Product, Service & Design Innovation
How to Solve the True Cost of 'Cheap'

Almost exactly 2 years ago I wrote about The True Cost of ‘Cheap.’ Last week a request came for more information: could you talk more about this issue and possible solutions?

Two years ago I focused on Total Cost of Quality issues and advocated we begin to include social cost in our Cost of Quality measures. The basic premise is actually a Six Sigma principle — if you can't shift the mean, shift the goal.

Needless to say, many told me I had no clue about business and should stick with abstract economics (grin). Others said there is no way to include social costs and still manufacture a product that is even remotely affordable.

For those new to the debate, you are probably wondering, what costs are so astronomical that they would make a product un-affordable?

Let us look at one particular consumer product a sizable global number of us have become addicted to: smartphones.

This video from CNN explains multiple aspects of the issue, namely "The true cost of our cheap gadgets":

On the one hand, some say the only solution is to buy fewer electronics. However, the reality of the modern consumer is, the desire for "new and trendy" changes faster than planned obsolescence. Don't believe me? Back in the 1990s, if you had a 5-year-old phone people would say, are you thinking of changing it? Mostly because the buttons were worn out. Jump to 2015 and you think the Fashion Police might be called if you pull out a phone that is 2 years old. You can push these phones longer than 2 years (I know, grin ...).

Whether it is due to fashion trends or planned obsolescence, discarded objects create waste and there is a lot we can do to reduce this waste.

Another thing we can do is look at product reports. Yes, there is an ethical consumer guide which gets its name not because it is more or less ethical than other consumer guides but because it is specifically designed to address the information needs of consumers who want to spend on ethical products.

Does consumer pressure matter? Yes, it does. Here is an excerpt from the ethical consumer guide:

"In 2010 the United States Congress passed a regulation under the Dodd-Frank Act. Section 1502 of the Act has been hailed as a landmark piece of legislation that aims to disrupt the trade in Congolese conflict minerals. The law requires US publicly-listed companies who use tin, tantalum, tungsten (3Ts) or gold to find out whether their purchases are inadvertently funding armed groups in the DRC. It has impacted the way that “companies scrutinise their supply chains and has catalysed important reforms in eastern DRC and neighbouring countries.”...**"What’s changed in the DRC?

The effect of the legislation is already visible in the DRC, according to research carried out by the Enough Project in June 2014. Through on-the-ground research over five months the research organisation found that:

Armed groups and the Congolese Army were no longer present at two-thirds of 3Ts mines surveyed in eastern Congo’s Kivu and Maniema provinces. Before the Dodd-Frank Act (in the Kivu provinces), almost every mining deposit was controlled by a military group.

The Dodd-Frank Act and electronics industry audits have created a two-tier market for 3Ts from the DRC. The Enough Project found that minerals that did not go through conflict-free programmes sold for 30% to 60% less, thus reducing profits for armed groups trying to sell them...."

Score so far: Consumer 1, Government 1, Business 0.

But, wait! What if, instead of worrying about what consumers think, business took the lead and designed products to solve the problem? What if we designed our smartphones to be so smart they don't use the bad stuff?

Before you accuse me of business fiction, again (grin), take a look at a startup firm from the Netherlands: Fairphone.

Fairphone's revolution? It has leveraged existing human rights monitoring networks and integrated them into its supply chain. In addition, it has designed a phone that is built for disassembly (by the consumer/end user) so you can recycle the parts that are really worn out and keep the parts you can still use.

See founder Bas van Abel's speech at TEDx Amsterdam 2013:

Is everyone thrilled? Some reviewers say that €525 ($590) is not worth the price. Ok, but people are buying $600 iPhones.

At the very least, it’s clear that there is not an astronomical price difference that makes an ethical smartphone completely unaffordable.

New Score: Consumer 1, Government 1, Business 1.

Regarding what is worth the price, I leave you with this question: If this were your child and the choice was Fairphone or iPhone, which phone would you prefer?