The importance of transparency in determining product quality

As I mentioned in my previous post, studying crypto-markets made me aware of the influence transparency can have on product quality. Here I want to outline a bit more why transparency is so important for product quality. I think that transparency can help customers better judge a product’s quality before buying the product itself. Let us take a look at how consumers generally judge a products quality ex-ante (before buying the product).

Imagine you are shopping for some oranges in a supermarket. In many western supermarkets you will most likely have several different orange brands to choose from. If you have never tried any of them, how do you choose? How can you determine the quality of the orange before buying it?

I made some observations and think there is a common theme in which we try to determine product quality before buying a product. I want to clarify these are my own observations, nothing based on scientific research.

Well normally the first thing you do is look at the brand, in this case the brand of the oranges. The way a product is packaged and branded often tells us what to expect from it. But is this really a good way to determine the product quality? I mean there is absolutely no correlation between branding and quality. Branding in the end all comes down to marketing / advertisement. You can advertise as much as you want to, your product is not going to become any better from that. Of course the perception of customers towards the product might change and thereby the perceived quality. But in absolute terms there is no connection.

An orange farmer might spend a lot of money to advertise his oranges, that does not mean they will taste any better. They can remain still as tasteless as before, he just fooled you into believing they were any better.

The next thing consumers look out for is the price. Generally a higher price is seen as an indicator for a better product. That is common knowledge in all big marketing departments. Well again the same problem remains as with the branding. Generally there is no correlation between price and quality. While I would agree that most quality products are more expensive than low quality products, quality does have its price. Yet I think there are many products out there priced high in order to give the appearance of quality. Especially if they are heavily marketed. These marketing costs need to be covered, which will be done through a higher price.

Comes in handy doesn’t it? High marketing = higher price. Both of them let the consumer think the product is of higher quality.

Branding information and price information are always available to a customer if he decides to buy a product. However as demonstrated these do not serve as good indicators for product quality.

Sometimes products have been certified by third parties to uphold certain quality standards. For example some oranges might be organically grown and hold a certificate that they are free of pesticides. Such a certificate can indicate a lot more about product quality then branding. Think about it, whether an orange is organically grown or not will have a direct outcome on the product itself.

However judging quality of products through certificates only work for products that are certified. Further what do most of the certificates mean? What does it mean if an orange is organically grown? Is it really free of any pesticides or just certain types of pesticides? What about other additives like nutrients? In most cases these certificates can give an indication but do not provide detailed information.

Which brings us to the next quality indicator, the production material. Material that goes into the production process will by its very nature affect the quality of the final product. Oranges are maybe not such a good example, lets take t-shirts. T-shirts quality is directly affected by the textiles used. A t-shirt will be of different quality if it is made of 100% cotton than a t-shirt made out of polyester. Luckily the fabric quality is usually advertised on the product itself. Yet the details often do not go much further than that.

While we can determine wether a product contains cotton, we often cannot determine what kind of cotton it is. Cotton is just cotton. It can be grown organically or full of pesticides. The dye can contain a lot of harmful chemicals or be perfectly healthy. We often just don’t know. If you think about it, the skin is our biggest organ. Clothes that are in constant contact with our skin and will affect our wellbeing if they are laced with poisonous chemicals. So actually knowing what materials were used can help us a lot in determining product quality. It is just information that is rarely available to us.

What will quite obviously affect product quality besides materials is the production process in itself. Consumers are often told which country the product comes from. We use this information to make certain assumptions about the production process. I think most consumers would say that a product Made in Germany will be of higher quality than one Made in China. On the simple basis that we assume workers are better trained in Germany and have higher quality standards than workers in China.

While we do know where a product was made, we don’t know much else about the production process itself. Let us go back to the oranges, if you can choose between oranges from the US or Israel, how much is that information really going to help you? Wouldn’t knowing when the oranges were harvested and for how long they have been kept on storage, help you a lot more in determining their quality? Oranges kept in storage for over half a year will most likely have very little nutritional value. But that is information you don’t get.

Lastly there are personal quality standards we each hold. These are sort of ethical standards that affect how we perceive a products quality. Many of us wouldn’t willingly buy products produced buy modern day slaves. Especially in my generation, the generation-Y, we have become very conscious to these soft/ethical factors. We try to avoid products that harm the environment too much and look out for fair worker treatment. Yet for most products such information is almost impossible to obtain.

How well were the workers who harvested the oranges really paid? Was child-labour involved or the environment overburdened? We just do not know, yet this information directly affects how we perceive a product.

As you can see there is still a lot more that could be done to improve transparency. The current way in which we determine product quality during our purchasing process is totally flawed. We mostly base our quality assumptions on factors that are not correlated to product quality. Factors that do have an effect on product quality like material or production process are often not available to us.

That needs to change!