The Influence of Product Quality

4084 Words17 Pages
1 Introduction “Shares in Toyota Motor Corporation fell for the sixth straight day on Friday as the world's top automaker's problems intensified over a recall of millions of vehi-cles due to faulty accelerator pedals and floor mats.” This current example shows that the announcement by Toyota leads to a direct reaction on the stock market. Toyota signals product quality problems and the stock price falls. This illustrates that investors respond directly to new information about firm´s product quality. Traditionally, marketing activities focus on success in the product marketplace, but now marketers are moving to assess the impact of marketing activities on shareholder (firm) value. Thus investors receive an increasingly larger role in the development and implementation of marketing plans. They react to changes in important marketing assets and actions that are believed to change the expecta-tions of future cash flows. For instance, this outlook of future cash flows is based on the perceived product quality. Nevertheless, it is difficult for firms to define, measure and assess product quality. Therefore they systematically undervalue the importance of quality. A better understanding of how product quality impacts shareholder value, which is typically measures by stock returns, is needed. In re-sponse, this paper makes a contribution to this topic by pursuing the following guiding question: (a) What is already known regarding the linkage between prod-uct quality and firm value? (b) How can findings be classified? (c) Where is current research insufficient and offers possible areas for future research? First of all, the author explains and differentiates product quality and firm value. Based on this understanding, the author reviews the linkage between product quality and firm value by means of an organizing framework. In the course of this, three main factors

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