clearly exacerbated what we were already experiencing in terms of rising manufacturing costs.

As the situation continues to unfold in ways that none of us can fully predict, we could be in for a product-quality crisis. Here’s what I mean. With costs (and scarcity) of certain goods and services on the rise, manufacturers are pressed to trim expenses somehow. Unfortunately, product components or ingredients often end up being part of the cost-cutting discussion. It’s reasonable to be on the lookout for high-quality substitutes as a matter of practice. But what if companies are forced to trade off quality in the process? Saving a few cents here and a few cents there can sometimes lead to disaster. Those seemingly small changes can cause product quality to veer off course one penny at a time. Before you know it, product performance or the taste of the new formulation is quite different from the original.

So what’s a manufacturer to do? As soon as the market even hints at commodity prices creeping up and ingredient or component substitutions enter the realm of possibility, a plan for product testing should be activated. In fact, I’d argue that an ongoing plan should be in place where testing happens routinely and methodically, but I’ll stick with the scenario I began with and focus on maintaining quality when costs are rising.

The single most important plan of attack is to test your products with end users. This will help ensure quality is maintained as ingredient/component substitutions are made. Assessing the current product against any revised configuration or formulation is critical, as it provides the necessary knowledge to gauge the impact of the new component/ingredient. Will consumers like the new formula as well as the current one? Will they like it better? Will they reject it? The product, sales, and marketing teams need to know the answers to these critical questions before the company rolls out any product changes. No one wants a product disaster to occur on their watch.

Several great product testing systems exist. The key is to identify one that works for your company and to stay with it consistently. The basic principles of product testing apply to virtually any type of product used in a home, in an office, on a worksite, or in other settings.

For simplicity, let’s focus on a fast-moving consumer good: packaged granola bars. If you are the producer of granola bars that consumers tend to buy routinely, those users should be invited to taste the product and provide their reactions to the new formulation as it relates to the current one. A change of ingredients (or even a move to a more affordable ingredient supplier) can change the product’s flavor or texture in a noticeable way. Maybe it’s ever-so-slightly sweeter, perhaps it’s just a bit crunchier or chewier, or maybe it leaves an aftertaste that isn’t present with the ingredient you’re using now. If your current users don’t like it, you have a problem on your hands. Once this new formula hits the shelves, repeat-purchase rates will be at risk.

If this resonates with you, here are several important things to consider in a product-testing system:

A well-defined, high-quality consumer sample

Any consumer or B2B research—product testing included—is only as good as the sample of end users involved in the work. When the issue is a formula or product-design change (especially for a product on a short purchase cycle), it’s critical to engage current users, even if you have to test the product unbranded to avoid a brand-halo bias. In addition to the right user base, sourcing participants from a reputable, high-quality research panel is a must to ensure quality feedback.

The right research environment

Ideally, most consumables should be evaluated using a home-use test (often called a HUT or IHUT). Participants are typically recruited online through research panels, and products are shipped to their homes. This type of testing is ideal because it allows consumers to prepare and use the product as they normally would in everyday life. The same principles apply to B2B product usage and testing in the right environment. The IHUT approach eliminates biases that come from using a formal testing environment, the presence of an interviewer, or an unusual time of day for product consumption or usage..

A carefully controlled test process

From recruitment through analysis, several important steps must be planned and executed flawlessly to produce reliable results. A few critical elements include:

Clear product-preparation, usage, and survey-completion instructions.
Tight controls on test-product assignments when more than one formula is being tested. This is to eliminate the possibility of bias for or against one formula due to the respondent sample mix.
Meticulous fulfillment procedures for packing and distributing the test products.
Questions and an analytical plan that will produce actionable results. The research must reveal any risks in a formula change and lead the manufacturer to any necessary product changes to avoid making a major mistake.

This discussion is meant to demonstrate that product testing is critically important. There are ways to implement testing programs on an ongoing basis to monitor the product coming from various production facilities and off of retail shelves. Especially when faced with cost pressures, there’s always a temptation to tweak things just a bit to trim some costs from the design, the formulation, or the production process. This can be dangerous territory for any product, so carefully controlled testing focused on market acceptance and outcomes is always a good investment. It can help prevent multi-million-dollar mistakes.

Author

Felicia Rogers

Executive Vice President

Felicia Rogers is a dynamic insights consultant who leverages decades of business and consumer research experience. During her career, she has partnered with companies across an array of categories. Felicia began her career in print advertising and has since spent most of her professional life in various consumer insights roles at Decision Analyst. She holds a Bachelor of Business Administration, with a concentration in Marketing, from the University of North Texas.

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