Updated: Oct 6, 2020
Selling jewellery products is difficult; there is no denying that. Understanding what the market wants and how much the market is ready to pay for that, is an art on its own. Generally speaking, we use a more sophisticated version of the basic bottom up approach (material + labor costs + mark up = selling price) adding various costs into consideration, such as development, logistics, rent, wages, currency rates, materials cost variations, insurances, loans interests… Depending on which phase of development and resources your brand is at, the approach will be different as the overhead costs increase.
This small article is not a pricing course, in fact there are many people much better placed than I do to talk about pricing methodology. However, when it comes to the jewellery supply chain, if there is one thing that I know, is that you are most likely loosing or going to loose money with one or more of your products; and it could very well be your best seller for that matter. As outrageous as it might sound, there are things that might just slip through your attention as everybody is busy piloting their brands’ through turbulent times. This is also the reason why no company is perfect and there is always room for improvement. Which is probably also the fun of it.
As a service supplier for high-end quality jewellery brands, we have controlled hundreds of thousands of products in Europe and Asia and the resulting observation is the same: quality and trust are costing a LOT of money to both the brands and their manufacturers because of hidden costs within the production lines and logistics.
Here is a quick study of two ways a lack of trust with the products' quality and actual quality issues are costing so much to brands.
1- Direct Damages
The first and obvious case is when a product is defective and is sold as is to consumers. After a while, the consumer comes back, unhappy and as we, humans, are more at ease to share things we are not happy with and are also more inclined to listen to negativity, a unhappy consumer can quickly, thanks to social medias, converts dozens, hundreds or even more potential consumers into lost opportunities for your brand. These numbers may never be calculable however, we can argue that for every One unhappy customer you would loose multiple potentially serious buyers.
" 1. When customers are unhappy, there's a 91 percent chance they won't do business with a company again (Lee Resources).
2. Dissatisfied customers typically tell nine to 15 other people about their experience; some tell 20 or more (White House Office of Consumer Affairs)."
Further in the same article:
- It takes roughly 40 positive customer experiences to undo the damage of a single negative review. The ratio is derived from a combination of human behavior, math, and logic. Here's how I discovered it:
- A customer who has a negative experience is highly likely to share that experience by leaving a bad review.
- A customer who has a positive experience, on the other hand, is unlikely to leave a good review. In my experience, only one in 10 happy customers leaves a good review.
- Your company or product rating (typically out of five stars) reflects an overall average of good and bad reviews. So if your goal is to maintain an overall rating of four stars, you'll need four five-star reviews to make up for every one-star review.
- Assuming that only one of every 10 happy customers leaves a positive five-star review, and knowing that it takes four five-star reviews to make up for each one-star review, you can figure it takes 40 positive customer experiences to make up for a single bad review."
I have absolutely no doubt that you have already well considered the direct damages of quality as it is a no brainer so I won’t even dare talking longer about it. Things start to get interesting with the second case.
2- Sneaky losses
The second case is when a defective product is shipped to your brand and spotted during a quality check. The potential damages with your customers are averted, all good! Or, is it really? The reason these expenses comes in often unnoticed is because they fall into different accounting categories. These are not listed in the "production costs" per se but rather in logistics, transportation, customs fees and wages.
Here is the list of what does defective products cost to a brand when they are spotted at the headquarters, we will talk only about the cost in time as the freight costs are more straight forward and you surely already have them in mind:
Shipping and insurance to carry the goods from the manufacturer to you (from a couple of hours to a couple of days)
Idling time spent in the company safe before being processed (from several hours to a couple of days)
Actual quality check i.e. the necessity to have dedicated staff, in-house, to control the products (from several hours to a couple of days)
Separating the defective goods and determining whether to fix it locally or send back to the seller. Either way, paperworks is going to be necessary to process the jewellery pieces. (half an hour)
Fixing locally means that you obviously have running costs that you can study to estimate you cost per product.
If you return the product, the list above just simply goes backward and back to you as below and all the costs are multiplied and added up.
Quality check outcome: return the goods
Idling time before processing (from several hours to a couple of days)
Shipping + insurance (most likely with a more expensive per piece ratio)
Fixing (several hours to several days processing)
Shipping + insurance (again)
Idling time before processing (again)
Quality check (again)
Now, the number one objection that comes to mind is: When products are defective, the manufacturer will pay for all the incurred costs. Well, in a way yes, except that
- if the costs do not fall upon the brand, they fall upon the manufacturer. So naturally, manufacturers will also consider these extra expenses in their client's account for further quotations as a normal expected cost of operations.
- As your product is not on the market it represents a lost opportunity for the brand.
So, to summarise, a defective product is a loose-loose situation that both sides are going to pay one way or another. Therefore, a rejected product, no matter its value, will not only cost a ridiculous amount worth of shipping and insurance fees, it also costs on the long term with your manufacturer's relationship and costs days worth of work to your team at your headquarters.
Now, what to do with all of that will you ask. Well, no matter which stage you are at with your business, perfect quality of jewellery pieces is seldom reached. If it is not because of the actual production methods, it is very often due to product manipulation. I will talk about this in another article as this one is starting to be a bit long but keep in mind that the more you touch the product, the more it is likely to be damaged. So my piece of advice is the following, quality control or quality inspection, whichever terms you prefer, should always be conducted on-site, at your manufacturer’s premises. If you cannot do it yourself, have someone else do it. There are freelancers and companies for that, including Coradam.
Doing so, will benefit your companies in many ways, financially of course but also reputation wise, agility wise (faster product turnaround or just in time production) and quality wise (as the quality naturally increases over time when the right setup is in place). Reputation, agility and quality are difficult to quantify or estimate but one thing is for sure, they cost you a lot of money. Improving them means decreasing your overhead and increasing your profit margin without even the need to sell more products.
Hope this little study either triggered your curiosity, I am happy to hear about your thoughts or questions on the topic here: firstname.lastname@example.org
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