In particular, quality affects a firm in the following ways.
Improved quality results in improved profitability due to potential increase in market share as well as cost savings. The cost savings are a result of lower rework and scrap costs, less wastage and lower warranty costs. The increase in market share is a result of higher volume in sales. People are willing to pay higher prices for better quality and hence it improves the profitability of the company.
Quality products not only promote the products but also the company. An organization can expect its reputation for quality – good or bad – to follow it. Based on quality, people develop certain perceptions about the firm’s new products, employment practices, and concerns for consumers.
A defective item which causes damage or injury to the consumer can be very expensive for the company in terms of law suits and litigation. The courts generally hold the organizations responsible for any such injuries caused by faulty products designed, produced or distributed by them. In America, an Act was passed in 1972, known as the Consumer Product Safety Act which sets and enforces product standards.
In this technological age and continuous global interaction, quality is an international concern. To meet global competition, the product must meet quality and price expectations. Export of products to other countries is very important economic factor for any country.