Strive for 3Q
Entrepreneurs continuously strive to achieve Quality, Quantity & Quickness
A 3Q Service Provider: Captain G.R. Gopinath
The self made entrepreneur and ex-army officer, G R Gopinath introduced the concept, what we call “the low cost, quality & quick airlines” in India in 2003 with the inception of Air Deccan. Prior to this, India’s largest private helicopter charter company Deccan Aviation was launched by him along with his colleague from army in 1997. Captain G R Gopinath, an award winning sericulturist ventured into the Indian domestic aviation sector, when it was monopolized by the Full Service Airlines working under strict government regulations. He chose the niche in charter helicopter business in India, which was picking up demand due to increased corporate travels. The success in the aviation industry was not that easy. After launching Deccan Aviation, he again had to wait for around four years to get the single helicopter, which is not a short time for an impatient entrepreneur. He faced a lot of resistance in the form of government control, competition, and adverse situations. In fact, the first Air Deccan flight caught fire and everybody was ready to write the company’s obituary. But, he was a diehard optimist and decided not to quit even in the face of the toughest circumstances and failures. Air Deccan was in fact his gift to Indian people, with the most competitive fares, quickest turnaround time, enhanced connectivity and easy ticketing process.
Quality is important to the success of any businesses but it is quite hard to define. Customers want quality that is appropriate to the price that they are prepared to pay and the level of competition in the market.
Key aspects of quality for the customer include:
- Good design – looks and style
- Good functionality – it does the job well
- Reliable – acceptable level of breakdowns or failure
- Durable – lasts as long as it should
- Good after sales service
- Value for money
‘Value for money’ is especially important, because in most markets there is room for products of different overall levels of quality, and the customer must be satisfied that the price fairly reflects the quality. For the firm, good design is fundamental, so that the product can be produced efficiently, reliably and at the lowest possible cost.
Why is quality important?
Quality helps determine a firm’s success in a number of ways:
- Customer loyalty – they return, make repeat purchases and recommend the product or service to others.
- Strong brand reputation for quality
- Retailers want to stock the product
- As the product is perceived to be better value for money, it may command a premium price and will become more price inelastic
- Fewer returns and replacements lead to reduced costs
- Attracting and retaining good staff
These points can each help support the marketing function in a business. However, firms have to work hard to maintain and improve their reputation for quality, which can easily be damaged by a news story about a quality failure.
How is quality measured?
Aside from achievement of standards like BSI, firms can measure quality aspects such as:
- Failure or reject rates
- Level of product returns
- Customer complaints
- Customer satisfaction – usually measured by a survey
- Customer loyalty – evident from repeat purchases, or renewal rates
A detailed analysis of these areas is an important part of Quality Improvement.
In order to determine the quantity of production it is essential to calculate breakeven point. It is a key financial analysis tool used by business owners. Once you know the fixed and variable costs for the product your business produces, or a good approximation of them, you can use that information to calculate your company’s breakeven point. It is a popular tool used by small business owners to determine how much volume of their product they must sell in order to make a profit. It is also an important part of cost-volume-profit analysis.
One thing is sure. In order to know how price your product; you first have to know how to calculate breakeven point.
What is Breakeven Point?
A company’s breakeven point is the point at which its sales exactly cover its expenses. The company sells enough units of its product to cover its expenses without making a profit or taking a loss. If it sells more, then it makes a profit. On the other hand, if it sells less, it takes a loss.
To compute a company’s breakeven point in sales volume, you need to know the values of three variables. Those three variables are fixed costs, variable costs, and the price of the product. Fixed costs are those which do not change with the level of sales, such as overhead. Variable costs are those which do change with the level of sales, such as cost of goods sold. The price of the product has been set by the company through looking at the wholesale cost of the product, or the cost of manufacturing the product, and marking it up.
How to Calculate Breakeven Point?
In order to calculate your company’s breakeven point, use the following formula:
Fixed Costs/Price – Variable Costs = Breakeven Point in Units
In this formula, fixed costs are stated as a total — the total fixed costs for the firm. Basically, this means the total overhead for the firm. Price and variable costs, however, are stated as per unit costs – the price for each product sold and the variable cost for that unit of the product. The denominator of the equation, price minus variable costs, is called the contribution margin. In other words, this is the amount, per unit of product sold, that the firm can contribute to paying its fixed costs.
An Example of Breakeven Point
XYZ Corporation has calculated that it has fixed costs that consist of its lease, depreciation of its assets, executive salaries, and property taxes. Those fixed costs add up to $60,000. Their product is the widget. Their variable costs associated with producing the widget are raw material, factory labor, and sales commissions. Variable costs have been calculated to be $0.80 per unit. The widget is priced at $2.00 each.
Given this information, we can calculate the breakeven point for XYZ Corporation’s product, the widget.
Fixed Costs/Price – Variable Costs
$60,000/$2.00 – $0.80 = 50,000 units
XYZ Corporation has to produce and sell 50,000 widgets in order to cover their total expenses, fixed and variable. At this level of sales, they will make no profit but will just breakeven.
A very important parameter that affects customer satisfaction in the service industry is the speed of service. Customers often want a service performed quickly, so slowness usually leads to poor satisfaction ratings. When a customer decides that he wants a service, he usually wants it performed as soon as possible. If he has to wait longer than originally expected, his experience can be negatively affected. While customers are usually more interested that the service be completed at a high quality than quickly, speed of service is an important aspect of customer satisfaction.
It may seem obvious that customers want services performed correctly and with a very high quality, and that they will not be satisfied when service is bad, but the importance of this is rarely overstated. Most industries include a number of different service providers, and customers will often switch to a different one if they experience bad or mediocre service. Although other factors influence customer satisfaction in the service industry, it is hard to find any that are more important than whether a job was completed properly.
Another factor that contributes to customer satisfaction is how well a service-oriented business presents itself. For instance, if a customer goes to a restaurant and is greeted by dirty floors and unkempt employees, it might not matter how good the food tastes. A bad appearance can lead the customer to expect poor service, leading to low satisfaction, even if the service was actually performed adequately. Likewise, a positive appearance can push customer satisfaction over the top or help turn a mediocre service experience into a good one.
How easily a customer can communicate and relate with the members of the service provider can also influence his or her overall satisfaction. When a name and a face are attached to a business, many customers naturally feel more connected to that provider. Furthermore, if a customer can relate to the employees performing a service for him or her, that customer is more likely to feel positive about the experience.