[SOUND]. Welcome to this module about Quality and Consumers. My name is Carlo Russo, and I'm a professor of cultural economics, other part of economics added at the Cassino and Lazio. This module is divided into 2 lessons. In lesson 1 we define quality and consumer value. In lesson 2 we review the key strategy for its been used to check value for consumers. Here is a movie theater roadmap of this model would concept is How do we get from quality to profits. To learn the basic principle we start lesson one with definition of quality then we study how consumers behave where food quality is important. Their decisions are driven by the search of value. We will explore the link between value and utility. You listen to, we change perspective as we switch the design of the firm. First we use what we learned to understand how firms compete to provide value to consumers, and then how firms use consumers to create value for the shareholder for profits. After completing lesson one, you will achieve three key learning objective. You will be able to define quality, explain consumer choices when quality is important, and explain the link between quality and value. So let's start with Lesson 1. We will cover three topics. To the finish of quality consumer choice and consumer value so let's start from the basics to main definitions of quality nurture. The first one is this on the notion of absence of the facts a process of quality product if it's free of defects It's exactly what we expect it to be. This definition is connected with the idea of standardization. We have an ideal product, standard, and the quality product is one that is as close as possible to the standard. This definition is after using food commodity markets. For example, a tomato trader ask for tomatoes of a given size and color. The closer to deliver to that is R. To whether the quest is standard, the higher the quality. Our alternative definition is centered around what the product best for the consumers. And product is a quality product if it satisfies consumers needs. Whatever they are. So they say that beauty is in the eye of the beholder. But we can say that quality is in the eye of the consumers. This is a marketing perspective. Quality is whatever a consumer likes and is willing to pay for. In this module, we focus on the latter definition. So, let's look at it in detail. The definition really lies on two broken concepts. A food product has a set of feature and characteristics, becomes called this the Bundle of Attributes. Where attributes is a collective name for all the things that satisfy customers. For example, I have placed a lot of attributes taste with a sugar content, healthiness, with vitamin and fiber content, crispness, freshness, color and so on. We can say that the product is a bundle of attributes. This means that for a marketing perspective we care about the product only because it's bundle of attributes. We buy an apple, not because we want an apple per se, but because we want something tasty, healthy, crispy, fresh and colorful. An apple is a product giving us all those characteristics and attributes. Quality as a direct link to consumer needs, otherwise known as their utility. A quality product offers consumers a bundle of attributes that allow them to obtain a higher level of utility. This is an important point. It leads us to a key concept, the consumer's willingness to pay for quality. Consumers are willing to pay more for a quality product because of the better bundle of attributes. This means because it brings more utility than a low quality product. Let's recap the collective findings so far. They are the building blocks for out further discussion. The key messages here are products are important to us because they are they way we obtain attributes. This is why we say that a product is about the attributes. A product carries more than one attribute and usually one attribute can be found in more than one more product. For example, oranges are tasty, healthy, and fresh, just like apples. This means that a consumer can mix and match products in order to obtain exactly the desired combination of attributes. But please note that products are not important per se. They are just the means the consumer has to obtain the attributes they want. So consumers buy and they are willing to pay products only because of the attributes. This means that the more desired attributes a product carries, the more a consumer is willing to pay for it. Assume, for example, a consumer that is interested in crispness, healthiness. Holding everything else constant, he or she is willing to pay more for a fresh apple than for a processed one. Note that this not mean that the price of the processed apple is lower. Other factor concur in their main market prices. For example production cost influences price as well. But it means if the two types of are offered for the same price, the consumer chooses the fresh one. A key objective of this module is to investigate the link between quality and profits. The link between the two concept is the firm strategy. That is the set of decision and concept and action governing the action and interaction with the firm, with the consumers. A firm offering a product with a given set of produce plans and other takes action in order to maximize the profit from sales. Note that the relationship is a circle. The profits can be invested in research and development aiming at improving quality. In principle, this implies an update in the strategy and possibly their non-profits. For example, [INAUDIBLE] is very important in Italian wine industry. Mainly, wine makers, especially in southern Italy were sending low quality wine to local retailers. At some point they decide to invest the profit in quality improvements and move to a higher dollar market segment. In practice the connection between quality and profits in consumer willingness to pay for quality. Given a quality product, consumer is willing to pay more for it because it grants higher satisfaction or utility. This is an opportunity to gain even higher profits is opportunity can be exploited only with an appropriate strategy. The basic idea is simple and the dissection, we go further into detail starting with the more accurate modelling of consumer choice. But before, now please take one moment for few questions.