28 ISE Magazine | www.iise.org/ISEmagazine
The impact of
quality on brand
and reputation
Finding the right balance to sustain value
and support the company’s bottom line
By Kaiwen Cheng
June 2019 | ISE Magazine 29
Many people say manage-
ment should care more
about quality because
a lack of quality could
damage brand image and
brand reputation. The
same group of people is also likely to say
that management has not done enough
to protect the brand.
Of course, I agree 100% that we
should protect the brand image and rep-
utation, but not all actions are justiable.
The No. 1 priority for management is
to sustain the business financially. It is
the responsibility of the professionals to
provide information that can help man-
agement justify its decisions. Therefore,
this is a “two-way” street between man-
agement and professionals. It is fair to
say that management relies on the qual-
ity professionals to demonstrate the rela-
tionship between brand and quality.
People take action only where there is
justification. I am certain most people in
business would tell you brand reputation
is critical, but having a sustainable busi-
ness is critical, too. Therefore, the bal-
ance between cost and brand is a critical
Using the iPhone 4 reception issue
back in 2010, as an example, it was cer-
tainly a brand image issue when people
were upset about having reception prob-
lems with the new phones. There were
tons of complaints and sales were suffer-
ing. It takes no effort for me to argue
this was a quality issue, because it was.
Should Apple have treated this as a
product quality issue and demanded that
engineers fix the phone? It seems logi-
cal. But how did CEO Steve Jobs fix the
problem? He told consumers, “You are
holding the phone wrong.
Surviving brand damage
The decision Jobs made to survive the
crisis during the 2010 launch was a bal-
ancing act between brand image and
cost. Lets re-examine this case.
Did the brand image get damaged?
Did the company choose to fix it? No.
30 ISE Magazine | www.iise.org/ISEmagazine
The impact of quality on brand and reputation
Would the cost have been very high
if the company had chosen to fix it? Yes.
Did Apple have a strong enough
brand that its customers were willing to
tolerate it? Yes.
Was the decision correct in the end?
Probably. After all, Apple went on to be-
come the company with the highest mar-
ket capital in 2018 for a short time, and
it was considered to be the most valuable
brand in 2018 (see Figure 1). My obser-
vation is that Apple paid the price on the
brand, but it still cost less than fixing it.
This is a good case where even if “it is the
right thing to do” to fix a quality issue, it
still may not be justiable.
Samsung’s premium Note 7 smart-
phone is a different good example. Its
faulty batteries caused fires when it was
introduced in 2017, a conrmed quality
issue that led to the global recall and re-
release of its phones. Samsung Electron-
ics Co. said its net profit fell 16.8% to
4.54 trillion Korean won ($4.0 billion)
in the third quarter of 2017. The compa-
ny’s mobile division reported its smallest
quarterly profit since it launched its first
Galaxy series phone more than six years
ago. The overall recall cost was reported
at $5.3 billion.
In this case, there was a clear cost as-
sociated with quality defect. It was too
bad the problem wasnt identified prior
to product release. Samsung took the
right approach with the recall before
more failures occurred. I can imagine
a Samsung quality engineer saying “the
global recall may be expensive, but it
is the right thing to do to prevent the
brand damage.” Due to the potential
safety concerns, the cost of damage
would have been too high to pay, and
the brand damage would have become
By looking at Samsung’s overall profit
and revenue right now, it is clear Sam-
sung reduced the brand damage with
a well justified but significant cost (see
Figure 2).
Brand value 101
The clear pattern between these exam-
ples is in the balance between the cost of
xing quality issues and potential brand
damage. Therefore, it is extremely valu-
able to develop a cost estimate of the po-
tential impact on brand value, even if it
is not precise.
But how? Start by ensuring your
organization has an understanding of
brand equity or brand valuation. ISO
10668 “Brand valuation – Require-
ments for monetary brand valuation” is
a great starting point that helps organi-
zations assess or understand their own
brand values.
A brand value can be assessed by three
different approaches: income approach,
market approach and cost approach. The
income approach primarily focuses on
assessment through evaluation of the
brand impact on sales, acquisition or
pricing that is reflected in cash flow. For
example, a premium brand such as Gu-
cci or Mercedes-Benz (see Figure 3) has
greater freedom in its pricing strategy to
Apple’s core success
The increasing brand value of Apple for a decade prior to 2018.
Samsung’s steady tune
The brand value of Samsung has risen slowly since 2009.
June 2019 | ISE Magazine 31
set higher prices. Such an advantage di-
rectly benefits a companys income level.
In other words, for two companies with
the same level of operating efficiency,
the premium brand would have a higher
profit margin.
The market approach compares
similar brands. Think housing market,
where your sales price is close to com-
parable houses sold in your neighbor-
hood. Therefore, businesses can use
deals among similar brands to establish
their own brand valuations. The cost
approach measures the value of a brand
based on the cost invested in building
the brand, its replacement cost or its re-
production cost.
In the Samsung Note 7 example, the
recall cost was reported as $5.3 billion.
Considering that the recall avoided po-
tential lawsuits resulting from human
and property damage, it prevented fur-
ther deterioration of its $59 billion brand
value. This cost estimate can be used as
the basis to conrm the brand valuation.
There are a lot of financial details in-
volved in properly dening a companys
brand equity, but for most, the focus
would just be on the concept of brand
valuation itself. If you plan to make a
point by using the brand image or brand
reputation as a justification for anything,
it would be a good idea to understand
how your investments or projects can
add value to the brand.
Leadership and brand image
Brand valuation studies have clearly
conrmed that a brand is an intangible
asset. Then why doesnt management
always take action to prevent damage to
its brand or reputation? The most logical
explanation is that it cant justify the cost
of action to prevent damage.
Here is a made-up example based on
my experiences. Let’s suppose Company
X is a supplier for a simple sheet metal
bracket. The risk of the application of
this bracket is low, and the worst-case
failure would result in customer dissat-
isfaction but will never hurt anyone. In
this example, the quality engineer iden-
tified that the newly produced brackets
had discoloration with slight dimension-
al defects. The appearance was poor, but
the bracket would assemble and function
without issue. Should leadership allow
them to inquire with their customer
about accepting these products?
There are at least two scenarios that
would lead to different approaches. Sce-
nario one: Company X understands it
is chosen based on price and this cus-
tomer is not one of Company Xs core
customers. In this case, the brand wont
have an impact on its future business be-
cause the decision was based on price.
Company X has a good chance to be
replaced by another low-cost supplier,
especially since there is low or no liabil-
ity for product failure. I am sure there
are many managers who would take the
chance and ask their customer to accept
subpar products.
Scenario two: Company X wants to
have a long-term relationship and grow
with this customer. It wants to be con-
sidered as the vendor for future business
with more complex parts and bigger
margins. In this case, the brand would
have an impact on future income. It
is important to build the image of the
company to be one that wont ship sub-
par products to their customers. In this
situation, leadership is likely to take ac-
tion and fix the problem to maintain the
brand image.
I use these scenarios to contrast deci-
sions. Taking action to protect the brand
is not only based on internal factors.
A companys brand can be influenced
by many external factors as well as the
strategic direction defined by the senior
leadership. To avoid frustration on why
leadership “is not doing the right thing,
you must understand the underlying
Pricey ride choices
Mercedes-Benz’s status as a premium brand gives it more flexibility in pricing strategy
than its competitors.
32 ISE Magazine | www.iise.org/ISEmagazine
The impact of quality on brand and reputation
drivers that influence the decision, espe-
cially when you have a desire to change
the course of action.
Action plan to build brand
Lets say you are a leader in your orga-
nization who wants to promote a qual-
ity culture to improve the brand. What
would you do? Below are few actions
that can increase your chance of success.
1. Identify if quality is a key element of
the brand.
2. Establish the multiplier for business
benefit estimation.
3. Utilize the multiplier to justify proj-
ects for improvement.
Identify if quality is a key ele-
ment of the brand. Quality is a mea-
sure of how closely our products and
services meet customers’ expectations.
Based on this denition, I believe ev-
eryone would say quality is for sure an
element of the brand. The reality is that
this is not universally true. If you realize
your company doesnt believe quality
should be a key element of the brand,
but you believe it should be, then my
only conclusion is you probably are in
the wrong company.
Establish the multiplier for busi-
ness benefit estimation. Using a
multiplier for project justification or
prioritization is more practical because
brand value is complicated to capture. A
multiplier is used against the tangible di-
rect benefits from each project or invest-
ment. Such benefits might include scrap
reduction, cycle reduction or inventory
reduction. The overall estimate benefit
would be calculated based on the tan-
gible benefit times the multiplier.
The logic behind this approach is each
employee can be directed to perform
value-added, routine or nonvalue-added
tasks. By investing in quality improve-
ment, we can refocus resources on tasks
that would add value for the company or
brand. There were academic studies stat-
ing the overall business benefits of qual-
ity projects could be six times as high as
the tangible benefits.
There is no practical
reason to lock in an ex-
act number for the mul-
tiplier. In general, most
managers expect their
employees to generate
benefits equaling one to
four times their salaries.
This is an easy concept
for management.
In my own case, we
presented the idea to
senior leadership. Their
answer was they believed
six times would be a rare
case, but four times is
acceptable. Since then,
four to six times has
been used as the mul-
tiplier to performance
sensitive analysis on po-
tential return on proj-
ects, which has acceler-
ated the project approval
process significantly.
Utilize the multi-
plier to justify proj-
ects for improve-
ment. After completion
of step 2, this becomes
very straightforward.
Again, you would want
to have a range of multipliers that is ac-
ceptable in your organization. The se-
lection of multiplier(s) within the range
would depend on the projected potential
and the condence. Therefore, once tan-
gible benefits have been identified, we
apply the multiplier(s) to dene actual
benefits to justify projects. Keep in mind
there is no substitution for having data
and concise communication to support
a justification.
In summary, professionals can be
more effective by understanding the fac-
tors of management decisions, especially
for quality professionals. The seemingly
right thing to do, such as protecting the
brand, may not bring tangible benefits
for business. The logic of brand evalua-
tion provides a tangible measurement as
a financial benchmark.
Such an approach would allow proj-
ects with intangible benefits, including
quality or brand image, to be compared
side by side with tangible projects. Since
management’s No. 1 priority is to ensure
nancial sustainability for the business,
this approach provides a transparent and
objective cost-benefit analysis without
ambiguous arguments.
Kaiwen Cheng is owner of KC Business
Consulting LLC in Denver, North Caroli-
na. He has a masters degree in industrial and
systems engineering from University of Mis-
souriColumbia. Cheng has over 20 years
of experience with Fortune 500 companies.
He is a certied Six Sigma black belt and an
IISE member.
Top-rated brands for 2019
Here are the top 25-ranked brands in Brandirectory’s
Global 500 2019 at https://brandirectory.com:
1. Amazon, United States, $187,905 million
2. Apple, United States, $153,634 million
3. Google, United States, $142,755 million
4. Microsoft, United States, $119,595 million
5. Samsung, South Korea, $91,282 million
6. AT&T, United States, $87,005 million
7. Facebook, United States, $83,202 million
8. ICBC, China, $79,823 million
9. Verizon, United States, $71,154 million
10. China Construction Bank, China, $69,742 million
11. Walmart, United States, $67,867 million
12. Huawei, China, $62,278 million
13. Mercedes, Germany, $60,355 million
14. Ping An, China, $57,626 million
15. China Mobile, China, $55,670 million
16. Agricultural Bank Of China, China, $55,040 million
17. Toyota, Japan, $52,291 million
18. State Grid, China, $51,292 million
19. Bank of China, China, $50,990 million
20. WeChat, China, $50,707 million
21. Tencent (QQ), China, $49,701 million
22. Home Depot, United States, $47,056 million
23. Taobao, China, $46,628 million
24. T (Deutsche Telekom), Germany, $46,259 million
25. Walt Disney, United States, $45,750 million