Chasing Cheap Instead of Quality

Reflections on snakes, GM, engineers, and wine

Published: Monday, July 22, 2013 - 16:39

It’s time to clear out some thoughts on an eclectic mix of articles I've been reading, so please pardon the potential mental whiplash. What does your company do to keep an eye on competitors? Perhaps it’s an informal process handled by the sales department, or perhaps there’s a database of some sort. If you’re GM, you of course create a committee. Seriously.

“GM forms committees to keep an eye on Tesla,” reports CNNMoney. “General Motors dwarfs Tesla Motors in virtually every way—number of cars made, sales, and profits. But that doesn’t mean GM isn't worried about the upstart electric car maker. GM has confirmed that CEO Dan Akerson has formed a task force within the company to look at the impact from alternative automakers. The only alternative car company it named: Tesla.”

Mark Graban reminded me that this is exactly what the “old GM” used to do—to the amusement of its nemesis, Ross Perot. As Perot put it back in 1988:

“At GM, if you see a snake, the first thing you do is go hire a consultant on snakes. Then you get a committee on snakes, and then you discuss it for a couple of years. The most likely course of action is—nothing.”

What’s old is new...

A couple days ago there was an article in The Wall Street Journal asking whether engineering students should be charged higher tuition than those in the liberal arts:
“Why does a student majoring in English have to pay the same tuition as an engineering student with much higher earning potential?" wondered WSJ reporter Khadeeja Safdar. “In a new working paper published by the National Bureau of Economic Research, one economist suggests looking at differential tuition—the practice [by some universities] of varying tuition costs across areas of study. The rationale behind differential tuition is that fees for majors should align with program-specific teaching costs and post-graduation income potential.”

So, since engineers will presumably make more dough, they should be charged more. Hm... what about secondary effects?

“The share of degrees awarded in engineering and business decreased within three years after putting in place the differential tuition program,” notes Safdar.

But of course. So, is the purpose to extract more moolah from higher-income folks, or is it to encourage more people to go into fields where there is a strong demand and that often create even more jobs? Perhaps tuition should be inverse to demand, instead of being linked to income potential? Oh, wait, that would be market-based....

Finally, a large winemaker just destroyed $145 million of the nectar of the gods. Again, The Wall Street Journal reports:

“One of the world’s biggest vintners [Treasury Wine Estates] has a roaring hangover from poor U.S. sales, leading it to destroy thousands of gallons of wine past its prime.”

This is particularly troubling to me because I live within 30 miles of more than 250 wineries along California’s central coast. Strangely, these nearby wineries are not suffering. In fact, U.S. demand is higher than ever.

“Treasury Wine’s struggles set it apart from the broader wine industry in the U.S., which is posting record sales after 19 straight years of volume growth and an increased thirst for imported labels,” according to the WSJ report. “U.S. wine consumption rose 2.2 percent last year, reaching 345.1 million 9-liter cases, and rose 3.6 percent to $32.3 billion in retail sales, according to Technomic, an industry tracker.”

So demand is up, but somehow one of the world’s largest winemakers still screwed up. Why?

“Much of Treasury’s U.S. sales are in low-priced wines at a time when American tastes are turning more expensive,” the article concludes. “U.S. store sales of wine bottles priced between $3 and $5.99 edged up just 1.5 percent, and bottles priced $6 to $8.99 dropped 3.3 percent during the 52 weeks ended May 25 in volume terms, according to Nielsen. By contrast, volumes of bottles priced $9 to $11.99 and $12 to $14.99 rose 13 percent and 9 percent, respectively, and those above $15 increased more than 6 percent.”

So many lessons... chasing cheap instead of quality, focusing on illusions of volume instead of demand.

And demand is down because friends don’t let friends drink cheap wine!

This column first appeared July 18, 2013, on the Evolving Excellence blog.

About The Author

Kevin Meyer

Kevin Meyer has more than 25 years of executive leadership experience, primarily in the medical device industry, and has been active in lean manufacturing for more than 20 years serving as director and manager in operations and advanced engineering, and as CEO of a medical device manufacturing company. He consults and speaks at lean events; operates the online knowledgebase, Lean CEO, and the lean training portal, Lean Presentations; and is a partner in GembaAcademy.com, which provides lean training to more than 5,000 companies. Meyer is co-author of Evolving Excellence–Thoughts on Lean Enterprise Leadership (iUniverse Inc., 2007) and writes weekly on a blog of the same name.