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Chapter 14 Consumer Stakeholders: Product and Service Issues

Learning Outcomes

Describe and discuss the two major product issues: quality and safety.

Explain the role and functions of the Consumer Product Safety Commission (CPSC).

Explain the role and functions of the Food and Drug Administration (FDA).

Outline business’s responses to consumer stakeholders, including customer service programs, and quality initiatives such as Total Quality Management (TQM), Six Sigma, Lean Six Sigma, Kaizen, and ISO 9000.

Chapter Outline

Two Central Issues: Quality and Safety

Consumer Product Safety Commission

Food and Drug Administration

Business’s Response to Consumer Stakeholders

Customer Service Programs

Total Quality Management Programs

Six Sigma Strategy and Other Process

Summary

Key Terms

Consumer Stakeholders: Product and Service Issues

Sam Walton, founder of Walmart –

“There is only one boss. The customer. And he can fire everybody in the company…simply by spending his money somewhere else.”

Takata, Japanese auto supplier, becoming more well known. Many of today’s autos have Takata air bags.

In early 2016, bursting air bags linked to 10 deaths (9 in the U.S.) and dozens of injuries worldwide.

29 million air bags recalled. Later another 40 million rupture-prone air bags were recalled. Recall being called the biggest in U.S. History.

Two Central Issues -

The Issue of Quality -

Product quality means different things to different people.

Service quality usually means that the service was performed as expected and on time.

Interest in quality is driven by an increase in family income and demand for good value.

The Issue of Safety -

Nearly all consumer products or services entail some small degree of risk.

Today it is important that even financial services do not cause damage or financial harm.

Critical Dimensions of Product Quality

Perceived Quality

Aesthetics

Serviceability

Features

Reliability

Conformance

Performance

Durability

Dimensions of Quality

Ethical Underpinnings of Quality

Contractual Theory

Due Care Theory

Social Costs View

The Issue of Safety

Who is liable for a defective product?

Historical Perspective -

Caveat emptor - “Let the buyer beware.”

This doctrine assumed that the buyer had as much knowledge of the product as the seller, but this was not correct.

Modern Day -

Caveat venditor – “Let the seller beware.”

But how safe should a product be?

Top Ten List of Safety Principles

Build safety into product design.

Do product safety testing for all foreseeable hazards.

Keep informed about and implement latest developments in product safety.

Educate consumers about product safety.

Track and address products’ safety performance.

Fully investigate product safety incidents.

Report product safety defects promptly.

If a defect occurs, promptly offer a comprehensive recall plan.

Work with the Consumer Product Safety Commission to make sure your recall is effective.

Learn from mistakes—yours and others’.

Product Liability (1 of 3)

Reasons for the concern -

The sheer number of cases where products resulted in illness, harm, or death.

The amount of the financial award.

Doctrine of strict liability -

Anyone in the value chain of a product is liable for harm caused to the user if the product is unreasonably dangerous because of a defective condition.

The U.S. is a litigious society.

Product Liability (2 of 3)

Extensions of the strict liability rule –

Courts in several states and some countries have established a standard more demanding than strict liability:

Absolute liability – A manufacturer could be held strictly liable for failure to warn of a product hazard, even if the hazard was scientifically unknowable at the time of manufacture and sale.

Market share liability – Manufacturers who made the product share in the liability for injury according to their market shares. This doctrine was applied in delayed manifestation cases, but limited to those.

Product Liability (3 of 3)

Product Tampering and Product Extortion–

The Tylenol tampering cases of the 1980s are best known. As a result, firms began to use tamper-evident packaging.

Other cases include: Jell-O pudding, bottle water, oranges, candy, baby food, and Girl Scout cookies.

Product Liability Reform –

These issues have raised calls tor product liability reform, also known as tort reform. Tort law requires that the one causing injury pay the injured party. Businesses seek tort reform; consumer groups oppose it.

Consumer Product Safety Commission -

An independent regulatory agency created by the Consumer Product Safety Act of 1972, which works to reduce the risk of injuries and deaths from products by:

Developing voluntary standards with industry

Issuing and enforcing mandatory standards

Banning consumer products if no feasible standard would adequately protect the public

Obtaining the recall of products or arranging for their repair

Conducting research on potential product hazards

Informing and educating consumers through media, state and local governments, private organizations, and by responding to consumer inquiries

CSPC Strategic Plan, 2011-2016

Goal 2

Goal 4

Goal 5

Carbon monoxide detectors

Formaldehyde in wood

Commitment to Prevention

Decisive Response

Raising Awareness

Vision

The CPSC is the recognized global leader in consumer

Product safety

Mission

Protecting the public against unreasonable risks of injury

from consumer products.

Goal 3

Rigorous Hazard Identification

Goal 1

Leadership in Safety

Food and Drug Administration (1 of 2)

Food and Drug Administration -

Grew out of experiments with food safety by Harvey W. Wiley in the late 1800s.

The FDA resides within the Health and Human Services Department.

Food and Drug Administration (2 of 2)

The FDA regulates -

Foods

Human prescription and non-prescription drugs

Vaccines, blood products, and other biologics

Medical devices

Electronic products

Cosmetics

Veterinary products

Tobacco products

Business’s Response to Consumer Stakeholders

Formal interactions with consumer stakeholders have become more institutionalized

At first, casual and ineffective

Now, toll-free hot lines, user-friendly web sites, and customer service programs

Customer Service Programs

Customer service or self service?

Retailers of all types have been pushing the idea of self-service. We check out our own groceries, pump our own gas, print our boarding passes, and fix our cable tv, following a computer voice.

Customers are frustrated with after-sale problems not quickly and easily remedied.

Experts know that the key to customer retention is customer service.

Building life-long devotion among customers takes serious commitment and hard work.

Seven Principles of Customer Service

Keeping your word is where it begins.

Always be honest and tell it like it is.

Always think proactively, looking around the corner.

Deal with problems as best you can yourself, never passing the buck.

Do not argue with a customer because it is a lose/lose situation.

Accept your mistakes, learn from them, and do not repeat them.

Consistency is the name of the game for lasting success.

Creating a Customer-Oriented Company

Top-down culture and commitment are essential.

Identify internal champions and uphold them.

Commit resources to the task.

Hire the right people.

Empower employees.

Make customer service training a priority.

Total Quality Management – (1 of 2)

Has many characteristics, but essentially means –

All business functions are blended into an integrated philosophy built around quality, teamwork, productivity, and customer understanding and satisfaction.

TQM focuses on product quality and safety, focuses on the customer, and uses continuous improvement.

The customer is the final judge of quality.

Total Quality Management – (2 of 2)

TQM emphasizes eight key elements -

Ethics

Integrity

Trust

Training

Teamwork

Leadership

Recognition

Communication

The foundation upon

which all else is built

Six Sigma Strategy and Other Processes

Six Sigma -

A development within TQM that has become a way of life for many corporations.

Sigma is a statistical measure of variation from the mean; higher values of sigma mean fewer defects.

Six Sigma level of operation is 3.4 defects per million.

Most companies have 6,000 defects per million.

Consumer-Stakeholder Satisfaction Model

Consumer Satisfaction

Continued Purchases by Consumers

Firm Profitability

Firm Reputation

Product Quality and Safety

Service Quality and Safety

absolute liability

caveat emptor

caveat vendor

Caveat venditor

Consumer Product Safety Commission (CPSC)

Consumer Product Safety Improvement Act of 2008

consumer stakeholder satisfaction model

contractual theory

delayed manifestation cases

doctrine of strict liability

due care theory

Food and Drugs Act of 1906

Food and Drug Administration (FDA)

Food Safety Modernization Act

ISO 9000

Kaizen

Lean Six Sigma

Market share liability

Product extortion

Product liability risk management program

Product (products) liability

Six Sigma

social costs view

tort reform

Total Quality Management

Key Terms