Where’s the Beef? Quality and responsibility

In the horsemeat scandal that seems to have over-run the British media – and the country’s supermarket shelves – over the last few weeks, the puns have almost written themselves. If you’re the brand name now associated with horse lasagne, however, it’s probably neigh laughing matter.

Even Harvard Business Blogs has been moved to comment:

We live in a world of complicated, global value chains, with a myriad of participants in increasingly interdependent ecosystems. Simple, vertically integrated structures, responsible for all parts of the value chain are becoming a thing of the past. For more and more products — from simple ones like a cup of coffee to complex devices like smartphones and tablets — you find a bewildering plethora of firms (let’s call them ecosystem participants) coming together to give something to the final customer.

In these complicated ecosystems the question of who guarantees quality is absolutely pivotal.”

From the perspective of business owners – especially where the costs of quality control, testing, legal expenses and so on are concerned – this is undeniably true. Controlling and retaining responsibility for quality is, as the article points out, an important strategic lever. Supermarkets who control their own supply chain (and their own livestock and abattoirs) are likely to emerge with better reputations.

As MarketingWeek pointed out, two brands – Tesco and Findus – have taken a large reputational hit since the scandal broke. Yet, with the exception of Morrisons – which has run press campaigns to stress its meat is sourced entirely from UK farms – the same is true to a lesser extent of competitors too.

Turning to MarketingWeek’s data source – YouGov – shows the reactions of consumers, but also shows where they are placing responsibility.

  • 46% blame meat processing companies
  • 26% blame food manufacturing companies
  • 11% blame supermarkets
  • 6% blame the government
  • 8% aren’t sure

As HBR pointed out, there are more potential puns thanhorseplay afoot: being prepared to swallow liabilities is perhaps the most salient. YouGov’s figures don’t reveal a widescale public intention to change supermarkets or shopping habits – nearly 40% of us would be prepared to eat reliably sourced (and properly labelled) horsemeat. Nor do they reveal the sales fates of individual brands (although, as the Guardian has reported, Findus’ shoes are perhaps the ones of all the runners and riders that you’d perhaps be keenest to avoid wearing this season).

There is also, I suspect, a more complex undercurrent at work, where quality, brand reputation, cost control and globalisation meet – at which point they also encounter trust. While HBR cite a research paper that compares the automotive and computer industries, I thought about something else that combines manufacture, sourcing and emotional attachment: music instruments. Major US guitar manufacturers, like many industries, have tackled high Western labour costs by outsourcing manufacturing first to Japan and Mexico, then Indonesia and Korea and now to China. While those with whose spending power and patriotism combine to fund their desires, they continue to purchase US-manufactured and assembled instruments. Others tailor their purchases to their pockets, but also factor in sentiment: it is striking how much American online comment is reluctant to purchase imported product.

But the element of trust is also at play here. Instruments with bodies and necks carved/turned overseas but fitted with US hardware are held in higher esteem. Those returned to the US for final assembly and set-up gain additional kudos: the trust in US quality control procedures adds perceived value, and – as HBR argue in relation to other industries – strategic retention of responsibility has hitherto been reimbursed by higher ticket values. Yet this strategy is now failing for a different set of reasons: decline in real incomes is making price a more sensitive pressure point, and quality control in overseas manufacturing locations is advancing to the point where the quality argument is no longer cut and dried. The value added by retaining quality control of the ‘diffusion’ line is outweighed by the opportunity cost of removing resources from applying quality control to the premium alternative: basically, if you’re adding 10% additional value, add it to something that was worth more in the first place.

Perhaps an undocumented public understanding of the interplay between complex business supply eco-systems and the price that we are prepared to pay and the quality we assume we are getting goes some way to explaining the surprising small change in British shoppers’ habits for all the media furore. At some level, we all understand that we get what we pay for: if we’re prepared to pay horsemeat prices for beef, the shock is perhaps not so much at the unexpected aftertaste as at an industry that is so easily fooled by rogue suppliers or frauds as inadequate checks are in place. How the scandal has happened is as important as its nature.

The price we’re willing to pay has identified what kind of shopper we are: the question becomes what we’re prepared to swallow. As YouGov’s figures show, many of us would be happy to eat horse as long as it was correctly labelled: the losers here are those repelled by meals they’ve consumed that were not as suggested, and those who have signed away their ability to rapidly restore consumer trust. For some companies, that horse has quite possibly already bolted.

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