A Firm-Specific Analysis of Service Quality Costs

This article seeks to synthesise two disparate views of the cost of quality into one theory. The two views of quality are that higher quality costs more and that higher quality can eliminate certain costs thereby reducing total costs. The theory promulgated by this paper proposes that both views are true but each applies to a different dimension of quality. This theory is tested by examining the cost of improved quality of a truckload carrier\u27s customer service. A transcendental logarithmic cost function, which includes a variable for each dimension of quality, is estimated to test the hypotheses that the physical capacity dimension of quality is directly related to costs and the human performance dimension of quality is inversely related to costs. Results of this estimation support the two hypotheses and give carrier managers an idea of how much it should cost or save them to improve either of the two dimensions of service quality