Marketplace quality is related to market share. It’s how much people want to use your product. Your market share may be small because you’re just starting out, or you have limited supplies, or you’re pursuing a limited niche. But market quality measures how much your position in the marketplace is dictated by something other than a low price.
Among food stores, Whole Foods is trying to have a quality image that allows it to charge a higher price. In electronics, Apple has deliberately focused on high-end smartphones, preferring to keep its brand associated with innovation and quality.
The consumer is the great evaluator: if a product doesn’t offer a unique value proposition—either low prices or a specialized function or elegant design, it doesn’t survive very long. Marketplace quality is hard to measure, but if a firm has a recognizable brand that they willing to defend against cheap knock-offs, that indicates that they have something worthwhile.
Gucci’s saying—“Quality is remembered long after the price is forgotten”—holds true in the marketplace of goods, services, ideas, and stocks. And a company that devotes its resources to continually improving the quality of its offerings will do better—even if those investments are never explicitly recognized.
Because when you’re out of quality, you’re out of business.
Douglas R. Tengdin, CFA
Chief Investment Officer